A glorious week of sunshine in “tax land”

I will start with where to find one of the most comprehensive and detailed review’s of last week’s UK Budget statement.  The link is to the always impressive Institute of Fiscal Studies and can be found here.  In particular see the “Business tax, stamp duty and anti-avoidance slides”.  Slide 9 on “Forecast revenue from anti-avoidance measures” is particularly revealing.

Now to the fiscal powers debate.  I was disappointed to see that Peter de Vink has been deselected by the Scottish Conservatives.  Peter was hoping to be elected to Midlothian Council in May.  As far as the fiscal powers debate is concerned this shows that there are some on the centre right in Scotland who can see the opportunities that fiscal autonomy or independence could bring.  Peter’s article in the Herald can be found here.

The First Minister has announced the setting up of a “Fiscal Commission Working Group” to establish a fiscal framework for an independent Scotland.  The group will include former World Bank Chief Economist and Nobel Prize winner Jospeh Stiglitz of Columbia University.  My only slight concern relating to this group is that it comprises four economists, albeit eminent economists.  This group needs to ensure it has an understanding of the underlying law and legal framework that is crucial to creating a new fiscal framework for Scotland.  That includes the creation of a Scottish Exchequer.  I will once again reiterate my call for a review of all government tax, law and registration services in Scotland.  A Scottish Government press release on this can be found here.

I was also interested to read about a report by the David Hume Institute which claimed that an independent Scotland would be liable for around £100bn of debts and liabilities.  In particular I was interested to see one of the first references to the “other side of the balance sheet”.  The report says that the UK has approximately £821bn of “assets”. The £100bn figure comes from deducting £69bn of assets from approximately £152bn to £171bn of debts and liabilities.  A Scotland on Sunday article on this story can be found here.  This particular part of the fiscal powers debate has a long way to go.

In advance of May’s local government elections, Reform Scotland has called for non-domestic rates to be devolved in full to local authorities.  This would mean a variable business rate in different areas of Scotland.  The Reform Scotland paper can be found here.  Non-domestic rates is one of two tax powers presently devolved to the Scottish Parliament, the other being council tax.  Although these taxes are administered by the local authorities control rests with the Scottish Parliament.

The proposal would also mean that local authorities would keep the revenue they collect from business rates.  At the moment this revenue is handed back to the Scottish Government.  The Scottish Government then redistribute it as part of its grant to each local authority.  The Reform Scotland proposal could also be used as a framework for when control over the Crown Estate is devolved to the Scottish Parliament.

According to a study carried out by accountancy firm UHY Hacker Young, Edinburgh businesses contribute more to the UK economy per head of population than any other major city in the UK.  The main reason given is that Edinburgh wasn’t hit as hard by the financial crisis as London.  In addition, oil-rich Aberdeen was the only major UK city to see its economy grow during the recession.  This is excellent news for the Scottish economy.  An article from the Scotsman on this can be found here.

Now to corporation tax.  The Financial Times recently reported on how 15 multinational companies are considering locating substantial operations in Britain as a result of UK corporate tax reforms.  What I found most interesting about this report is when tax competition is discussed in a UK context it is a positive thing.  Contrast this with the tone of the debate over devolving control over corporation tax to the Scottish Parliament.

Continuing on the corporation tax theme.  It is not just the headline rate of tax that is important.  The underlying law which deals with, for example, reliefs is just as important.  Further evidence for this is shown by a recent statement by the European Commission.  The European Commission are claiming that the UK is breaking European law by imposing an immediate capital gains tax charge on companies that relocate to another EU member country.  The Commission has requested that the UK abolish this exit tax within two months, or be referred to the European Court of Justice.  I await the reaction to this by the UK Government with interest.  The statement from the European Commission can be found here.

The Unoccupied Properties Bill has been introduced at Holyrood.  At the moment empty and unfurnished residential properties are exempt from council tax for the first six months.  After that period, they qualify for a 10% discount.  Under this Bill local authorities will be given the power to charge up to twice as much council tax on residential properties that are empty and unfurnished.  It is hoped this will act as an incentive for home owners to bring their empty houses back into use.  The Scottish government has also announced a new loan fund which will be specifically targeted at projects bringing properties into use for affordable housing.

The new bill will also controversially reduce the non-domestic business rates discount for some empty commercial properties from 50% to 10%.  The argument put forward is that this will encourage owners to bring boarded-up shops back into use.  A report from the BBC news website on this can be found here.

Now to England.  Over 85% of local authorities have accepted the UK Government’s offer to freeze council tax rates.  This is contrast to the agreement reached between the Scottish Government and all of Scotland’s local authorities.  England’s local authorities were offered a one-off grant worth 2.5% of their budget if they agreed to the freeze.  More on this can be found here.

Let’s end with Wales and the news that the Welsh Government has started to consult on whether Wales should be a separate legal jurisdiction.  The Welsh government will ask the judiciary, lawyers and members of the public whether they want a jurisdiction along the lines of those found in Scotland and Northern Ireland.  An article from the Law Society Gazette on this matter can be found here.

Have a good weekend.

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A week in “tax land”

Let’s start with “GERS”.  No not the blue half of Glasgow but the: “Government and Expenditure Revenue Scotland 2010-11”, or GERS for short.

The latest GERS report was published this week and shows that Scotland contributed 9.6% of UK public sector revenue and received 9.3% of total UK public sector expenditure.  These figures include a per capita share of UK debt interest payments.  Scotland’s population is 8.4% of the UK total.  Scotland’s estimated current budget balance in 2010-11, which is primarily day to day expenditure, was a deficit of £6.4 billion, or 4.4% of GDP.  These figures include a geographical share of North Sea revenues.  The corresponding UK figures were a deficit of £97.8 billion or 6.6% of GDP for the same year.  That includes 100% of North Sea revenues.

As is usually the case with statistics, and probably even more so with those which are used as ammunition in the fiscal powers debate, economists and other commentators will argue back and forth on what these facts and figures tell us.  That is why I agree with Reform Scotland’s call for the Office for Budget Responsibility to provide forecasts for all taxes raised in Scotland and not just those that might be devolved by the Scotland Bill.  Reform Scotland’s press release can be found here.  More on GERS can be found here.

Now to the fiscal powers debate.  This week it was Labour’s turn to announce a “commission that will look at how devolution should change and what further powers should be devolved to the Scottish Parliament.”  This means that none of the main political parties are arguing for the status quo or even just the Scotland Bill.  The Liberal Democrats have already announced their own commission and the Conservatives, or rather the UK Conservatives by way off the Prime Minister, have said that they will consider devolving further powers if Scotland votes no in 2014.

The announcement of yet another commission received quite a lot of media of coverage.  The fact that Labour think a second referendum will be required if Scotland votes “no” in 2014 was less commented upon.  I suspect that this will also be the view of both the Liberals and the Conservatives.  That clearly conflicts with the argument that Scotland needs an early referendum to stop “uncertainty”.  An article on this from the STV news website can be found here.

Aberdeen City Council is expected to apply for more than £90m of tax incremental funding (TIF) following a ‘yes’ vote in the Union Terrace Gardens referendum.  A report on this from the STV news website can be found here.  I have written before on why I support TIF and the type of thinking behind this type of idea.  The one caveat I have concerns the number of these projects. As was found in the United States, if too many projects are approved the ability to fund both old and future projects gets harder.  The Scottish Futures Trust is though well aware of what happened in places such as Illinois, where I worked as an attorney, and first came across TIF.  More on TIF can be found here.

I was not surprised to read that a last minute bid to stop the Scottish Government’s plan to levy a tax on supermarkets and large shops has been defeated.  The “Tesco tax”, as this proposal has been termed, will see retailers which sell alcohol and tobacco pay an extra £95m in business rates over the next three years.  A BBC news website piece on this can be found here.

Sometimes when you read a story about the workings of government, local or national, you just sigh.  This is one such story.  Whitehall departments have been criticised for overspending by £500m on schemes that were actually intended to save money.  The National Audit Office found that UK ministers failed to offer clear management for the setting up of pooled resource centres.  The aim was to stop costs being duplicated.  The ever excellent Labour MP Margaret Hodge, who chairs the House of Commons Public Accounts Committee, said that the overall figures provided: “a shockingly familiar story of spiralling costs and poor value for money”.  Will anyone be brought to account?  Will a gong have to be returned or a bonus forfeited?  I suspect not.  A BBC news website piece on this can be found here.

Now to the Budget debate.  For “debate” read “battle between and briefing against your coalition partners.”  There are a number of fronts in this battle.  These include how quickly to increase the personal allowance limit, whether to reduce higher rate pension tax relief, the possible introduction of a “Mansion” tax and whether to retain the 50p top rate of income tax.  Is it worth speculating as to the outcome of these battles?  Not really.  Fun though that would be this is a political game pure and simple.  The “winner” will be the side who at that moment has the most power not necessarily who has the best ideas.  It was ever thus.

The more interesting debate, and this has just really begun, concerns whether and to what extent wealth as opposed to income should be taxed.  That is where the debate is going.  I will come back to this issue after the UK Budget.

One final point on the so called “Mansion tax”.  I do find the lack of commentary on the fact that local taxation is devolved to the Scottish Parliament amusing.  Can you imagine the Scottish Parliament’s reaction to the UK Government interfering with one of the few tax powers it has?  Let’s call that a rhetorical question.  We do know how the UK Government reacts if the Scottish Parliament or the Scottish Government dares to do something that touches on a reserved matter.  Here are a few examples: free personal and nursing care, local income tax and minimum pricing for alcohol.

As with last week’s blog I will end with the French presidential election and news that Francois Hollande, the Socialist candidate, has announced plans to raise the top rate of income tax to 75 per cent on “indecent” annual incomes above €1 million. The use of the word “indecent” says it all.

Good luck to all our teams in action in Ireland this weekend.

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