The Scotland Act 2012: linking taxation and spending
The central recommendations of the Calman Commission about the introduction of a significant element of linkage between taxation and spending in Scotland have been enacted by the Scotland Act 2012.[1160] For the adoption of new forms of locally raised funding, Calman discussed not only the respective strengths and weaknesses of several forms of taxation, but also whether the options were viable in the scale of revenue raised and whether they would be perceived as fair.
Devolving corporation tax was advocated by some presenting evidence to the Commission on the grounds it might be used to promote a more competitive business environment in Scotland but on the other hand such a change might have detrimental consequences for the remainder of the UK.[1161] In addition, there was evidence that it would raise only limited revenue, and in any case corporation tax is not paid by individual voters so this change would not help address the core issues: namely, the relationship between taxation and spending, and accountability. Another proposal would have been to allow different rates of excise duty, but this change was rejected as it was likely to create incentives for tax avoidance.[1162] The scope for changing the level of VAT at devolved level is further constrained by EU law.[1163]A new Scottish rate of income tax which will be charged on the non-savings income of Scottish taxpayers from 2016 is the most important change under the Scotland Act 2012.[1164] The rate paid will be calculated by reducing the basic, higher and additional rates of income tax levied by the UK government on Scottish taxpayers by 10 pence in the pound.[1165] The block-grant allocation under the Barnett Formula, or any needs-based formula which eventually replaces it, will be adjusted downwards to allow for the revenue raised under the Scottish income tax.
Under these arrangements, if spending levels remain as they are, the financial allocation will remain more or less at a parity with existing levels. However, the Scottish Parliament, by adjusting the Scottish rate, will be able to raise as much or as little in income tax as it wishes. This new power places in the hands of the Scottish Parliament a progressive tax which is earnings-related and thus fair in the sense that the amount paid is related to the capacity of individual taxpayers to pay it.In addition, it was envisaged by Calman that the Scottish Parliament would have the power to introduce new taxes applying in Scotland, but only with the consent of the Westminster Parliament.[1166] Calman recognized that the taxes most suitable for devolving would be those with a fixed tax base.[1167] In line with this recommendation, stamp duty, landfill tax and the aggregates levy have now been devolved to the Scottish Parliament under the Scotland Act 2012.[1168] However, the yield of such taxes is likely to be modest, with a contribution of around 2 per cent of the total of tax receipts in Scotland.[1169] Finally, the recommendation that Scottish ministers should be granted additional borrowing powers has been included in the Scotland Act 2012. It is estimated that, following the introduction of these changes, 35 per cent of revenue in Scotland will be raised locally. If spending levels were to be increased in Scotland, there is now an assumption that any funding shortfall would be met by increased revenue raised at the local level.
The challenges of multi-layered governance necessarily give rise to the technical questions of tax collection and distribution.[1170] This related issue has arisen because the Scotland Act 2012 provides for the levying of a proportion of income tax at the devolved level.[1171] Since the variable tax rate was never implemented post 1999, no distinct mechanism was introduced to perform this task.
During the passage of the 2012 Act through Parliament, the government set up a High Level Implementation Group (HLIG), jointly chaired by the Exchequer Secretary and the Secretary of State for Scotland, but with input from the relevant representative devolved bodies, to implement the introduction of the Scottish rate.[1172] The 2012 Act empowers the Scottish Parliament to raise stamp duty on the purchase and leasing of land and a landfill tax from April 2015.[1173] The Scottish government has announced that these taxes will be collected locally by a new Scottish tax body. When there are severe cuts in public expenditure in England and questions over the viability of fiscal autonomy for Scotland, the introduction of a new customized Scottish quango to collect relatively modest amounts of taxation might be regarded as an unnecessary duplication of resources.[1174]There is a sense in which this otherwise significant development, which goes a considerable way towards incorporating financial accountability and thereby correcting one of the perceived deficiencies of Scottish devolution, runs the risk of being swamped by wider political events. A referendum on the issue of independence is scheduled for September 2014. The SNP is seeking full control of the economic levers of an independent country.[1175] The Scotland Act 2012 has been attacked by the SNP because it fails to transfer adequate fiscal powers to the Scottish Parliament. It maintains that the Scottish government is unable to create a competitive tax structure, boost growth, provide the necessary fiscal stimulus, and tackle Scotland’s ‘economic underperformance’ in the long term.[1176] Although other constitutional models of devolved governance can be cited by expert commentators to support or refute demands for greater fiscal autonomy[1177], the extent to which the Scottish Parliament acquires such fiscal powers comes down to a political choice which will ultimately depend on whether there is popular support in a referendum for the status quo ante under the Scotland Act 2012 or for an independent Scotland. While side-stepping the politics of independence, the grant of full fiscal autonomy for Scotland under what has been termed ‘devolution-max' would presumably mean the Scottish Parliament would set, and the Scottish government collect, all taxes in Scotland, remitting to London an amount to cover the cost of common UK public services.[1178] There is an equally good case for modifying the arrangements for devolution in Wales and Northern Ireland to include a similar element of taxation and spending to the one due to be introduced under the Scotland Act 2012.[1179]
F.