Scottish independence: Tax powers main plank of ‘more devo’ plan

A NEW blueprint for extended devolution which could form part of Labour’s offer to voters following a “no” vote to independence will recommend that the power to set income tax is fully transferred to Scotland.

The extensive report, to be published by the influential IPPR think-tank this week, will also suggest that a share of Scottish VAT revenues and the cash generated in Scotland from taxes on alcohol and tobacco should also be handed directly to the Scottish Government. The report, written by leading devolution expert and academic Alan Trench, says the original 1999 devolution settlement is “clearly no longer sustainable”, limiting the accountability of MSPs, and tying Scotland’s public services to the same deal as those in England.

He argues that to correct that problem, around 60 per cent of the money that Scottish ministers currently spend on schools, hospitals and transport should come directly from Scottish tax revenue – around £22 ­billion.

However, the report does not back the devolution of corporation tax or oil revenues, on the grounds it would add “volatility” to the Scottish Government exchequer, and damage the “integrity” of the UK.

That prompted the SNP last night to argue that only independence would give Scottish people the necessary “control of our own resources”.

The report is significant as the Institute for Public Policy Research is close to the Labour party. Scottish leader Johann Lamont is preparing to unveil an interim report on reforming devolution this spring. Senior party sources said last night they were interested in the plan to devolve all income tax powers to MSPs, with one front-bencher saying it was the “obvious” next step to take, if independence is rejected.

Writing in Scotland on Sunday today, Trench and IPPR director Guy Lodge warn Labour that unless it spells out a clear plan prior to the 2014 referendum, it is “possible that some voters will be tempted to back independence”.

Lodge said last night: “It is essential that those political parties that want to keep Scotland in the United Kingdom provide voters in Scotland with a clear alternative to independence before the referendum in 2014. Scots strongly support devolution and want more of it.”

The report’s central recommendation is to devolve income tax completely – including the ability to change rates and set personal allowances as MSPs see fit. This would at a stroke give them power over around £10bn of tax revenues.

The report also backs handing ministers around half of Scotland’s VAT revenue, and the tax income from tobacco and alcohol duties, which together amount to a further £6.6bn. However, this cash would be “assigned”, meaning that Westminster would retain the ability to set the rate, with Scottish ministers then being apportioned the country’s share. The report also backs the devolution of air passenger duty, worth £183 million.

Together, the package would mean that 6 per cent of Scottish Government spending would come from the country’s tax base, with 42 per cent of its spending coming from wholly devolved taxes. It argues the remainder should continue to come from a grant from the UK Government.

Trench argues that the new devolution plan could be adopted by Wales and Northern Ireland as well, so that the nations of the UK can “respond to calls for greater self-government and policy differentiation, but also show in practical ways what the Union as a whole does for citizens in each part of it”.

A Labour Party spokesman said last night: “I look forward to the proposals from the IPPR and we hope to meet with them in the coming weeks.”

However, Deputy First Minister Nicola Sturgeon last night said: “The only way Scotland can achieve control of our own resources – and gain the powers that we need to grow the economy, create jobs, and have a fair welfare state – is to vote yes in next year’s referendum.”