Member Article

Could Tory tax plans for Scotland lead to federalism in the UK?

Although there is no devolution question in the referendum ballot paper, the Scottish Conservatives are the latest of the political parties to advocate the devolution of further tax ‘powers’ to Scotland. While their proposals are for superficially greater taxation powers for the Scottish Parliament than those proposed by Labour, they remain unambitious, and likely to cause an increase in administrative burden for taxpayers and collectors alike.

Of the top seven sources of income in Scotland, the party proposes fully devolving just personal income tax, albeit with the income tax threshold and income tax on dividends and savings remaining under Westminster’s control. Under these proposals Westminster would also retain control of NI (employers & employees), North Sea revenues, corporation tax, fuel duties, alcohol and tobacco duties.

Although in principle VAT would be suitable for a devolved Parliament, EU law requires uniform rates across the UK. The Conservatives are therefore recommending that, as an alternative, “there should be serious examination of the case for a share of VAT receipts raised in Scotland being assigned to the Scottish Parliament”.

Would the devolution of further taxes provide value for money for Scottish and UK taxpayers in setting up operations already covered by HMRC? Would VAT returns, for instance, have to be extended to account for intra-UK supplies and purchases?

More to the point, can there effectively be different income tax rates within a unitary state? The vast majority of the Scottish population and businesses are situated within 100 miles of the English border, and any differences in income tax rates north and south of the border would surely create loopholes for tax manipulation as workers and companies flit across the border to wherever the rates were lowest. Not to mention accounting for income tax in Scotland and national insurance in England.

And what of the scenario proposed by UKIP and subject to review by the IFS, if Westminster moves towards a ‘flat tax’?

Imagine a further scenario if Westminster increased indirect taxes and reduced direct taxes? People in Scotland could end up with double taxation by paying more in VAT and duty (not devolved) and increased (devolved) income tax.

And what about the Liberal Democrats? Well, federalism, the only sensible solution to the Conservative/Labour proposal, has been part of Liberal political theory for over a hundred years.

This was posted in Bdaily's Members' News section by George Bull .