Since Scotland voted to remain part of the UK, Westminster has been preparing to grant the Scottish government a number of new powers that were promised in the run-up to the vote as incentives to remain with the UK. The three main parties all committed to giving Scotland greater independent powers if voters chose to remain with the UK, and the process of making good on these promises is currently underway. Among them are provisions which would allow the Scottish parliament to set its own rates of income tax.
The new powers will be contained in the Scotland bill, a draft of which is due for publication on Thursday. However, Chancellor George Osborne has come out to oppose the idea of separate, independent income tax rates being set north of the border, saying that Holyrood would have to be prepared for the consequences if it chose to exercise these rights.
Osborne was speaking to the Treasury select committee, providing evidence to aid them in their task of examining the plan put forward by the Smith Commission. Led by Lord Smith, it was this commission that recommended the Scottish parliament be granted powers over income tax. Under the Smith Commission’s recommendations, income tax powers would be shared between the UK and Scottish parliaments, with Holyrood receiving the right to independently set the rates and thresholds that apply to Scottish taxpayers.
Osborne warned that, if income tax rates were lowered or thresholds raised in Scotland, out of step with the remainder of the UK, this could lead to “tax competition” between different parts of the country.
Osborne was directly asked by the committee whether he believed that tax competition would be a risk associated with allowing Scotland to set separate rules around income tax. He responded by suggesting that there could already be “a bit of tax competition in action.” He pointed towards the fact that after stamp duty was reduced for England and Wales in the Autumn Statement, the Scottish government promptly announced its intention to revisit stamp duty proposals.
“Ultimately,” he said, “that is a decision primarily for the Scottish Parliament and the Scottish government as to whether they pursue that or not.”
However, Osborne went on to say that “I think it is important, and I think this is fundamental to what everyone is trying to establish here with this further devolution, that people live with consequences of their actions.”
Osborne also advocated a thorough, independent analysis of Scottish public finances be put in place.