‘Pick ‘n’ mix’ devolution could turn ‘messy’

Lord Smith of Kelvin launches the Heads of Agreement with members of the five main Holyrood political parties in November. Picture: Alex Hewitt

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THE “pick ’n’ mix” deal on new post-referendum powers for Scotland could turn “messy” and leave Holyrood unable to deliver radical change, economic and tax experts have warned.

The flagship Smith Commission proposals to hand some taxes to the Scottish Parliament – and leave others at Westminster – is a recipe for conflict between the Scottish and UK governments, MSPs were told yesterday.

And Scots will be left in the dark over which taxes are Scottish in future, according to accountancy chiefs.

The UK Government last month published legislation to enact the recent Smith agreement on more powers over tax and welfare for Scotland.

It followed “the vow” made by the main pro-Union party leaders in the final days of the referendum campaign to devolve sweeping new powers to Scotland after a No vote.

Economist Professor Anton Muscatelli, the principal of Glasgow University, told Holyrood’s devolution committee that he had concerns about the deal.

“I do think that will create and potentially lead to tensions going forward, so how that is managed within future legislation will be hugely important,” he said.

Prof Muscatelli said national insurance is part of the “overall tax structure” and Scotland’s budget would effectively be cut if this is lowered UK-wide.

“By not devolving national insurance, I think it creates the potential for conflict and it will impact on the Scottish tax base.”

Similarly, if the UK Government cuts the personal allowance – a tax hike – Scotland could respond by introducing a zero tax rate to cover such a change and effectively it out.

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But Prof Muscatelli said: “It would force Scotland’s hand and this where it gets a bit messy by not devolving the personal allowance.”

Charlotte Barbour, head of taxation at the Institute of Chartered Accountants in Scotland, said the package offers Holyrood a “variety of taxes”.

Scotland will get control over income tax bands, but not the personal allowance or national insurance. Air passenger duty and the aggregates levy will be devolved, while Holyrood will be “assigned” half of VAT revenues raised in Scotland. But there will be “joint responsibilities”, with Westminster still in control of HMRC which collects all revenues.

Ms Barbour said: “I’m not sure a lot of people amongst the public have a full understanding of what Scottish taxes are.

“It’s very difficult to pull any one part of the UK taxes apart.”

The “interaction” between devolved and reserved tax would limit Holyrood’s ability to deliver meaningful change, it was claimed. Ms Barbour said: “I don’t think there’s a lot of scope to radically change what you’ve got here.”