Don’t use the Tax Responsibility Trap

Today the Scottish Parliament officially take on the so called significant new tax powers with the formal transfer of control from Westminster.

Scottish Finance Secretary Derek Mackay said: “We welcome these legislative steps which will increase the Scottish Parliament’s powers over income tax from next year. The new powers will allow us to design an approach to taxation which will suit Scotland’s needs, balancing the need to invest with the recognition that many households are facing difficult economic challenges. “As we set out earlier this year, our income tax proposals for 2017/18 will aim to protect lower-income taxpayers and generate extra revenue for us to invest in public services.”

Let’s be clear, this is a trap, it was a trap when it was agreed following the Smith Commission and remains a trap now. It is also not significant in any shape or form and means that the Scottish Government still only control around 30% of all tax raised in Scotland, 30%. This also means that 71% of all tax raised by the Scottish Government will be raised via income tax, this devolved income tax responsibility comes without the ability to set personal tax allowances which will remain at Westminster, it’s a trap. The Scottish Government will not control the definition of what income is, and neither will it apply to interest rates or dividends. As noted in the Smith Commission Report:

77. As part of this, there will be no restrictions on the thresholds or rates the Scottish Parliament can set. All other aspects of Income Tax will remain reserved to the UK Parliament, including the imposition of the annual charge to Income Tax, the personal allowance, the taxation of savings and dividend income, the ability to introduce and amend tax reliefs and the definition of income.

Irrespective of what the SNP say there is little room to improve Scotland’s finances with minor tax raising responsibilities, they are designed to force the SNP to raise the tax that people see being taken out of their pay packet while not allowing the raising of personal allowances to protect the lowest paid, as I said at the time if the SNP use this blunt instrument it will only end in tears.

The whole thing has been designed to force the SNP into a corner and should have been rejected outright. Nothing short of full fiscal autonomy is good enough as long as we are stuck in this awful United Kingdom that is less and less united every day. There was a lot of controversy when the Economist printed the photo below during the Independence Referendum, but you know what, I really believe that if we are stupid enough to fall into this tax trap and get suckered into using the responsibilities then the image will be all too real for many of us living in Scotland.

article-2129426-129653cf000005dc-58_634x763

Just my opinion, I will always believe that the Scotland Act should have been rejected. Too little too late.

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4 comments

  1. Ian MacDonald

    I agree with much of what you say, in that it would be madness to increase the income tax rates, hurting struggling people and stifling the economy. It would also be counterproductive to raise the upper rates significantly, owing to our earnings demographic, and the ability of the extremely wealthy to ‘adjust’ where they pay tax. (However refusing to raise the 40% tax threshold as is to happen in rUK giving the better off a modest and unnecessary tax break, is a no-brainer.)

    Where I disagree is that the Scottish Government should have rejected these powers altogether. Unless the current tax rates are optimal (they’re not), if raising the basic rate of tax is detrimental (it is), then lowering it must be beneficial. This is a power that the Scottish Government now has!

    Of course, it would be a brave government indeed that would cut its immediate tax take significantly in current austere circumstances. However, introduced gradually, say by 0.1% initially, with compensating increases in say, upper band council tax, property transaction tax, and rates for bigger businesses, the loss of tax take could be mitigated. The extra cash in the economy would filter back into government revenue before too long, making a further reduction possible. This would signal our intent to move towards a more socially just tax regime, thus avoiding any trap, and would grow the economy, and make Scotland (potentially a Scotland in the EU or single market) an even more attractive place to live and work.

    • Anonymous

      Ian

      In fairness to the SNP I don’t see them doing much other than tinker with the changes in the last UK budget like not passing on the minor changes to the upper bands. I agree it would be madness to hit the pay packets of the many in Scotland as we don’t have that many really wealthy people in Scotland, who like you say, would just move their tax affairs anyway hence no devolved control of dividends, which is how many in the upper bands pay themselves and that income goes to the treasury and they aint giving that up as Scotland has some wealthy companies.

      I think you have a better understanding on how the Government might do things. I would have rejected the Scotland Act because, like what the UK tried with New Zealand, it’s a drip drip drip of responsibilities to pacify the natives, I just don’t think we have the time to be played with like that anymore. It’s all designed to retain power in London, like they say power devolved is power retained.

      Thanks for commenting.

      Bruce

  2. finnmacollie

    I agree with all you say, in fact I don’t think there should have been a Smith Commission in the first place. We were promised “Home Rule”, “Near Federalism” in the “vow” that Gordon Brown arranged (even though Kaywithanee said live on BBC that he said no such thing – forgetting that her employer had interrupted all other news to broadcast him saying just that for an hour). The promise was made and should have been delivered plain and simple. No negotiating which powers should go to which parliament.

    However, having gone through the process and been told that the vow had been delivered and we now had the most powerful devolved parliament in the world – compared with……….??? we suddenly find some more scraps getting throw our way with the express design to “prove” that we are the only country on the face of the planet incapable of running our own affairs.

    Now, that sorry excuse for a politician, Fluffy Mundell is hinting at the possibility of even more post Brexit powers for the parliament that is supposed to already have more powers than any other parliament in the history of the universe. Does he think our heads button up the back?

    Next up will be the cuts in the block grant (grant? GRANT? it’s not a feckin GRANT – i t’s our money!) so that the SG will have to either put up taxes or cut back services. As you say, a trap.

    Sorry to go on a rant. Honestly not trying to steal your title 🙂

    • Anonymous

      Fin

      Rant away, this whole blog is a rant and I mainly agree with you. Fluffys comments have already been ripped to shreds by Westminster anyway. There should have been a vote on the Scotland Act in my opinion and we should have rejected it, as I noted to Ian, it’s no longer good enough. The drip drip of responsibilities are a joke and at this rate it will be a 1000 years before we have a parliament of any real kind. I am at the point where I want to see the SNP disrupt Westminster, honourable this, honourable that, there is little honour in that place. It really is time to stop playing their game, the SNP have done ok in Westminster but have achieved little in a parliament designed to ensure that no Scottish MPs ever do and again that is not good enough.

      Now I am at the point where if there is a snap election, and it is looking increasingly likely that May will have to call one to get Brexit through, the SNP have to stand on a platform of another referendum at any time of their choosing and get something in there that hints of UDI. I have never been for UDI but I am at the point now where if the SNP have 45 plus seats then that is all the mandate they will need and lets just leave. The courts are always going to decide on independence anyway whatever method it comes by and the UK or what’s left of it will make us fight for everything that is ours either way so we might as well go for it if something doesn’t give soon.

      I am pretty much sick of how politics are done in this country, it’s a wonder anything is every achieved in the first place in our un-democratic system that should have been flushed down the toilet years ago.

      Thanks for commenting.

      Bruce

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