O’Donnell speaks out on Scots independent tax system

Lord O'Donnell: Singled out winter fuel allowance. Picture: PA
Lord O'Donnell: Singled out winter fuel allowance. Picture: PA
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THE former head of the UK civil service has slammed the country’s “bonkers” fiscal system that pays benefits to retired millionaires in the Mediterranean.

Lord O’Donnell, who was Cabinet secretary when David Cameron took office in 2011, was speaking in Glasgow on the potential for changes in the event of a Yes vote to independence next autumn.

A Scottish state, he said, could start from scratch with a new tax and benefits system that ended what he said were indefensible anomalies in the current set-up. However, he added, politicians would still face pressure from lobbying groups and voter interests to maintain current benefits.

He singled out for criticism changes to the winter fuel allowance introduced by Gordon Brown in 2008, which give £200 to over-seventies and £300 to over-eighties to help with bills.

The payments – along with other universal payments such as free bus passes and prescriptions – have been criticised, as they are the same for everyone, whatever their income.

Examining potential reforms that could kick in after Scottish independence, Lord O’Donnell said: “There are lots of areas where that freedom could be used for better or for worse. If you look at the UK fiscal system, is it a perfect system? Is the Pope a Catholic?”

He added: “Our tax system has aspects to it that would be quite hard to defend. When I think about paying winter fuel allowance to millionaires who have retired to the Costa Brava, is that sensible? No.

“I have a very long list of policies that are, I think the technical term is bonkers.”

He went on: “There are certainly things with a clean sheet of paper we could do a lot better. The question you need to decide is whether one political system could come up with better answers than another. We are a long way away from having a good tax system, let alone an optimal one. There’s lots of scope for progress there.”

His comments come as the Scottish Government’s Fiscal Commission studies a new tax system for an independent country, based on recommendations by economist Sir James Mirrlees. In his review of the tax system published in 2011, Sir James called for a complete overhaul, and backed council tax revaluation and the scrapping of National Insurance.

However, no party in government has taken on those radical reforms. The SNP has pledged to keep popular but expensive policies such as the council tax freeze, free bus passes for over-sixties and free prescriptions.

Lord O’Donnell – known by the acronym “God” – was the most senior civil servant in the country before leaving government last year. He oversaw the last major constitutional challenge facing the UK after the previous general election resulted in a coalition government.

He was speaking at the launch of Scotland’s Future, a book on independence edited by the former chief economist at the Scottish Government, Professor Andrew Goudie.