I thought I should wait a few days before commenting on the ‘Report of the Smith Commission for further devolution of powers’.  I am glad I did given what was contained in the UK Government’s Autumn Statement.

I will though start with the Smith Commission.  How do I sum up it up in a few words?  Probably easier to start by saying what it is not.  It is not ‘devo max’, nor ‘devo plus’ nor ‘home rule’. So what is it?  I often refer to the Scotland Act 2012 as ‘Calman minus’. The Smith Commission does though go further than what was recommended by the Calman Commission but not nearly as far as what I have already said it is not.  I will come back to this point near the end of this article.

This article primarily looks at the fiscal side of Smith and in particular the tax aspects.  The welfare provisions are though interesting, again Smith could easily have gone a lot further, but it does mean that the Scottish Parliament is likely to, not certain to, have enhanced welfare powers albeit from a very low starting point.  I suspect we will soon start to hear the first rumblings concerning the creation of the welfare equivalent of Revenue Scotland.

Now to Smith.

In short, after two commissions and three Scotland Acts the Scottish Parliament will still not have complete control of one the five major taxes, may have control of six minor taxes (out of over 20 minor taxes, charges, revenues and duties) and control of the Crown Estate. If nothing else, this makes you wonder how many Commissions and Scotland Acts it will take before the Scottish Parliament will have control of one of the five major taxes.

One of the main recommendations made by Smith concerns income tax.  This is from Smith:

“Income Tax will remain a shared tax and both the UK and Scottish Parliaments will share control of Income Tax. MPs representing constituencies across the whole of the UK will continue to decide the UK’s Budget, including Income Tax. Within this framework, the Scottish Parliament will have the power to set the rates of Income Tax and the thresholds at which these are paid for the non-savings and non-dividend income of Scottish taxpayers (as defined by the Scotland Acts). As part of this, there will be no restrictions on the thresholds or rates the Scottish Parliament can set.”

I suspect we will hear a lot more about “English votes for English laws” when the next Scotland Bill is introduced and in particular when income tax is debated. This recommendation is more an example of ‘power retained’ than ‘power devolved’ given all that has been retained by Westminster.  See below:

“All other aspects of Income Tax will remain reserved to the UK Parliament, including the imposition of the annual charge to Income Tax, the personal allowance, the taxation of savings and dividend income, the ability to introduce and amend tax reliefs and the definition of income.”  

Calman did of course recommended that 50% of income tax on savings and distributions was to have been assigned to the Scottish Parliament. Why 50%. No explanation was given.

“In line with the approach taken for the Scottish rate of Income Tax, the Scottish Government will reimburse the UK Government for additional costs arising as a result of the implementation and administration of the Income Tax powers described above.”

The costs associated with the Scottish Rate of Income Tax have been estimated at approximately £50m.  See following report.

So taking Smith at its highest which tax powers will the Scottish Parliament have:

• Income partial control only – Scotland Act 1998, Calman, Scotland Act 2012 and Smith
• Council tax – Scotland Act 1998
• Business rates – Scotland Act 1998
• Land and Buildings Transaction Tax (from 1 April 2015) – Calman and Scotland Act 2012
• Scottish Landfill Tax (from 1 April 2015) – Calman and Scotland Act 2012
• Air Passenger Duty – Calman and Smith
• Aggregates Levy – Calman and Smith
• Crown Estate – Smith
• VAT assignation of the first 10 percentage points of the standard rate – Smith

As noted above, Calman also recommended that control of air passenger duty and aggregates levy should be devolved over four years ago.

As with income tax and indeed all newly devolved taxes, the Scottish Government has to reimburse the UK Government for any costs incurred in ‘switching off’ APD and “aggregates levy” in Scotland.

The VAT recommendation has been pretty much ignored and begs the question why not simply assign all VAT revenue? This makes as much sense as when Calman recommended devolving 50% of income tax on savings and distributions.

The Crown Estate is in some ways the most important fiscal recommendation and is long overdue.

So what have ‘they’ said ‘no’ to again?

The ‘big 5’

• Income tax still primarily a UK tax
• VAT
• National insurance contributions
• Corporation tax
• North Sea revenue

Other minor taxes, charges, revenues and duties

• Fuel duties (various)
• Capital gains tax
• Inheritance tax
• Stamp duty on shares and Stamp Duty Reserve Tax
• Tobacco duties (various)
• Alcohol duties (various)
• Betting and gaming duties (various)   
• Insurance premium tax
• Climate change levy
• Vehicle excise duty  
• Bank levy
• Licence fee receipts
• National lottery

As to headline figures, this means that the Scottish Parliament will only have control (not complete control) of approximately 30% of tax revenues and 25% of welfare spending.  That said, it is not just the number of taxes and how much revenue they raise but also how they interact with other taxes and matters already under the control of the Scottish Parliament.

For example, Westminster could have already and relatively easily devolved substantial tax powers to the Scottish Parliament but has failed to do so.  A number of taxes are closely associated with the responsibilities already devolved to the Scottish Parliament which would have given the Scottish Parliament a substantial number of economic levers and the chance to develop policy more effectively.

Below are some examples:

• Property law is devolved but SDLT (not until 2015) and capital gains tax are not.
• Succession law is devolved but inheritance tax is not.
• Environmental law is devolved but not all the environmental taxes are.
• Health is devolved but alcohol and tobacco duties are not.
• Transport is devolved but transport related taxes are not.

My own submission to Smith can be found here.  Given the timescales involved, and the political realities surrounding which powers could be included, I suspect that almost every submission was ignored.

Looking ahead.  Nothing is of course certain.  Calman proposed six new tax powers and only three made it into the Scotland Act 2012.  Will the Smith Commission proposals suffer the same fate?

This is something I wrote a couple of years ago.

“A template can be seen from Calman, what might be called the “Calman doctrine”.  Make a huge fuss about having someone look at the issue, take your time, offer as little as possible, exaggerate any problems, minimise or ignore any advantages and ensure HMRC and HM Treasury remain in control.”

The opposition to these modest proposals has already begun.  UKIP want it stopped entirely.  Many in the Labour party are unhappy with the income tax proposal.

Smith also offers no resolution on why the Scottish Police and Fire and Rescue services have to account for VAT. It may though have inadvertently solved another thorny issue and which concerns the UK Treasury’s refusal to transfer attendance allowance funding to the Scottish Parliament since the Scottish Parliament introduced Free Personal and Nursing Care. Control of Attendance Allowance is one of the welfare powers that might be devolved to the Scottish Parliament.

Then there is the UK Government’s Autumn Statement.

George Osborne copied a great deal of the Scottish Government’s proposed Land and Buildings Transaction Tax in his reform of Stamp Duty Land Tax. This was surprising given that the Conservatives had previously attacked the approach taken by the Scottish Government. The main reason for Osborne’s change of direction is I suspect the forthcoming UK General Election and in particular Labour’s ‘mansion tax’ proposal for England and Wales.

Osborne is also proposing that corporation tax, at least in part, is devolved to Northern Ireland, control of business rates is devolved to Wales and a ‘Sovereign Wealth Fund’ is created for the ‘North of England’.  The irony of many of these points will not be lost on those who followed closely what was being said in the independence referendum.

Some things are though certain.  The ‘vow’ such as it was not delivered.  The argument being put forward, and in particular by the Conservative party, is that if you believe in the pooling of resources throughout the UK then this is the ‘maximum’ amount of devolution that is possible within the UK.  Not surprisingly this ‘explanation’ was not put forward when Gordon Brown suddenly entered the referendum debate.

Is this the end of the devolution process?

The main ‘NO’ parties felt a line had been drawn after the Scotland Act 1998 and the reconvening of the Scottish Parliament.  The general feeling was that whilst tinkering with the devolved powers was acceptable nothing of any real substance would change.

That changed in 2007 with the election of the SNP government.  That in turn resulted in the Calman Commission. That again was meant to be a line in the sand. The UK Government felt confident enough to not even bother to include all of the powers recommended for devolving by Calman in the Scotland Act 2012.  The election of a majority SNP government and the independence referendum resulted in the ‘vow’ and the Smith Commission.

What does this tell us?  Quite simply if Westminster feels the need to create a new line in the sand it will.