The Chartered Institute of Taxation (CIOT) in Scotland issued a press release yesterday, correctly noting that
Scottish income tax decisions may face limitations, warn tax professionals. Having control over some parts, but not others, of a complex interacting tax system may limit the Scottish Parliament's ability to maximise the use of its income tax raising powers, tax professionals have warned.
I agree with them, and their reasoning, which is:
Income tax is only partially devolved, and Holyrood does not have control over key aspects of the income tax system — such as the tax base (deciding who and what can be taxed), the tax-free personal allowance, and income tax on savings and dividends. Corporation tax (a tax on company profits) and National Insurance contributions are likewise reserved to the UK Parliament.
The result is that anything Holyrood tries to do with new tax powers now can be easily subverted by anyone who can divert their earned income into a company and who then pays themselves by dividends, which then opts them straight back into English taxation.
The result is that it's as if Scottish tax powers had been booby-trapped by the Westminster government because they did not really want them to work. Which, of course is exactly the case.
The SNP should be shouting this from the rooftops because this is not just bad news for Scotland but for all other devolved parliaments as well.
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This was spoken about at the time it was proposed and EXACTLY this dilemma and restriction was highlighted. The SNP-SG chose to take the extra powers, but MUST have been aware of the potential for this back-firing.
So, what is their plan to overcome this? The consultative approach to taxation might be a way of demonstrating to the Scottish electorate the limitations and restrictions of the powers, and to illustrate why these limitations are fought with problems and how the other parties have no clear, well-costed alternatives.
BUT … will it work, given the paupacy of analytical and honest journalism in Scotland? I rather doubt it, having read some of today’s hyperbolic headlines. I do hope the SNP have thought this through fully!
‘Booby trapped’.
I cannot think of a better way to put it.
And I am deeply concerned that the more gung-ho nationalists in the SNP might ignore this.
If, as you state, the Scottish tax raising powers are so designed by Westminster to fail, then why is it the opposition have been so keen to use them? Do they really want to see a Scottish government fail under a Westminster nasty subversive plot?
I am not quite sure I follow you
The opposition have not been keen for the SNP to use them. They have only been keen to taunt the SNP government that they are not using powers that have been devolved to them. They use this as an example of yet another ‘failure’ of the SNP. That was the whole point of devolving powers with no real teeth.
The opposition keep saying “use the new powers you have”, knowing that most of the new powers are traps, and if when they are used they result in failures, or, “Scotland is the highest taxed part of the UK”, they can charge the SNP with incompetence.
Btw, on Sept 6th you agreed with NS that it may be time for Scotland to tax. What do you think now?
It is time
Of course it is
But that means that a demand has to be made for the right powers and why they don’t work has to be highlighted
If necessary blame Labour and Tories of being in bed with tax avoidance
Yes, because the Scottish government is SNP and they want the SNP to fail; regardless of the consequences.
yes
Alan asked: “Do they really want to see a Scottish government fail under a Westminster nasty subversive plot?”
I think the short answer is “yes” provided that Scottish government is the SNP. The hatred of the SNP in Scottish Conservatives, Lib Dems and, especially, Scottish Labour (which lost its grip on power to SNP) is so deeply-ingrained and cynical that they are prepared to see actual harm done if it damages SNP’s reputation. They will be abetted in this by the Scottish media which is almost entirely pro-Unionist and frequently resorts to egregious distortion of facts in order to attack and ridicule SNP. I must stress I’m not (and never have been) affiliated to any political party: I only seek improved governance at all levels in my homeland to improve the lot of all its inhabitants.
As Brian points out, the proposals of Labour, Conservatives and Lib Dems to the Smith Commission limited the ability of any Scottish government to run an effective tax system, and hence manage its economy efficiently. This current Westminster government then voted down every amendment to the Scotland Bill proposed by SNP (from memory something like 50 amendments) which might have disabled the “booby traps”. There were virtually no non-Scottish MPs present for the debate, but they magically appeared in numbers at the divisions to reject all amendments, almost certainly with no knowledge of what they were voting against. The Tory Secretary of State for Scotland, Mundell, was later to boast of having set a trap for Scotland, although clearly he should be acting for Scotland’s interests, not against them.
The short answer is yes of course. The opposition unionist parties would like little more than seeing the SNP govt fall into a trap of their own (at Westminster) devising.
Also their being gung-ho for tax rises is all knowing, they realise it is a trap but as good Unionists they would be more than happy to fall into it such is their blinkered hatred of the SNP. Some of the SLAB statements reek of annoyance that they were not the ones in power to do this.
The Greens who are Yes are like most small opposition parties, full of good ideas they are happy not to have to figure out how to pay for. The unionist media report these quite happily and dutifully fail to point out that how to pay for the policies is not identified.
Much Scottish politics still has the reek of the kindergarten about it, partly because of the entrenched tribalism but also because in the unionist parties their brightest and best tended to be at Westminster leaving the dregs to be MSPs. Though judging by the incompetent rabble the 13 Scots Tories elected last are this may be changing. Ruth Davidson has said openly she wants the quality of MPs improved next time.
@Richard Murphy
I’m not sure what you find hard to parse in Alan’s missive. To this Scot in Scotland it makes perfect sense.
I have re-read it and now see the sense in it
When I moderate comments I cannot see the context in which they are written and so they do not always make sense
There’s a really good graphic out there (readers help?) which I can’t immediately lay my hands on…but the long and short of it was that the unionist parties within the Smith Commission looked at a range of taxes and found only one area of near unanimity and that was income tax. The Labour party would not accept any form of devolution of taxes apart from income tax and if memory serves they placed a caveat over that.
If you’re (meaning ‘ if one is’) not following the debate closely up here you will not pick up on the slow pincer movement taking place against the independence movement. The SNP IMHO have a pretty good governance story to tell but the concerted effort is to propagandize everything to taint the SNP and hope enough mud will stick. It’s a 1992 GE effort but there is no let up and it’s a daily grinding down. It makes reading and listening to the news very, very dispiriting.
If there was halfway fair reporting, we would be undergoing our own transition period, whether that was independence or some form of DevoMax. Just for the record, I would be OK-ish to see how far federalism could be pushed but this gradually speeding up Brexit car crash is making me desperate to leave the Westminster system. It is rotten to the core and beyond repair.
I think Labour has a lot to answer for here
And I think the SNP has to say so, I am afraid
If Labour is helping tax abuse in Scotland then that has to be said as strongly as when I criticised Gordon Brown for assisting that same process more generally
There should have been a ‘two-question’ referendum in Scotland in 2014, it was transparently clear that was what the majority of the electorate wanted; DevoMax would have won, and would have been politically unanswerable. We would now be in a very different place.
The conclusion to be drawn from such events is that Political Parties represent all kinds of interests, but not necessarily the public interest. The problem of modern democracy is not the nature of the electorate, or ‘society’, or even the curse of ideology, but the nature of our political parties. Our political parties are, largely, obsolete; antiquarian curiosities, political anachronisms, living fossils; the coelacanths of non-marine organisms: the living dead.
What are they for; or rather the real question is; who are the Political Parties for, and who do they represent? The extraordinary current contortions of a Conservative Party that lost a critical referendum, but stayed in office, failed to provide credible leadership, and then blithely executed the very policies it had opposed in office and lost (and even the PM had opposed), as if they were held thoughout by sincere conviction, is merely an illustration of the absurdity of the predicament we are in; an absurdity that nobody in parliament or media has ever considered worthy of mention. No matter what happens, what disaster engulfs it, or contradiction it is caught in, the Conservative Government dogma remains best summed up in these telling words, uttered spontaneously by a politician caught in a hopeless muddle, and far out of her depth: “nothing has changed”, which means in Conservative Newspeak, “everything has changed”; except for one thing; the Conservatives remain in power, no matter what.
Very well said, you articulate why many people want independence and why many people cant be arsed to vote.
Perhaps the table at Munguin’s new republic, https://munguin.wordpress.com/ , scroll down to 26th October 2017, “Should This Tax Be Devolved”. Munguin is another great source of info!
I’ll take a look
If you look at the Labour, Conservative and LibDem proposals for the Smith Commission, you will see that Labour in particular was adamant about limiting the tax raising to part of income tax. Subsequent votes in Westminster on these powers saw all SNP amendments to increase or widen powers defeated, leaving Scotland with the tax situation you have highlighted.
In a previous post you considered me too deeply cynical when I highlighted the deliberate anti-SNP attitude of other parties and attempts to limit what was possible!
The sad part is they seem not have seen it will affect everyone in the devolved constituencies.
Accepted
The tax raising powers devolved to Holyrood were, as you quite rightly say “booby-trapped”. The tax powers recently devolved were always intended specifically as a political trap to “dish the Nats”; they have no other purpose, least of all the good governance of Scotland, which comes very, very low as a political priority in Westminster. If the good governance of Scotland was intended, we would have a suite of powers that was radically different. This is quite obvious to anyone not ideologically committed to a centralised UK state; on a scale that is ironically, unheard of in British history outside of two world wars.
The “booby-trap” has created a problem for the SNP, that it has finally discovered can no longer be ‘kicked down the road’, and has at last to be faced. How did they arrive here? Why did they arrive here? If we look back to the day when the SNP first formed a government ten years ago, the first priority was for the SNP to demonstrate to the public that the SNP, new to government, represented professionalism and managerial competence. The reasons for this are two fold; the first associated with the public perception of the early history of the SNP, which ticked neither box. The second because managerial competence and professionalism are especially respected in Scotland, and expected by the electorate.
It is notable that the fall from grace of the other political parties, associated so often with never-ending sleaze of one kind or another in Westminster, is a function in part also of the slow, dawning realisation in Scotland that the leading politicians of the UK parties are indeed amateurs, ill-informed, lacking judgment and often led by hopeless incompetents. Indeed in Scotland the judgment of the public on the Scottish politicians of the Unionist parties has probably been harsher than in Westminster.
As an aside, we really do need to consider carefully why this is so, and not as so many apologists attempt, to suggest the problem is with the electorate, but rather to examine whether in politics we are appointing the right people, with the skills and talents we need rather than the ones we are served; who selects those who stand, what sort of qualities are we promoting, what passes for “talent”, is this the best we can do, the best we have? Surely not. Something is badly wrong, and it has been for a long, long time.
The SNP initially set out to present itself as managerially competent; fortunately for them, and for most of the ten years following, they succeeded albeit helped by the manifest lack of talent, capacity and judgement displayed within the other political parties. In order to do this however, the SNP Government embraced the whole ‘system’ with which it was presented and inherited at Holyrood, and it did so largely without challenging it (for quite understandable reasons); this, incidentally included GERS. The system they inherited however, from the perspective of good governance of Scotland was quite awful; because it was not designed to work for the devolved parliament, but for Westminster: that was how it was deliberately designed. The Unionist parties accepted this as an article of faith; the SNP, no doubt as a function of political necessity. The SNP is now somewhat, and inevitably ‘hoist by its own petard’.
More generally in Westminster, and in the UK I seem now to perceive a more concerted, supposedly ‘subtle’ attempt to undermine long established Scottish institutions and even norms or conventions, by framing everything under-the-sun in Scotland as “British”, in ways unheard of before and that could no have happened before the UK became quite so centralised.
You would assume the Scottish government would have had the proposals reviewed before accepting the powers given. I am guessing Westminster and holyrood didn’t know what hey we’re getting into.
I think Westminster did
The devolved powers were agreed with a range of parties, not just the government
If that is the case, why didn’t the SNP as one of the parties spot the flaws?
I wish I could answer that
“The result is that anything Holyrood tries to do with new tax powers now can be easily subverted by anyone who can divert their earned income into a company and who then pays themselves by dividends, which then opts them straight back into English taxation.”
What’s the alternative though? You would have to designate savings and dividends income as arising in Scotland not England. Wouldn’t it be just as easy for some (the same?) people to game a system like that?
There are strong arguments against the devolution of corporation tax, which I recall you’ve previously highlighted with regard to Northern Ireland.
No
You just tax Scottish residents at Scottish rates
It’s really very very easy
As for corporation tax – country-by-country reporting would resolve that
The Northern Ireland issue was quite different: it was an EU one and like it or not that is going away
Next problem?
This is part of a larger scheme to denigrate a devolved Scotland, the rebranding of Scottish products such as British Whisky and Haggis, the negativity of the Scottish media, the insidious calling the First Minister the leader of the SNP, talk of the SNP losing the last election, the deliberate insults to SNP MPs, the use of Ruth Davidson to comment at every opportunity and the Scottish Secretary of State’s obvious contempt for Holyrood. Need I go on.
I am firmly of the belief that the Holyrood devolved parliament will be abolished after Brexit whichever party is in power at WM.
Not news to most taking an active interest in Scottish Independence.
Personally I thought it was a mistake by the SG to accept these minimal tax raising powers. Anyone with half a brain could see it was a trap. Without the other leavers of tax control it was virtually pointless taking them. It is inevitable that the UK government, the media and unionist political parties, will use any minor changes as a political tool to subvert anything the SNP try to do.
The government did not agree
It was a Smith Commission multi party affair
Richard, the SG had the opportunity to reject the Scotland Bill outright. Which they threatened to do. However the UKG backed down on the multibillion pound budget reductions that were proposed during the negotiation. So the SNP elected to take the short term political victory by agreeing to ratify the SB. In my view this was a mistake.
Mine too
The British Government is effectively waging war on Scotland by its deliberate undermining of the integrity and good governance of the country. It is an astonishing situation. We are not dealing with political opponents ; we are dealing with an enemy state.
Ooooohhh! BSA!
That is a different twist on the situation. I worry you are correct.
The Tories of course have declared war on many others in the UK, most of whom have suffered much more immediately than Scotland. Subverting another government however adds another dimension and is part of the UK’s existential problem mentioned by Richard. It also adds another dimension of contempt for Mundell and Davidson and whoever is running Labour in Scotland this week.
The SNP negotiated the package. There was a full consultation.
There was also a vote on Scotland having an independent commission looking at what FFA would mean for our finances.
The SNP and Conservatives voted against it. The SNP negotiated this instead.
As such, it’s hardly a booby trap.
I don’t think they should be offering up their negotiation skills for Brexit anytime soon…
That, oddly, is not how most people think things happened
Oh, dear; I think the wish was mother to your thought. Incidentally, the point of a booby-trap is that it traps. I do not think anyone would argue that the SNP were caught in the trap. I have not argued that is was not forseeable either. It was a failure, but the predicament the SNP was one in which the Unionist parties were far more interested in “dishing the Nats” than serving Scotland’s interests. Sadly that is transparently obvious. The real issue that you fail to address is why the powers offered to Scotland were clearly designed to serve Westminster’s desire to frustrate Holyrood’s capacity for independent action; and nobody offered any compromise to the SNP, for Scotland’s sake. They served political interests that were at best cynical. This is quite obvious to anyone not suffering from extreme myopia.
Your argument becomes risible when you turn to Brexit; for if we exclude the SNP’s negotiating skills, which I would not presume to comment on, it is worth noting that this would leave Britain with precisely no negotiating skills at all; none – after eighteen months Britain has achieved nothing, and the British Government is clearly more terrified of admitting to the British people the scale of the inertia, and the size of the problem, even than negotiating. Ironically the British Civil Service is busy hiring 3,000 people for Brexit; that is 3,000 people with virtually no experience in this field. Why? Because the EU has been negotiating for Britain for the last 40+ years. We do not possess the fundamental skills and expertise we require to do Brexit. The EU have all the knowledge and expertise; even about Britain.
Brexit is a booby-trap; and let me guess who fell into it…………?
Gents please read the transcript then tell me it was a booby trap.
Richard you say this isn’t how many see it. I agree, they haven’t done their research either.
Read the smith commission output. Read the debate before the vote in WM in November 2015.
Everyone went into this with their eyes open. To say otherwise is untrue.
And I disagree
A consensus was imposed on a minority
You are inattentive. I do not claim anyone had their eyes closed; I am saying the SNP were in a predicament ; but an understandable one. They were outflanked. They had lost a referendum (which produced a result far better than they could have dared hope, or Unionists thought possible); the SNP needed to compromise, because they need to persuade around 10-15% of those who voted “No” in 2014 (over the medium term, it may be doable). In my opinion they made a mistake, but not a bad one. If you must address anything, address the argument I actually made. A straw-man argument will not do. Your naive textual literalism leads you to beg the question.
On the other side, the position of Scottish Unionism was quite different to the SNP. The Unionist parties are in serious decline. They have no talent, few articulate politicians, and no ideas. They are sustained by the slow credibility-destroying effects of the major-party quick-fix ‘Spin’ machine, and a pro-Union mainstream media, which has Scotland to itself; but principally serving the elderly – Unionism’s surviving, but diminishing constituency. The intellectual case for Unionism, as represented by the current Scottish Unionist parties, is frankly, a sad embarrassment of a proposition; an anachronism.
The Unionist parties in the Smith Commission were not representing Scotland’s interests; they were representing their own anxious, wholly defensive political interests, and could not rise above serving Westminster before Scotland, or opportunistically trying to dish the Nats. They simply failed the whole of Scotland. They are still failing Scotland. They have nothing to offer. Nothing. You do not need to promote or support independence to see this. It is obvious. If Unionism had an ounce of imagination, or conviction over Scotland it would have sought an alternative to independence in 2015; Home Rule, DevoMax, Federalism. This would be much more politically challenging for the SNP to handle. But that would require standing up to Westminster, and actually representing Scottish interests, and that is way above the Unionists’ pay grade, their ambition or the leaden, predictable compass of Unionist politics.
The Smith Commission output was designed to skewer the Nats and to serve the interests of Westminster at the expense of Holyrood. Should the SNP have offered stiffer resistance? Yes, but at least they were prepared to compromise – forgivable failure. All the Unionist parties were prepared to offer Scotland in 2015 was a poison chalice; and now in Scotland, we are all supposed to drink the poison.
Agreed
There shouldn’t have to be any argument over which powers are required to run Scotland, it should be up to the parliament in question what it needs not up to Westminster to work out how to subvert that need
But as everyone has neatly worked out Westminster never designed the Myth Commission to actually deliver anything meaningful
They did however spend much time and effort in making it meaningless
The UK/English parliament and it’s government is an undemocratic occupying force in Scotland, not an equal partner in a political union
If Scotland were an equal partner in a union our elected representatives wouldn’t need permission of a ruling parliament to act in their own constituents interests
There are many tax raising facilities available of which income tax is one of the least important in revenue raising but incredibly important in raising emotional responses and that’s exactly why it was devolved in the way it was
It should also be borne in mind but for the SNP there would have been no devolution of anything because there would have been no threat to the dominance of the British State and Scotland in effect would have had nothing
So in those terms the SNP have outsmarted the oppressive Union with an incredible level of efficiency the Union did not perceive and it is they who are on the back foot pondering their next moves while attempting the increasingly difficult task of appearing helpful and failing in the face of even the most ardent Unionist
All that is left now sadly is entrenched hatred and the sooner open and fair minded people see that the sooner Scotland moves on to being all it can be, which is the same as everybody else in the world
A normal country that runs itself the way it’s electorate have voted for
Last month I picked up the following tweet from the SNP on Facebook: “We have therefore commissioned the Scottish Land Commission to research the introduction of a Land Value Tax.”
This came as a bit of surprise to me as at the time of the Scottish Commission on Local Tax Reform it seemed that there was no real interest in LVT from the SNP (I gave verbal evidence on behalf of the Labour Land Campaign).
Scotland does have the power to scrap Council Tax (and Business Rates), and since they can vary the Stamp Duty Land Tax rate, they could presumably scrap that too – replacing all with LVT.
With the withdrawal of the Direct Grant to local authorities, this would seem a far more useful course to pursue. At least one MSP (Andy Wightman – Scottish Green – he was on the Commission) is an LVT advocate.
Surely the answer to this in both Scotland and the UK is tax everything at the same rate, bar VAT and income tax on earnings. Why not set every other tax, dividends, capital gains, inheritance, corporation tax, interest, etc, at 40% so that wherever your income comes from you’re taxed at the same rate and therefore the rich cannot avoid paying tax at the detriment of the society from which they benefit? The 40% tax becomes a general income tax on unearned income, with no personal allowance or variation in rate since usually only the rich run companies, and have savings, shares and assets.
Obviously capital gains on trusts need to be reformed to avoid the likes of the Duke of Westminster avoiding inheritance tax on his billionaire property portfolio: instead of 6% of capital gains every 10 years why not 40% every year, with no discounts for losses? That would stop that particular domestic tax avoidance scheme!
Furthermore, if a company has not paid corporation tax on sales in the UK charge them an additional tax on transactions leaving the country, and enforce them to pay for products sold to UK residents here or pay import duties. (Buying from the EU has an obvious advantage having no import duty, which suggest EU-wide taxes should also be standardised.)
Country by country reporting will help determine where profits are allocated (correctly or otherwise) and where tax should be paid for raw materials, labour or sales.
We have to ensure that the wealth of the UK is used to benefit all citizens of the UK, along with the developing nations that often provide the raw materials and labour, and not just the rich and tax dodging billionaires hiding their vast wealth in tax havens.
I cannot agree
This would tax pensioners who live off savings wholly unfairly
And penalise the trust established for the person disabled after an accident
Whilst companies are commonplace amongst the middle earning self employed
Tax is an instrument for changing society, but it must never be a blunt one
[…] sure of the origin of this table, which was posted on my Twitter timeline yesterday in response to my blog on devolved Scottish taxation, but it has the feeling of being completely […]
http://www.heraldscotland.com/news/15213140.Pro_independence_economist_issues__danger__warning_over_new_powers/
9th April….