‘Smith Commission’ submission

Submission by James Aitken of Legal Knowledge Scotland

I refer to your requests for submissions.

By way of background I was involved in previous ‘fiscal powers’ submissions to the Calman Commission on behalf of the Law Society of Scotland and Reform Scotland and I am also one of the authors of Reform Scotland’s ‘devo plus’ proposal.

I am a partner in and a co-founder of Legal Knowledge Scotland.  Legal Knowledge Scotland is a provider of legal knowledge in various forms.  I am a solicitor who has practised in Scotland, England & Wales and Illinois.  I am also the immediate past Convener of the Scottish Borders Chamber of Commerce.

I would like to start with a comment.  It is not clear if your remit is to recommend the devolving of powers that when taken together would be considered to be what has been termed ‘devo max’.  It is generally accepted that ‘Devo max’ effectively means the devolving of all tax and welfare powers to the Scottish Parliament.  Alternatively you may consider your remit to be to simply recommend a few additional powers along the lines of those already proposed by the ‘NO’ parties.

The reason for the lack of clarity is of course the failure to use clear language by those advocating this position in the event of a ‘NO’ vote.  That lack of clarity I suspect was intentional.

In any event, I would argue that your remit is to recommend the devolving of substantial and extensive powers to the Scottish Parliament by May 2016.

The timetable for the devolving of these recommended powers will I suspect also be the cause of some debate.  The date of May 2016 is though quite clear when you consider the ‘timetable’ outlined by former UK Prime Minister Gordon Brown and the claim that these powers would be in place before the powers that would have accrued under independence.

To begin.  There are over 25 UK taxes, charges and duties and presently the Scottish Parliament only has control of 2 minor taxes and partial control of income tax.  This increases to 4 minor taxes and slightly more control of income tax when the Scotland Act 2012 is fully implemented.  This means there is huge scope for devolving substantial new tax powers to the Scottish Parliament.

The major taxes are more problematic both in political terms and complexity and I suspect will be only considered by you if are seriously looking at devolving powers that are akin to ‘devo max’.  The major taxes being income tax, National Insurance and North Sea revenue.  Control of VAT cannot be devolved to the Scottish Parliament.

I will therefore concentrate on what I term the ‘minor taxes’.

Devolving control of the so called minor taxes is a relatively straightforward matter as has been shown by the devolving of control of stamp duty land tax and landfill tax under the Scotland Act 2012.  The creation of Revenue Scotland also means that the Scottish Parliament will soon have its own tax authority to administer newly devolved taxes.

There are numerous advantages associated with devolving the undernoted minor taxes and associated areas of law.

This would this quickly give the Scottish Parliament control of a much broader range of taxes.  Approximately 20 taxes.  This is important as taxes cannot be looked at in isolation if you are trying to develop policy.  For example SDLT and capital gains tax or inheritance tax and income tax and capital gains tax.

That is one of the main reasons for devolving these taxes.  The fact that they are so closely associated with matters already devolved to the Scottish Parliament.  The devolving of these taxes would give the Scottish Parliament the opportunity to develop policy much more effectively.

In addition this would also increase substantially the number of economic levers available to the Scottish Government and the Scottish Parliament and greatly increase the amount of revenue it is responsible for raising.  The increase wold be approximately £6bn.

Some examples:

  • Property law is devolved but SDLT (not until 2015), capital gains tax and inheritance tax are not.  Devolve control of capital gains tax, inheritance tax and the Crown Estate.
  • Succession law is devolved but inheritance tax and capital gains tax are not.  Devolve control of inheritance tax and capital gains tax.
  • Environmental law is devolved but not all the environmental taxes are.  Devolve control of climate change levy, air passenger duty and aggregates levy. 
  • Health is devolved but alcohol and tobacco duties are not.  Devolve control of all alcohol and tobacco duties once any European Union issues are resolved.
  • Transport is devolved but transport related taxes are not. Devolve control of fuel duty and vehicle excise duty.  

If you are indeed serious about devolving new major economic levers to the Scottish Parliament you will also have noted that companies are registered separately in Scotland but company law, employment and discrimination law, corporation tax, stamp duty on shares and SDRT are all reserved to Westminster.  Control of each of these areas of law and taxes should be devolved to the Scottish Parliament plus control of insurance premium tax and betting and gaming duties.

If you recommend that major welfare powers are devolved to the Scottish Parliament then control of National Insurance should also be devolved to the Scottish Parliament.  Devolve control of National Insurance to the Scottish Parliament.

If you recommend devolving control of broadcasting to the Scottish Parliament then control of the licence fee should also be devolved to the Scottish Parliament.   Devolve control of the licence fee to the Scottish Parliament.

Finally on tax simplification.  If you are going to recommend a tax for devolving, you should recommend that it is devolved in its entirety.   The main reason is that devolving partial control simply adds further complication to an already overly complicated tax system.  A tax with “two masters” poses obvious potential problems. A good example is the never ending tinkering with how much control the Scottish Parliament should have over income tax.  Also the underlying law, for example which reliefs apply may be just as important an economic lever as the headline rates.  Please also note that income tax is not just a personal tax but is a business and succession tax.  If you recommend that income tax should be devolved to the Scottish Parliament devolve all aspects of it including all underlying law.

Also on tax simplification.  OSCR should decide whether a Scottish registered charity is entitled to the associated tax advantages that comes from being registered as a charity and not HMRC.  The present system simply adds a layer of bureaucracy.  Devolve the responsibility for deciding the favourable tax status of Scottish registered charities to OSCR.

Lastly on tax simplification.  As with SDLT, the devolving of inheritance tax would simplify matters for the whole of the UK due to the complications that arise from having different laws of succession in the UK but a single inheritance tax.  This particularly applies to the required tax forms and guidance.

Please feel free to contact me further if you require further information on this submission.

James Aitken
Legal Knowledge Scotland
8 October 2014


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