The ‘Smith Commission’ and the ‘Autumn Statement’

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.

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Tax powers so far refused by Westminster (updated)

I have updated this blog as we now have updated “GERS” figures and the Scottish Labour party has published its interim “Devolution Commission” report.  Its findings are similar to the Liberal Democrat proposal.

Although the Scottish Conservatives now appear to be moving towards arguing for the devolving of further tax powers there is as as yet no firm proposal from them.

Listed below are the taxes, duties and charges that Westminster has so far refused to pass control to the Scottish Parliament.

In bold are the additional powers the Liberal Democrats are putting forward for devolving.  This information is from its “Home Rule Commission” published in October 2012.

In red are the additional powers the Scottish Labour party might argue for devolving.  I say “might” as its report is an “interim” report only.

The figures are mostly from the “Government Expenditure & Revenue Scotland 2011-12” (GERS).  The figures are included to give an idea as to the level of revenue produced by a particular tax and are a number of millions of pounds.

  1. Full control over income tax including the underlying law dealing with reliefs etc (some additional powers but not complete control)  (similar proposal from Labour) 10,790
  2. National insurance contributions  8,393
  3. Corporation tax (assignation of revenue only)  2,976
  4. North Sea revenue  10,573
  5. Fuel duties  2,296
  6. Capital gains tax (partial control only) (similar proposal from Labour) 246
  7. Inheritance tax (to be devolved)  (possibly)  164
  8. Other stamp duties – stamp duty and SDRT on shares (estimated)  276
  9. Tobacco duties  1,129
  10. Alcohol duties  (includes spirit, wine, beer and cider duties)  981
  11. Betting and gaming duties  115
  12. Air passenger duty (even though included in Calman) (not clear if to be completely devolved)  (similar proposal from Labour)  213
  13. Insurance premium tax  251
  14. Climate change levy  64
  15. Aggregates levy (even though included in Calman) (not clear if to be completely devolved) (similar proposal from Labour)  52
  16. Vehicle excise duty  (possibly)  475
  17. Bank levy (estimate as no separate Scottish figure)  180
  18. Licence fee receipts  325
  19. Crown Estate revenue  (not clear if to be completely devolved) (if Scottish Parliament accepts UK Government terms)  10
  20. VAT cannot be devolved but VAT revenue could be assigned  9,554

 

Taxes already devolved to be devolved under Scotland Act 2012

  1. Income tax (still only partial control over tax bands and will cost Scottish Parliament millions of pounds a year to administer even if not used)  (estimated partial control over)  5,395
  2. Council tax  1,987
  3. Business rates  1,933
  4. Stamp duty land tax (Scottish Parliament control by April 2015)  330
  5. Landfill tax (Scottish Parliament control by April 2015)  97

 

The Scotland Act 2012 also does not resolve the imbalance between the amount the Scottish Parliament is responsible for spending and which it raises.  The Scotland Act 2012 only takes us to about a third.

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Another few weeks in “tax land”

Let’s start with the incredible revelation that large multi-national companies put a great deal of effort into paying as little tax as possible.  The debate surrounding this issue is long overdue.  I am also glad to say that there has been some great commentary on this issue.

Examples include:  Ian Bell’s: “It’s not an accident Westminster’s financial system allows tax avoidance … it’s designed that way”.  His article from the Herald can be found here.

Joyce McMillan outlines the wider debate and criticises the focus at Westminster on benefit fraud rather than tax avoidance.  Her article from the Scotsman can be found here.

George Kerevan’s article titled: “Taxing questions for complicit governments” from the Scotsman can be found here.  This is from the article: “The current generation of highly profitable internet companies have taken (legitimate) transfer pricing to extraordinary new limits. Google manages to operate almost tax-free in the UK, France and Germany, despite generating more than £35 billion in revenues in all three countries.”

Alsion Rowatt writing in the Herald comments on the increasing evidence of multinational corporations’ tax avoidance and criticises the HMRC for not keeping up with the internet age.  This article can be found here.

And from the Guardian: The bosses of some of Britain’s largest multinational corporations have urged David Cameron to stop moralising and rein in his rhetoric on tax avoidance.”  The article in full can be found here.

For an example as to how far some companies will go look no further than our utility companies.  More on this from the Telegraph can be found here.

To summarise.  Companies rarely consider “morality” when deciding how much tax to pay.  I use the word “decide” intentionally.  These companies after all have a duty to their shareholders.  The fact is that UK and international taxation law is full of holes and has always been.  The politicians know this.  The politicians have always known this.  In the so called good times this issue was simply ignored.  Is there an easy answer? Of course not.  Do the politicians desperately want to be seen to be doing something? Of course.  Is there a huge amount of hypocrisy around this issue?  Yes.  Do governments want inward investment?  Yes.  Will they offer tax breaks to achieve this?  Yes.  Is the headline rate of tax the only deciding factor for companies?  Of course not.  Is there a growing perception in the UK that the taxation favours certain sectors over others?  I believe so.  Is this debate going to continue?  I hope so.

Now to the fiscal powers debate and two stories on the Scottish Conservatives.  The headlines contain the phrases “under attack” and “under fire” and show how difficult a position Ruth Davidson is in.  It seems she is damned if she does, damned if she doesn’t.  The Scotsman article can be found here and the Herald article here.

The head of one of the UK’s largest quarries has accused tax collectors of “arrogant and high-handed behaviour” ahead of a case this week involving millions of pounds in unpaid aggregates levies.  Aggregates levy was of course one of the taxes recommended for devolving under Calman.  The article from the Scotsman can be found here.

Now to London.  Boris Johnson continues to argue that London should have the same fiscal powers as those available to the devolved parliaments in Scotland and Wales.  This is a debate that is going to run and run.  More on this can be found here.

HMRC has begun a campaign to make professional football managers and coaches regularise their tax position. It has forced the English Football Association to provide a list of its 3,300 registered coaches, and has written to them all warning that “we have received extensive data about coaches from sources in the football community”.  Presumably HMRC knows that football is played in Scotland as well.  More on this can be found here.

Now to Europe and another example of the increasing role it is playing in tax matters.  The European Commission will present a legislative proposal to require the EU-wide automatic exchange of all types of information on taxable incomes, including dividends, capital gains, salaries, directors’ fees, pensions, life insurance and rents, rather than just interest as now. It will be implemented by an amendment to the EU Directive on Administrative Cooperation which came into force in January.  More on this can be found here.

Now to the USA.  Criminal investigations by the Internal Revenue Service rose 9% to 5,125 in the last fiscal year.  The number of convictions has risen to 2,634 aided by a 93% conviction rate.   More on this can be found here.  I suspect the trend is similar in the UK.

Again from the USA and a story that will I am sure run and run.  The IRS has admitted that its staff gave special scrutiny to the tax-exempt status of organisations supporting the conservative Tea Party alliance during the 2012 presidential election campaign. The IRS says it was trying to distinguish between political organisations as such, and social welfare organisations that are not allowed to engage in political campaigning as their primary activity.  US President Obama has now sacked the Head of the IRS, Steven Miller and the FBI has launched a criminal investigation into the affair.  Two articles on this from the Wall Street Journal can be found here and here.

And finally to France.  The French Government has dropped plans for corporate governance legislation to cap executive pay. Instead the 2014 Budget will introduce the long-threatened 75% levy on employers who pay salaries over €1m.   More on this from Reuters can be found here.

Have a great weekend.

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Another few weeks in “tax land”

Let’s start with Scotland.

According to a new report by the Scottish Government, the tax-take per person is higher in Scotland that the rest of the UK.  Finance Secretary John Swinney says the analysis of tax revenue over three decades proves the country “more than pays its way”.  More on this from the Herald can be found here and the Scottish Government here. 

One of the UK’s foremost ­experts on devolution has warned that new tax-raising powers for the Scottish Parliament have “serious limitations”.  Speaking to Holyrood’s ­finance committee, Gerard Holtham, who chaired a commission in Wales examining the case for more devolved powers for the principality, backed a much wider remit to allow the Scottish Parliament to vary individual bands within the income tax system.

Under the forthcoming Scotland Act powers, Holyrood will take control of a new Scottish rate of income tax, allowing MSPs to reduce or increase the levy as they see fit.  However, they will not be able to change the rates within the system, meaning that any change will apply to lower, middle and higher rates equally.  As I have argued on numerous occasions the Scotland Act 2012 income tax proposal is a mess and does not devolve any meaningful power to the Scottish Parliament.  More on this from the Scotsman can be found here here.

Interesting to see how the First Minister of Wales is following the First Minister of Northern Ireland.  They are both trying to use the Scottish independence referendum as a means to pressure the UK Government into devolving tax and fiscal powers.  More on this from the BBC news website can be found here.

An explanation as to why the First Ministers feel that they have to use this type of argument is shown by the failure of the UK Government to devolve air passenger duty.  Not all of the Calman Commission proposals were implemented by the UK Government.  Air passenger duty was one of the taxes although recommended for devolving was not devolved.  That is why the Scotland Act 2012 is called “Calman minus”.  That is also why we are still hearing calls for air passenger duty to be devolved.  More on this from the BBC news website can be found here.

It also seems that London does not want to be left behind.  Boris Johnson, the Mayor of London, is again calling for new financial powers for London.  The proposals, by the London Financial Commission who were appointed by Johnson, call for London to have the power to raise property and tourism taxes, and various housing and infrastructure spending powers.  More on this from the Guardian can be found here.  No matter the result of the Scottish independence referendum pressure on the UK Government to devolve power away from London, and ironically to London, will continue.  What is particularly interesting is that this does not just mean Scotland but almost every part of the UK.

The UK Chancellor should stop discriminating against visiting foreign musicians and artists by denying them tax breaks which are offered to top foreign footballers and athletes, leaders of Britain’s biggest orchestras have argued.  More on this from the Telegraph can be found here.

Launched in June 2010 by the UK coalition government, the National Insurance “holiday scheme” was aimed at cutting staffing costs for newly-established businesses outside London and the south-east of England.  Eligible firms do not have to pay NI contributions for their first ten employees, with a maximum saving of £5,000 per staff member in their first year.  However, the initiative, which is due to end in September, has failed to live up to its promise and it seems only a few companies have benefited from it. More on this from the Scotsman can be found here.

The House of Commons Public Accounts Committee has claimed that the UK’s largest accountancy firms are using inside knowledge from staff seconded to HM Treasury to help leading companies and wealthy individuals avoid paying UK taxes.  The Public Accounts Committee has also recommended that these companies should be prevented from advising the UK Government on tax law.  In its report on this issue they also claim that these firms have “undue influence over the tax system”.  More on this from the BBC News website can be found here.

A controversial “sweetheart” tax deal between HMRC and Goldman Sachs worth up to £20m, was agreed in part to avoid embarrassment to George Osborne, according to the UK Government’s former head of tax.  Dave Hartnett has said that he decided to settle the long-running dispute after Goldman Sachs threatened to pull out of a prized new tax framework a week after the UK Chancellor had announced that the bank had signed up to it. More on this can be found here.

HMRC raises yield from wealthy taxpayers again.  The top 1% of earners paid 26.5% of the total income tax take in 2012/13, according to figures from HMRC.  More on this from the STEP journal can be found here.

The Scottish Government has published a bill aimed at tackling illegal dumping. The Landfill Tax (Scotland) Bill will transfer responsibility from the UK Government for administering the tax and encourage the proper disposal and recycling of waste.  More on this can be found here.

The Financial Transactions Tax has been in the news again.  The negative reaction from the City of London is as expected.  What is slightly more surprising is how far the UK Government will go to prevent this tax from coming into existence.  The UK Government has launched a legal challenge against plans for a European Financial Transactions Tax.  More on the UK Government’s challenge from the BBC news website can be found here and more generally from the Telegraph here.

Now to an example of European cooperation.  The UK Chancellor of the Exchequer has signed an information exchange agreement with the finance ministers of France, Germany, Italy and Spain in yet another attempt to crack down on tax evasion.  Under the agreement, banks in these countries will be forced to reveal financial details of foreign clients.  More on this can be found here.

Now to matters further afield and a relatively new area for taxation, the internet.  By a vote of 75 to 24, US senators adopted an amendment to a Democratic budget resolution that, by allowing states to “collect taxes on remote sales,” is intended to eventually usher in the first national, i.e. American  internet sales tax.  More on this can be found here and here.

Now to Greece.  The International Monetary Fund has criticised Greece for making very little progress in tackling its notorious tax evasion problem.  It says the rich and self-employed ‘are simply not paying their fair share’ and the tax authorities are still bedevilled by ‘pervasive political interference’.  The IMF also said that Greece is making progress in overcoming deep-seated problems in the midst of a very serious and socially painful recession. More on this can be found here. 

Finally the not unexpected news that Silvio Berlusconi’s four-year conviction for tax fraud on TV rights bought by his Mediaset TV empire has been upheld.  Mr Berlusconi had appealed against a sentence passed by a lower court in 2012, which had found him guilty of tax fraud, but the appeals court reinstated the 2012 conviction and said he should serve four years in jail. More on this can be found here here.

Have a good weekend. 

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A busy month in “tax land”

Let’s start with the independence debate.  Michael Moore has confirmed that the UK Government will not be bringing forward a proposal for further devolution.  I wonder if that will change if the opinion polls change.  This at least gives us a clear choice.  The choice being between “Calman minus” combined with the extremely unlikely scenario of Westminster devolving serious tax and fiscal powers after a ‘NO’ vote, and control over all tax and fiscal powers by 2016.

I think the ‘NO’ campaign has made a mistake here.  How those whose preferred choice is ‘devo plus’ or ‘devo max’ vote holds the key to which side wins in 2014.  Are they more likely to vote ‘NO’ as a result of Michael Moore’s statement?  The ‘NO’ campaign has not had a good start to the year.  The independence will cost £1 gaffe, support for the Scottish Government’s timetable for the transition to independence, the ridiculing of the claim that Scotland would need to ratify 8,500 treaties and then there was the loss of the UKs ‘AAA’ rating.  A serious proposal for further tax and fiscal powers would at least been a positive move by the ‘NO’ campaign and a change from the continuing negativity.

Now to a man who it seems can do anything.  Olympics gold medals, not a problem.  Forcing the HM Treasury into a u-turn, not a problem.  The UK Government has after all decided to grant a tax amnesty to non-resident athletes attending the London Grand Prix event this July. Olympic champion sprinter Usain Bolt announced that he would not attend unless his global earnings from sponsorship and endorsements were exempted, but until now HM Treasury had resisted the demand.  More on this from the STEP Journal can be found here.

A report by the House of Commons’ influential Public Accounts Committee says that promoters of so-called boutique tax avoidance schemes are “running rings around HMRC in a game of cat and mouse that HMRC is losing”.  It suggests that HMRC should publicly name those who sell ‘abusive’ schemes to as many clients as possible before HMRC shuts the scheme down.  This is estimated to cost the HM Treasury £5bn a year.  The Committee claimed that HMRC only knows about 46% of tax avoidance schemes, and that promoters who run the schemes find it unacceptably easy to put forward a “reasonable excuse” for not disclosing the scheme in order to escape a fine.  More on this from Accountancy Age can be found here and the Guardian here.

The UK government is to disqualify companies and individuals from bidding for public contracts if they have taken part in failed tax avoidance schemes.  This applies from 1 April 2013. Bidders will have to notify procurement departments if any tax return in the past 10 years has been found incorrect as a result of an HMRC challenge, or has contravened the Disclosure of Tax Avoidance Scheme rules.  More on this from HM Treasury can be found here.

A mansion tax is back in the news.  Although as it is a local taxation proposal it is not just a matter for the UK Parliament.  Local taxation is controlled by the Scottish Parliament.  A point missed by most reports.  The Liberal Democrats proposal would see either a 1% levy on homes worth over £2m or the introduction of new council tax bands for expensive homes.  More on the Liberal Democrat proposal from the Guardian can be found here.  The Labour Party has also announced plans to introduce a mansion tax on all homes worth more than £2m in order to fund the reintroduction of the 10p tax rate abolished in 2007.  More on the Labour proposal from the BBC News website can be found here.

An ongoing programme of jobs cuts helped play a major part in HMRC exceeding their cost-savings target for 2011/12, according to a report by the National Audit Office.  The report can be found here.  The figures give an indication of the scale of the cuts suffered by HMRC.  Spending slashed by £269m over the 12 months to 31 March 2012.  This was 19% more than the anticipated £249m.  A reduction of £140m was made by axing 2,400 full-time equivalent members of staff. The department plans to have lowered its running costs by £950m between the UK Government’s 2010 sending review and the end of the 2014/15 tax year.  It expects to see the loss of 10,000 full-time equivalent employees and 300,000 square metres of estate.

Press reports indicate that the inheritance tax nil rate band is to be frozen for several more years beyond the already announced date of April 2015, as part of the UK Government’s plans for funding elderly care in England.  More on this from the Herald can be found here and the BBC news website here.  Another example of the problem that can arise under devolution when the tax power remains at Westminster, inheritance tax, and control over an associated area such as social care is devolved.

Now to the least surprising story of the month.  The Confederation of British Industry has warned that the new Financial Transaction Tax announced by the European Commission may have a detrimental effect on UK jobs and growth.  Matthew Fell, the CBI Director for Competitive Markets, said: “it is particularly worrying that the increased scope of the tax will now cover businesses’ risk management activities, as well as hitting financial services in non-participating member states, like the UK, because of extra-territoriality”.  More on this story from the Telegraph can be found here.

Now to Europe and how the EU is demanding action against tax-planning.  The European Parliament’s Committee on Economic and Monetary Affairs has published a report proposing that member states revoke the banking licences of financial institutions that help their customers evade taxes.  More on this can be found here.

The heavy tax increases imposed by the Greek Government last year have actually caused a sharp fall in tax receipts. January’s tax revenues in Greece fell to €4.05bn, 16% down on the January 2012 figures, due to a collapse in consumption and a corresponding decrease in indirect tax payments.  More on this can be found here.

An interesting opinion piece can be found in the New York Times challenging the ‘Myth of the Rich Who Flee From Taxes’.  It was prompted by US Masters golf champion Phil Mickelson’s recent threat to decamp from California because the state’s top rate of income tax is increasing from 10.3 to 13.3%.  I agree with the conclusion reached.  It really is a myth although it does not stop those arguing against serious tax and fiscal powers for the Scottish Parliament from using it. The piece from the New York Times can be found here.

And lastly, well done to the Scottish teams who beat Ireland at the weekend.

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Another few weeks in “tax land”

Where to start.  So much has already happened in 2013.

Let’s start with the independence debate.  I had finally finished my chapter on “the battle for a Scottish tax system” and then another devolution proposal appears and Ruth Davidson almost says something of interest on the tax and fiscal powers debate.

The latest devolution paper is called “devo more” and it is from The Institute for Public Policy Research (IPPR).  I know it is difficult to keep up.  Again it starts from the premise of what is best for the UK not necessarily Scotland.  Personal income tax, partial control of VAT, excise duties on alcohol and tobacco and air passenger duty would be devolved.  Alan Trench, of the University of Edinburgh, who wrote the report, said it was “clear devolution must go further to meet popular demand and his plan minimises the adverse effects on other parts of the United Kingdom.”  The IPPR report can be found here.

It is a pity that there was not more interest shown in putting together a serious proposal for tax and fiscal powers for the Scottish Parliament during Calman.  Let’s not forgot that none of the “NO” parties  has come close to arguing for the powers recommended for devolving in “devo plus”, let alone “devo max”, to be devolved to the Scottish Parliament.  The Liberal Democrats have even gone backwards form what they proposed under the Steel Commission.  See my earlier blog on this which can be found here.

Then we had Ruth Davidson’s speech which promised a lot and delivered almost nothing.  Davidson promised no new tax or fiscal powers, no timetable for even considering the issue and no confirmation that she has moved on from saying that corporation tax and welfare powers should not be devolved.  What did she say, or rather what did she hint at:  “Sources close to Davidson confirmed that she will consider setting up a new commission to examine the devolution of more powers to the Scottish Parliament.”  For more on Davidson’s speech see Alan Cochrane’s report in the Telegraph which can be found here.

The stance of the “NO” parties is a continuation of what I call the “Calman doctrine”.  Do nothing unless under pressure, then if under pressure 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.

Time, and credibility, is fast running out for the “NO” campaign parties if they are to come up with a serious tax and fiscal proposal.  The most recent “Scottish Social Attitudes Survey” was clear.  Independence had 35% support and “devo max” 32%.  That is a clear majority for almost all powers, including tax and welfare powers, to be devolved to the Scottish Parliament.

Now to the UK tax system.  It seems that no-one is happy.

Two recent stories show why a Scottish tax system is needed.   The first one relates to carbon capture.  The article on this from the Herald can be found here.   The second relates to air passenger duty.  The article on this from the Scotsman can be found here.

Then there is the House of Commons Treasury Select Committee.  It has called for the re-establishment of a single annual UK Budget, saying that the UK’s Autumn Statement has increasingly taken on the character of a second Budget resulting in uncertainty and costs for business and the economy.  A report published by the Committee says:  “The primacy of the Budget as the main focus of fiscal and economic policy making should be re-established”.  More on this from the BBC news website can be found here.

The impressive chair of the House of Commons Public Accounts Committee, Margaret Hodge, has claimed that new tax laws are excessively influenced by major corporations and accountancy firms.  Hodge has argued that working groups set up by the UK Government to discuss tax reforms were overly dominated by those with vested interests in reducing their tax contributions.  More on this from the BBC news website can be found here.

Even business leaders are seemingly unhappy.  The UK Government’s plans to reform tax laws forcing large companies to be more transparent regarding their tax affairs have been criticised by business leaders.  The fear is that such laws would stifle the UK’s economic recovery as businesses would be reluctant to locate in the UK.  More on this from the Guardian can be found here.

HMRC offers poor value for money, according to a report by the National Audit Office.  The report claims that more than 20 million phone calls went unanswered last year, whilst callers who did get through were made to wait on average 282 seconds, up from 107 seconds last year, costing the public £33 million on call charges.  More on this can be found here.

It has been claimed that the UK Government will have raised taxes 300 times and ordered 120 tax cuts by the end of their proposed term of government.  More on this claim from the Telegraph can be found here.  One of the more controversial UK tax proposals is termed a “bedroom tax”.  More on this can be found here.

David Cameron has told the World Economic Forum conference in Davos that he will use the UK’s G8 presidency to launch a campaign against ‘unethical’ tax avoidance by multinational companies using ‘an army of clever accountants’.  The accountancy profession whilst I am sure not unhappy at being termed clever, took umbrage with what Cameron said.  More on this from the STEP journal can be found here.  Interestingly Cameron again brings ethics into the tax debate.  That said, does he intend to include the Crown Dependencies and the British overseas Territories in this campaign?  If not, this is nothing but a press release.

Members of France’s socialist cabinet have denounced the famous actor Gerard Depardieu, who has shifted his residence just over the Belgian border in order to escape the Hollande government’s tax rises.  Depardieu has retorted with an open letter to the newspapers, accusing the French Government of punishing success and talent, and offering to give up his passport.  More on this can be found here.

Let’s end with some news on a Financial Transaction Tax.  Eleven EU member states are to introduce a tax on financial transactions expected to generate £35bn in annual revenues.   As a tax avoidance measure, the European Commission has amended the relevant directive to catch any transaction where either of the parties is domiciled in the tax area, or is trading on behalf of a client in the tax area.  That will mean that this will also apply to some UK transactions.  The European Commission is now expected to present proposals on the detail of this new taxation scheme which will need to be accepted by unanimous agreement of the participating states.  More on this can be found here.   Whether to introduce a Financial Transaction Tax is just one of the many tax decisions Scotland will be able to decide for itself if it decides to vote “YES” in 2014.

Have a great weekend and in particular to all those representing Scotland this weekend.

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Tax powers so far refused by Westminster

I have updated this blog as we now have updated “GERS” figures and the Scottish Labour party has published its interim “Devolution Commission” report.  Its findings are similar to the Liberal Democrat proposal.

Although the Scottish Conservatives now appear to be moving towards arguing for the devolving of further tax powers there is as as yet no firm proposal from them.

Listed below are the taxes, duties and charges that Westminster has so far refused to pass control to the Scottish Parliament.

In bold are the additional powers the Liberal Democrats are putting forward for devolving.  This information is from its “Home Rule Commission” published in October 2012.

In red are the additional powers the Scottish Labour party might argue for devolving.  I say “might” as its report is an “interim” report only.

The figures are mostly from the “Government Expenditure & Revenue Scotland 2011-12” (GERS).  The figures are included to give an idea as to the level of revenue produced by a particular tax and are a number of millions of pounds.

  1. Full control over income tax including the underlying law dealing with reliefs etc (some additional powers but not complete control)  (similar proposal from Labour) 10,790
  2. National insurance contributions  8,393
  3. Corporation tax (assignation of revenue only)  2,976
  4. North Sea revenue  10,573
  5. Fuel duties  2,296
  6. Capital gains tax (partial control only) (similar proposal from Labour) 246
  7. Inheritance tax (to be devolved)  (possibly)  164 
  8. Other stamp duties – stamp duty and SDRT on shares (estimated)  276
  9. Tobacco duties  1,129
  10. Alcohol duties  (includes spirit, wine, beer and cider duties)  981
  11. Betting and gaming duties  115
  12. Air passenger duty (even though included in Calman) (not clear if to be completely devolved)  (similar proposal from Labour)  213
  13. Insurance premium tax  251
  14. Climate change levy  64
  15. Aggregates levy (even though included in Calman) (not clear if to be completely devolved) (similar proposal from Labour)  52
  16. Vehicle excise duty  (possibly)  475 
  17. Bank levy (estimate as no separate Scottish figure)  180
  18. Licence fee receipts  325
  19. Crown Estate revenue  (not clear if to be completely devolved) (if Scottish Parliament accepts UK Government terms)  10
  20. VAT cannot be devolved but VAT revenue could be assigned  9,554

 

Taxes already devolved to be devolved under Scotland Act 2012

  1. Income tax (still only partial control over tax bands and will cost Scottish Parliament millions of pounds a year to administer even if not used)  (estimated partial control over)  5,395
  2. Council tax  1,987
  3. Business rates  1,933
  4. Stamp duty land tax (Scottish Parliament control by April 2015)  330
  5. Landfill tax (Scottish Parliament control by April 2015)  97

 

The Scotland Act 2012 also does not resolve the imbalance between the amount the Scottish Parliament is responsible for spending and which it raises.  The Scotland Act 2012 only takes us to about a third. 

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