It is now clear that there are two different tax debates going on within the UK and a further European debate just to complicate matters.

Firstly there is the debate over the top rate of income tax.  The various press leaks and briefings show how important the UK coalition parties view this issue.  The Tories are laying the groundwork for its removal.  The Liberals are fighting a rearguard action.  Think of the Treasury Secretary’s “cloud cuckoo land comment.   The Liberals are also briefing on its own “mansion tax” policy.  If the top rate is abolished they want it replaced by a mansion tax.  The SNP and Labour are arguing for the top rate to be retained.

Then there is the devolution of tax powers to the Scottish Parliament.  My blog on this last Sunday can be found here.   The Scottish Government published its paper on corporation tax this week.   The paper can be found here.  As I said last Sunday, it is not what is being discused that I find most interesting but rather what is not being discussed.   I suspect that the real battle on this has still to start.

Then there is the European dimension and in particular the pressure being placed on Ireland by France and Germany over its low rate of corporation tax.   This issue also impacts on the UK tax debate as it poses the question: why is tax competition within the European Union a good thing but not within the UK?   As I said, an interesting week in tax land.

Glad to see ICAS contributing to the fiscal powers debate.   This follows on from PWC last week.

I have not yet had a chance to read what they have said in any great detail but have outlined some general thoughts below.

1. How can the power to vary a rate of tax be looked at in isolation?

The comments by ICAS concern devolving the right to vary the rate of corporation tax to the Scottish Parliament.  The background to this is that the Northern Ireland Assembly is likely to be given the right to vary the rate at which corporation tax is charged on companies located in the Province.

What is the point of just devolving the right to vary the rate or rates at which corporation tax is charged without devolving underlying or connection legislation?  What about the rest of the corporation tax legislation?  What about company legislation?  The tax rate is only one issue for companies.  What about tax reliefs?  What about company administration?  If this is a serious debate about giving the Scottish Parliament increased fiscal levers why are these points not being discussed?

Secondly.  If we are serious in the need for increasing the number of economic levers the Scottish Parliament has at its proposal what about stamp duty and stamp duty reserve tax?  Taxes do not apply in isolation.  It is rare to only have to consider one tax when advising a business.  As these taxes are being charged on share dealings these should be looked at along with corporation tax.

Also business does not just consider the headline rate of tax when deciding  where to locate.  Many others factors are looked at and not just tax.

My second point about “connected taxes” applies equally to property matters.  In that case stamp duty land tax and capital gains tax.

Also I still find it odd that we are discussing income tax in the context of the Scotland Bill and corporation tax due to what is happening in Northern Ireland.  A more sensible approach would have been to look at areas already devolved to the Scottish Parliament and match up the taxes that apply to these powers.  For example.  Inheritance tax as succession law is already devolved.  Or the environmental taxes as the environment is a devolved responsibility.  Tobacco and alcohol duties as health is devolved or the various car taxes as transport is devolved.   That would give the Scottish Parliament a series number of economic levers and also the chance to learn what to do with them.

2. Institutions.  Scotland is soon to have its own tax system.  That is true even under the Scotland Bill proposals.  The Scottish Parliament although not having control over a complete range of taxes will have control over a number of taxes and have some form of borrowing powers.   The Scottish Government’s Finance Department needs to become an Exchequer, i.e. a body that deals with matters presently the preserve HMRC and HM Treasury.  Why is this issue not being debated?

Again on institutions.  Scotland is a relatively small country.  Much smaller than the rest of the UK.  Do we need our own separate HMRC and HM Treasury?  Why not combine them?  In simple terms HMRC is simply there to administer and collect our taxes.   Does Scotland need its own Companies  House, Registers of Scotland or Stamp Office?  Of course not.  One tax, law and registration body could deal with these and many other functions.   Again why is this issue not being debated?

3.  I was intrigued by the following comment by Elspeth Orcharton, assistant director of tax at ICAS: “Devolving tax powers is contrary to the goal of simplifying tax legislation and stability at a UK level, and you could question whether such a move would make the UK as a whole less competitive on the international stage.”

That sounds as if the starting point for ICAS is what is good for the UK not Scotland.  Also is ICAS saying that no powers should be devolved ever?   I suspect not.

Devolving taxes may actually simplify the present system.  For example when SDLT is devolved there will be no need for the present guidance and forms to explain the differences in Scotland and England due to our different systems of property law.   Also whenever I have discussed the devolving of SDLT one issue has almost certainly been raised.  How can we simplify it.

The last point of the above comment is also also telling.  I, for example, look at this issue from the viewpoint of how can I make Scotland more competitive.  I suspect that many views on devolving fiscal powers may be decided simply by where that person’s starting point is: Edinburgh, Cardiff or Belfast or London.

I am also not sure what is meant “stability”.   I suspect it may be a reference to tax competition.   If it is then that horse has left the stable.  Once taxes are devolved tax competition will soon become the norm.  I for one do not see that as a bad thing.

The term ” tax simplification” in a UK context does also make me smile.   Why is devolving taxes contrary to the principle of tax simplification?  If we in Scotland do not think we can improve on what we have presently then what is the point in having this debate.

What people forget is that the UK does not have a unitary legal system.  Although the tax system applies English law there is on occasion conflict with connected legislation.  For example the introduction of SDLT in Scotland is generally regarded as being a shambles.  HMRC did not take into account Scottish property law.  The conflict there was tax law based on English legal principles and Scottish property law.

Anyway, just a few thoughts on a quiet Sunday afternoon.

More on this from the Scotsman can be found here.

The Herald reports today that various English airport authorities are not happy that Air Passenger Duty is likely to be devolved to the Scottish Parliament.

This reaction is not unexpected.  I suspect that each time a tax is devolved similar arguments will be made.   This debate is not unique to the UK.  The on-going battle of wills between Ireland and France and Germany over Ireland’s low corporation tax rate shows its European dimension.

The Herald also reports that one option being considered is to simply devolve the right to collect this tax but not vary it.   I suspect that is not a serious proposal as only devolving the right to collect a tax does not make the Scottish Parliament more fiscally accountable nor provide it with a new economic lever.   If this is a serious proposal then it shows how hard it is going to be devolve any new tax or fiscal power to the Scottish Parliament.  Air Passenger Duty is a minor tax and in theory is fairly easy to devolve.  Even the Calman Commission recommended that it be devolved.  Last week’s Crown Estate announcement provides further evidence of how reluctant HM Treasury are to give up any power at all.

The report from the Herald can be found here.

I have been asked the following question a couple of times recently:  Why should Scotland have 59 MPs and an increasingly powerful Parliament?  This is also an issue I raised, albeit briefly, when co-authoring the “Fiscal Powers” papers for Reform Scotland.

My personal view is, as greater powers are transferred to the Scottish Parliament the number of Scottish MPs should in turn fall.  I see this as a question of fairness.  Scotland cannot have it both ways, i.e. a Parliament with more powers but still retain the same number of MPs.

For the 2005 UK General election the number of Scottish MPs was reduced from 72 to 59.  This reduction brought the average Scottish electorate for an MP closer to the UK average.  The reduction being proposed presently, 59 to 52, is part of the plan to reduce the total number of MPs to 600 from the present 650.

Former PM John Major recently called for the Scottish Parliament to have resposibility for everything other than foreign policy, defence and some economic matters.  That proposal is often referred to as full fiscal autonomy.

Under this scenario I would argue that 24 MPs is sufficient for Scotland.   I would also suggest that these MPs should be elected in a different way.  I would make use of the “regional areas” presently used to elect List MSPs for the Scottish Parliament.  Three MPs could be elected for each region under the STV (single transferable vote) system.   STV is used in Scottish local elections.  That is also likely to ensure a better balance of MPs from Scotland and more closely reflect the votes cast.

I would also argue that it is time to abolish the Scotland Office.  It is not just the fact that public spending is under so much pressure just now but that its time has past.   It is an organisation who appears to have lost its way and serves little purpose.  It also makes sense that the Scottish Government deals directly with the UK Government and/or individual UK Governmental departments.

This is also an issue that needs to be looked at throughout the UK and by that I do not just mean Wales and Northern Ireland.  The UK Parliament also needs to consider how it deals with “English” only business.

A call for evidence has been issued by the Scottish Parliament’s new Scotland Bill Committee.  The deadline is 9 September 2011.

The Committee which now has an SNP majority has also asked for comments on devolving control over Corporation Tax and the Crown Estate to the Scottish Parliament and the role of the Supreme Court.

Given the result of the Scottish General Election it will be interesting to see how the Unionist and Federal parties respond to the proposed amendments to the Scotland Bill.

One issue that needs to be looked at again is whether the income tax proposal is workable.

Also, given that the Scottish Parliament is going to gainhave increased fiscal powers under any political scenario we now need to start seriously at creating a Scottish Exchequer that combines the role of HM Treasury and HM Revenue & Customs.

The Scotland Bill Committee’s webpage and “call for evidence” can be found here.

The first report of Supreme Court Review Group which is examining the relationship of the High Court of Justiciary and the UK Supreme Court is now available from the Scottish Government’s Website here.

Scotland’s largest airports have joined together to demand that the UK Government devolves its Air Passenger Duty (APD) to the Scottish Government as part of the Scotland Bill.

The Calman Commission recommended the devolution of APD as part of the Scotland Bill and the Scottish Government has supported this.   However as the UK Government is consulting on changes to aviation duty it has not yet been included in the Scotland Bill.

The press release from BAA Edinburgh can be found here.

The UK Government has announced that it will amend the Scotland Bill to give the Scottish Parliament increased financial powers.

This u-turn by the UK Government will allow the Scottish Parliament to issue bonds to access cash from the capital markets.

The press release issued by the Scotland Office is available here.

First Minister Alex Salmond has asked a group of legal experts to look at the impact of the UK Supreme Court on Scotland’s legal system.

The First Minister has asked these legal experts to look at the roles of the High Court of Judiciary in Edinburgh and the UK Supreme Court in London, and to advise on possible options for reform.

The experts who were appointed to the expert group are Lord McCluskey, a former solicitor general; Sir Gerald Gordon, a former professor of Scots Law at Edinburgh University; Charles Stoddart, who has acted as interim Sheriff Principal; and Professor Neil Walker, an expert in constitutional law.  Their initial findings will be debated at the Scottish Parliament in time for the summer recess.

The Scottish Government’s call for corporation tax to be devolved to the Scottish Parliament has been boosted by a report by the Northern Ireland Select Committee unanimously recommending that the powers should be devolved to the Northern Ireland Assembly.