Labour will move to return Scots VAT to Holyrood

LABOUR is to attempt to restructure the UK’s finances by having all VAT raised on goods in Scotland handed over to Holyrood.

Scotland on Sunday has learned that Labour’s shadow Scottish Secretary, Ian Murray, has drawn up an amendment to the Scotland Bill which would assign all of the £9 billion raised on sales in Scotland to be spent on services north of the Border.

The amendment was meant to have been tabled last week for the report stage of the bill to devolve more powers to 
Holyrood, which is expected to take place in the autumn, but still needs to be signed off by the party’s Treasury team headed by shadow Chancellor Chris Leslie.

The move has come amid concerns within Labour that the bill fails to deliver the Smith Commission proposals on VAT.

While the commission chaired by Lord Smith of Kelvin and made up of representatives from the SNP, Labour, the Tories, Greens and Liberal Democrats agreed that 50 per cent of VAT should be assigned to Holyrood, the bill only reserves 10p out of the 20p tax for every pound to Scotland. This would mean that if VAT was to increase it would leave Scotland with less than the 50 per cent raised north of the Border.

Scottish Labour now believes that the simplest solution is to assign all of VAT, which would also provide the maximum incentive to Holyrood to grow the economy and support businesses.

While it would be worth around £9 billion based on the current VAT take in Scotland, it would also mean that Scotland would lose a larger portion of the Barnett Formula share which has underpinned its finances.

Explaining the proposal, a Labour source said: “We want to see the Scotland Bill go further than it currently does. We’re looking now at how we can give Holyrood power over £5bn more spending, by assigning all of the revenues from VAT.

“Scotland would get all the money raised from VAT and could decide how to spend it. There’s no good reason why we should only stop at 50 per cent.”

During Scottish questions last week, Scottish Secretary David Mundell said he would be bringing “substantive changes” to the much-criticised Scotland Bill in the report stage in the Commons and hinted at further amendments in the Lords.

Labour and the SNP are also hoping that Mundell will consider major changes to the welfare section to deliver the Smith Commission proposal to allow Holyrood to top up all existing benefits including pensions and create new ones it sees as necessary.

The Labour plan for assigning all of VAT is part of a complex proposal to fund extra welfare powers in Scotland.

Labour’s move comes as Mundell renews his demands that SNP ministers spell out what they want to do with extra welfare powers and urged Scottish ministers to share their plans with their UK counterparts in order that both governments could work together to help the Scottish people.

Speaking before a joint meeting on welfare between UK and Scottish Government ministers last week, Mundell said: “If we are to provide the best possible service for people then Holyrood ministers need to start sharing their plans instead of looking for contrived complaints on the process.”