UK taxman killed off Tartan Tax

THE Scottish Government could not have implemented the Tartan Tax even if it wanted to because the revenue authorities were unable to collect it, new documents have revealed.

• Swinney: powerless to act

The power to vary income tax by up to 3p in the pound was granted to the parliament in the devolution referendum in 1997. But the documents show that, after the 2007 election, the incoming SNP administration would not have been able to implement it because of major problems and delays in a new computerised collection system being introduced by Her Majesty's Revenue and Customs (HMRC).

The flaws mean that the Tartan Tax - a key devolved power - will not be available to ministers until 2013 at the earliest.

The documents, released under Freedom of Information legislation, throw new light on the controversy over the Tartan Tax that threatened John Swinney's position as finance secretary in November.

He was carpeted by the opposition for concealing from parliament that he had taken a decision not to make payments that would have maintained the Tartan Tax system in a state of readiness to be implemented by the government within a ten-month timescale.

However, the FoI documents show that even if Swinney had made the payments, the Tartan Tax could not have been put into place.

HMRC officials are shown apologising to their Scottish officials for the delays, and expressing relief that the Scottish Government was not planning to use the tax and so bring the fact it was unavailable out into the open. The fresh developments come as MSPs begin an inquiry this week into the affair which exploded into the public arena in November when it emerged the tax-power was unavailable for use.

SNP critics last night said it placed fresh doubts over new reforms, backed by the Conservative-Liberal Democrat government, under which a new Scottish income tax rate will be introduced and administered by the HMRC.

The Tartan Tax system was in a state of readiness between 1999 and 2007 when the HMRC said its IT systems needed a 3.3 million upgrade. On 22 February, 2007, HMRC declared that "the confidence is very high that the ten-month commitment could be met".

Two months ago, Swinney was forced to apologise for not informing parliament that, in 2007, after the May election, he had decided not to pay HMRC to keep the tax "ready for use".

Instead, he asked HMRC to ensure it was available for after this year's election. But the new documents show that HMRC was unable even to carry out this plan, as work updating Scottish tax records became bogged down by changes to the revenue's computer systems.

After Swinney had asked for the tax power to be made ready for use in 2011, Scottish officials chased up HMRC in the summer of 2008 to find out how progress was going.

In July, HMRC official Ron Powell wrote back.

"I am sorry it has taken so long to get back to you and am grateful for your forbearance, which I am afraid needs to continue."

HMRC warned the IT system upgrade - necessary for PAYE administration - had been delayed until an unspecified date. "We are in a state of limbo. It is, however, some comfort that your ministers have no plans to implement SVR in the current parliament".

In parliament last year, Swinney said he "was not blaming" HMRC for the delays in sorting out its administration, however the e-mails show that the Scottish Government's then director of finance, Alyson Stafford, sent a sharply-worded letter to HMRC director Mike Shipp about the delays.

"Scottish ministers would expect the infrastructure to continue to be available to Scotland and maintained in a sufficient state of readiness …should ministers choose to implement it," she declared.

Then, in 2009, Swinney asked his civil servants: "What were the implications for the Scottish Government of not paying the maintenance payments after July 2007?"

The reply, from finance department official Sandra Stewart, it did not "seem to have made any difference" as "HMRC have, frankly, not been in a position where they could make any undertakings about their readiness to implement SVR (Standard Variable Rate]".

In other words, Scottish officials were of the view that even if Swinney had paid over sums to keep the tax power ready for use, HMRC's subsequent delays would have meant he couldn't have used it.

The Scottish Government claimed last night that the papers vindicated its approach to the row. A spokesman said: "The power has not lapsed, the HMRC simply does not have an IT system capable of delivering a ten-month state of readiness." He added: "These papers illustrate the rapidly increasing costs associated with HMRC's work to maintain the infrastructure for the SVR. They provide stark evidence that simply keeping up the payments of 50,000 would have been completely insufficient to maintain the state of readiness - as we have always made clear."

However, Labour's constitutional affairs spokeswoman Pauline McNeill said: "The essential point is that the finance secretary John Swinney kept all of this a secret. He deliberately chose not to inform parliament about what was going on and, in fact, misled MSPs by saying that the tax power was available to the Scottish Government when it was not."