Time for another “tax land”.

Where to start?  Jersey seems as good a place as any.  Jersey is also considering its constitutional options.  This is not new news.  I was in Jersey a couple of years ago and independence was also being discussed amongst the lawyers I was meeting.  Jersey is in a different position to Scotland as it is for all intents and purposes already fiscally autonomous and is a British Crown dependency.  An article on this from the Guardian can be found here.  This is from the Guardian article:

“A barrage of regulatory clampdowns and political attacks on the Channel Islands’ controversial financial industry has prompted one of Jersey’s most senior politicians to call for preparations to be made to break the “thrall of Whitehall” and declare independence from the UK.  Sir Philip Bailhache, the island’s assistant chief minister, said: “I feel that we get a raw deal. I feel it’s not fair.  I think that the duty of Jersey politicians now is to try to explain what the island is doing and not to take things lying down.  The island should be prepared to stand up for itself and should be ready to become independent if it were necessary in Jersey’s interest to do so.”

It seems that the constitutional genie is well and truly out: Scotland, Falkland Islands, Jersey and now it seems on UK membership of the European Union.

Now to the announcement by the Scottish Government of its intention to create its own tax administration and collection agency, to be called Revenue Scotland.  Its main job initially will be to administer the two new Scottish taxes devolved under the Scotland Act.  The fact that it is to work closely with Registers of Scotland and the Scottish Environment Protection Agency, also makes sense.  These new taxes, a Scottish Stamp Duty Land Tax and a Landfill Tax, will be directly linked to the work done by these organisations.  A press release from the Scottish Government on this can be found here.

As regular readers of this blog will know I have been writing about this issue for many years now.  Whilst I welcome this announcement I still think we need to be more radical.  We need to review all government tax, law and registration services.

I was not surprised to see some negative comments about the Revenue Scotland announcement. However, if Scotland has its own tax system it needs its own tax administration and collection agency.  That applies just as much under the Scotland Act as independence.  That though is not the only reason.

Let’s not forget the fact that UK tax law is based on English legal principles, or how HMRC and HM Treasury dealt with the introduction of Stamp Duty Land Tax in Scotland, or the inheritance tax changes to trusts, or the proposed planning-gain supplement, or the Scottish Government’s local income tax proposal or VAT and the new Scottish police and fire services.  All good reasons for welcoming Revenue Scotland.

The Scottish Government is in no doubt that Revenue Scotland will be able to administer the new Scottish taxes at a lower cost than HMRC.  I agree with that.  I have also noticed that no-one seems to remember one of the more ridiculous claims made when the Calman Commission proposals were being debated.  The Scotland Office claimed that the cost of administering a separate Scottish tax system would be the same as the present UK system.   Complete and utter nonsense.  The Scotland Office paper can be found here.

One last point on Revenue Scotland.  I met with a number of Scottish Government officials just before the 2011 Scottish election on this issue.  It was quite clear that they wanted nothing to do with this idea and only met with me at the insistence of a Scottish Minister.  Thank you Jim Mather.  I wonder if their attitude has changed in any way?  Let’s hope so as this is just the start.

The Scottish Government has also published its consultation on a Land and Buildings Transaction Tax.  This will replace Stamp Duty Land Tax.  The consultation for Scotland’s replacement to Landfill tax will follow later this year.  I use the word “summer” advisedly.  The consultation can be found here.

And there’s more.  The Scottish Government has finally published its consultation in a “plastic bag tax”.  The consultation can be found here and a press release from the Scottish Government here.

Even the UK Government is playing its part.  The UK Government is consulting on whether to allow the Scottish Government the power to issue its own bonds.  The move would potentially allow Scottish Ministers to raise hundreds of millions of pounds.  A provision in the Scotland Act 2012 has already enabled the UK government to amend the way in which Scottish Ministers can borrow from 2015-16.  An article on this from the BBC news website can be found here.  The consultation can be found here.

One last point on fiscal powers.  The UK government is reportedly considering proposals to devolve complete control of income tax if Scotland votes ‘no’ in the independence referendum.  This sums up nicely what is wrong with the UK Government’s approach to this debate.  If the UK Government has a serious proposal to make, make it.  If not be quiet.

Now to tax and morality.  David Cameron branded comedian Jimmy Carr “morally wrong” for seeking to avoid paying his fair share of tax.  Mr Carr is understood to use an aggressive, though legal, tax avoidance scheme which enables members to pay income tax as low as 1%.  This is dangerous territory for David Cameron.  Already the press have published the names of many others who are involved in similar schemes.  If David Cameron seriously wants to tackle this issue he must act against all those who seek to evade tax.  Has he considered the public disclosure of all tax returns or a minimum percentage of tax that must be paid?  I suspect not.

This is not just a UK Government issue.  The Herald discovered that Transport Initiatives Edinburgh used tax loopholes to allow directors to avoid paying income tax rates on £1 million in fees and bonuses. The company, which closed last year due to its handling of the trams project, paid directors and consultants through their firms.  As a result, they were subject to 20% corporation tax rather than 40% income tax.  The article from the Herald can be found here.

The evidence that the “rules” do not apply to everyone is growing.  Whether it is the 3,000 UK civil servants being paid through a company, or the payments made to those who were partially responsible for the trams fiasco in Edinburgh or the celebrities avoiding tax.  I am resisting the urge to say it was ever thus but in times such as this it does seem even more reprehensible.

One last point.  I often am quite critical of HMRC.  I would argue for good reason.  That said, is it really time to cut 10,000 jobs?  An article on this and the proposed strike by HMRC staff can be found on the BBC news website here.

Have a good week.

Not a great week for the UK Government and in particular George Gideon Oliver Osborne.  The problem here for the coalition government is not just the fact that there has been three U-turns in one week, it is the feeling that the March Budget was a bit of a shambles.  I would not go as far as that but it does seem a bit odd to me that so much was made of the so called “pasty” and “caravan” taxes and not that the UK Government did not even consider reducing VAT on repairs and renovations on residential property. 

As suspected the proposed cap on tax relief for charitable donations has been dead in the water for a number of weeks.  All we heard this week was  confirmation of that fact.  One final point on this.  These three U-turns come at a cost of approximately £150m.  Where is that revenue now to come from?   

“Flat rate” taxes were all the rage a few years ago.  Personally I have not been persuaded by the arguments put forward.  That said, as we start to think about how a Scottish tax system might look flat rate taxes should also be considered.  The latest call again came from those generally regarded to be on the political “right”, the TaxPayers’ Alliance and Institute of Directors.  In addition to arguing for a single rate of income tax the usual noises were made for the tax system to be simplified.  No-one is likely to argue against a simpler tax system until specific proposals are made.  For example, recent changes to the amount of personal allowance for those aged over 65.  This change has been termed the “granny tax”.  I did though like the idea of abolishing certain taxes although not necessarily those listed in this report.  It is claimed that the cost of these proposals would be met by prolonging the UK Coalition’s spending cuts by an extra five years.  More on this can be found here.  The report also claims that these changes would increase gross domestic product by 8.4% over 15 years.

Again on tax rates.  According to City A.M. the UK has continued to raise taxes while most other European Union countries tax rates have fallen.  The European Union average top rate of income tax decreased from 44.8 to 38.1% between 2000 and 2012.  In this same period, the UK’s average rose from 40 to 50% although the top rate is to fall from April 2013.  Unless of course we see another U-Turn.  The UK has though followed the European Union wide trend for raising VAT.  The average rate has risen from 19.2 to 21%, with the UK’s up from 17.5 to 20%.  The report from City A.M. can be found here.

Some stories do not surprise you in any way.  This is one of them.  Taxpayers are spending more than £1 million every month on the rent and upkeep of empty fire service control rooms that have never been used.  Details revealed under Freedom of Information legislation show that only one of the nine Fire Control centres is operational, despite the fact that taxpayers will continue to pay for their upkeep for up to 20 years.  This was reported in the Times on 24 May. 

Then there are stories that do surprise you but shouldn’t.  This is one of them and is also a story I have covered recently.  3,000 civil servants are employed by private firms in order to keep their tax bills down.  By remaining off the UK Government’s payroll, thousands of officials are avoiding paying national insurance contributions and are able minimise their overall tax contributions.  The report from HM Treasury can be found here.    

Good news that could have been even better news.  HMRC collected an extra £4.32bn during the last five years.  This is 11 times greater than the investment made for collecting this extra revenue.  However, a House of Commons Public Accounts Committee report claims that another £1.1bn could have been collected without job losses at HMRC.  A report on this from the BBC news website can be found here.

The International Monetary Fund (IMF) and in particular its managing director Christine Lagarde, is rarely out of the news these days.  Lagarde has said said that the UK economy had underperformed and unemployment remained much too high.  The IMF urged the UK Government to consider cutting interest rates and a further round of quantitative easing.  Ms Lagarde also said that UK ministers should prepare a plan for a worse economic environment which could include a cut in VAT.  However, the IMF also said that the UK Government should not divert from its aim of deficit reduction.  A report from the BBC news website can be found here.    

How to win friends and influence people.  Political parties in Greece have criticised Christine Lagarde for suggesting that Greeks were avoiding paying taxes.  Socialist leader Evangelos Venizelos accused Ms Lagarde of “insulting the Greek people”.  A report, again from the BBC news website, on this can be found here. 

There may be trouble ahead.  The UK Supreme Court has ruled that HM Treasury breached European Union law by retrospectively blocking tax refund claims.  The amount involved could be as much as £5bn.  Not surprisingly, HMRC has said that it is “considering the implications of this complex judgement carefully.”   A report on this from City A.M. can be found here. 
 
Now to what some might consider an overreaction.  Some US politicians are so irked at the idea that Americans are renouncing their citizenship to avoid tax, that they are introducing a new Senate bill to tax them forever.  A report on this from ABC news can be found here.  In addition, Congress is close to approving a law under which the Internal Revenue Service will be able to revoke the passports of Americans who owe substantial unpaid taxes.  An article from the Wall Street Journal on the passport claim can be found here. 

I think I will finish with fiscal powers.  HMRC is under no obligation to implement any tax proposal made by the Scottish Government under the Scotland Act.  HMRC can effectively veto any proposal if it differs too greatly from the UK system.  A report on this from the Herald can be found here.  I find it worrying that anyone is at all surprised about this.  I would be even more worried if I thought that anyone actually believes that HMRC and HM Treasury are happy to see tax powers being devolved.  I suspect that there are very few people in HMRC and HM Treasury who are happy to see the beginning of the end for a unified UK tax system.  An earlier blog on this point can be found here.     

Also on fiscal powers.  I still think it is unlikely that the so called “second question” will be asked as part of the independence referendum.  What will those who are arguing for “devo plus” and/or “devo max” do?  Will they vote for independence or the status quo and the hope of something more in the future?  This is an issue I will come back to after my well deserved holiday.  

Have a good weekend.

Let’s start with the recent local government election.  I was disappointed that none of the main parties, of which Scotland now only appears to have three, put forward any serious proposals for reforming how we pay for our local services.  There is though one body actively campaigning on this issue and that is the think tank, Reform Scotland.  An article in the Scotsman on this can be found here.  Reform Scotland want our local authorities to have the power to decide whether to adopt a property tax such as the Council Tax or a land value tax or instead opt for an income tax, a consumption tax or a number of different local taxes.

Now to fiscal powers and the fact that National Insurance turns 100 in July.  100 not out but for how much longer?  The idea of combining income tax and National Insurance was considered by a working party as long ago as 1993.  The main reason for this is the erosion of the link between National Insurance contributions and welfare benefits.  This issue is again being looked at.  Do I think we will see a complete merger?  No, unless both income tax and National Insurance are controlled by the Scottish Parliament.  This is an example of how a Scottish tax system could create a more simplified system.

Again on fiscal powers.  I was not surprised to see a number of Conservative MPs arguing for a “Devo Plus Bill” as part of an “alternative Queen’s Speech”.  This was published on the Conservative Home website.  Conservative Home support the Reform Scotland proposal which would devolve all taxes to Scotland except VAT and National Insurance.  More on this can be found here.

Now to a group of people termed “High Net Worth”.  HMRC has announced that its High Net Worth Unit’s tougher approach on wealthy taxpayers has resulted in an extra £200m of tax revenue.  David Gauke, Exchequer Secretary to HM Treasury, said: “The Unit’s approach ensures that HMRC is working as effectively as possible with the very wealthy and that they are contributing a fair share”.  This was reported in the Financial Times on 6 May.  The article also claims that the amount collected by this Unit has doubled since it began operations in 2009-10.  The aim is for £560m by 2014-15.  This does though beg the question: why was this Unit only set up in 2009?

Now to a claim that the UK Government Minister for Civil Society, Nick Hurd, was never consulted about the cap on charitable tax relief announced by HM Treasury in March.  More on this from the STEP journal can be found here.  The UK Government has been at sixes and sevens on this policy.  I will be surprised if it survives the summer.  Unless of course summer is already behind us.

Again from the STEP Journal.  1.6 million people should have received letters by now from HMRC warning them that they have been undercharged tax under the PAYE system and will have to pay extra.  Another 3.5 million people will be given a tax refund.  The STEP article can be found here.  An example of the sheer scale of the UK tax system and the problems it faces.

Good to see that the Scottish Government’s prosecution service has passed 20 cases of large scale tax avoidance to HMRC for investigation.  An article on this from the Scotsman can be found here.  The referencing of Al Capone must be compulsory when journalists write about this subject.

Sometimes an argument just makes you shake your head.  The Scottish Government has announced that the minimum price for alcohol will be 50p.  Although this proposal has received a huge amount of support, the leader of the CBI in Scotland has warned that supermarkets are likely to receive millions in extra revenue from drink sales.  That of course is true.  So why is this organisation against the devolving of control of alcohol duty to the Scottish Parliament and the Scottish Government’s Public Health Levy (also known as the “Tesco tax”)?  There is of course no need to answer that question.  An article from the Scotsman on this can be found here.

It seems that top rates of personal income tax across the Organisation for Economic Cooperation and Development (OECD) countries have begun to rise again in recent years after three decades of steady reductions.  The OECD press release can be found here.  Let’s not forget one of the main reasons for the reduction.  Politicians decided that “stealth taxes” were a better option.  For “better option” read “will help me get elected”.  The economic crisis put paid to that “cunning plan”.

“A serial killer is stalking the wealthy suburbs of Athens with an idiosyncratic choice of victims. They are all rich Greeks who have failed to pay their taxes, and their corpses have been left scattered among the ruins of the ancient city, dead of hemlock poisoning, the means of Socrates’ execution.”  This is the plot of the latest bestselling novel by Petros Markaris, who has combined the roles of thriller writer and social commentator in Greece to such an extent that he has become one of the most widely quoted voices in the crisis.  The article on this from Business insider can be found here.

Now to a story that combines sport, tax and the financial crisis.  Diego Maradona is suing the Italian government for £40m, despite owing it £32m in unpaid taxes.  Only in Italy!  The article from the Metro can be found here.

Lastly, an update on an issue I wrote about recently.  Co-founder of Facebook, Eduardo Saverin, is one of the thousands of wealthy Americans to have renounced his citizenship recently in order to avoid the country’s international taxation regime.  An issue for those planning a Scottish tax system to ponder.  An article on this from the STEP journal can be found here.

Have a good week.

For those of you struggling to sleep at night, may I recommend the latest UK Finance Bill.  According to the accountants Grant Thornton, at 686 pages, it is the longest Finance Bill in UK history.  The Finance Bill can be found here.  I am reluctant to even mention the fact that the UK Government has announced 45 tax consultations in case you stop reading.

I enjoyed Jeremy Peat’s comment piece on the UK Budget.  Jeremy comments on the 50p rate of income tax, the 40% income tax band, the economy and lending.  I particularly liked this comment: “What about incentives? Well, one effect of the Budget is to drag very large numbers of folks into the 40p tax band. Logically, I would have thought the adverse effect on the incentives of this substantially larger group would be expected to be [much] greater than any positive incentive effect from reducing the top rate to 45p for a much smaller group.”  If you are registered with the Herald website you can find all of Jeremy’s article here.

Now to the fiscal powers debate Italian style.  It is claimed that Italy’s prosperous German speaking South Tyrol autonomous province wishes to buy its financial independence.  South Tyrol has a population of around half a million and already has a large amount of autonomy. Up to 90% of tax revenue stays in the region, while the other 10% goes to Rome.  South Tyrol was occupied by Italy at the end of the WWI and annexed in 1919.  After WW2 the Allies decided that the province would remain a part of Italy, but would be granted a large amount of autonomy.  The article that I came across on Twitter can be found here.

“Devo max” for London?  An interesting article from the London Evening Standard can be found here.  I am surprised that Boris Johnson has not made more of an issue of this before now.

Last week I mentioned the report by the David Hume Institute on the debts and liabilities that an independent Scotland may be responsible for.  The report also made reference to the fact that the UK has approximately £821bn of “assets”.  I was glad to see that the “asset” side to the fiscal powers debate continued this week.  An article in the Scotsman on this issue by Jennifer Dempsie can be found here.

It seems that any new charge is automatically labelled a “tax”. My first example is from Dundee and a so called “tax on creativity”.  Members of Dundee’s licensing committee have decided to postpone implementing a controversial act that it is claimed could hinder the city’s arts scene.  The rule would have required exhibitions or public shows put on by the artists, gallery owners, musicians or publishers to be licensed from 1 April, even if they were free.  With the cost of a licence ranging from £124 to £7,500, artists said many free shows and exhibitions would simply not take place. The background to this is the Criminal Justice and Licensing (Scotland) Act 2010.  An article from the Courier on this can be found here.

My second example has been termed a “property extension tax” by the Daily Mail.  The Mail reported this week on how planning permission fees for property extensions will increase from £160 to £300 in Scotland.  The Mail compared this with the £150 charge in many English local authorities.

Now to the unsurprising news that charities have banded together to protest at the capping of donor tax relief that was announced by George Osborne in his Budget statement.  Two leading umbrella bodies, the National Council for Voluntary Organisations and the Charities Aid Foundation, have set up a website calling on Osborne to exclude charities from the proposed cap.  More than 200 organisations have already signed up to support the campaign, called “Give It Back George”.  Principals of five Scottish universities are among those signatories to a letter asking the UK Government to abandon this proposal.  The campaign website can be found here.  An article on this from the Scotsman can be found here.

An article in the Herald claims that this week’s 8% rise in Air Passenger Duty (APD) will lead to a 46% growth in HM Treasury’s revenue from APD by 2016.  It does seem that APD makes the news every week.  The reason for that is how APD is at the centre of a number of debates.  The airline industry would like to see it abolished or at least reduced.  Then there is the call for it to be devolved to the Scottish Parliament.  The UK Government has already signalled its intention to partially devolve APD to Northern Ireland.  Worth also noting that until recently the environment would be mentioned in the context of APD.  That though now rarely happens.  How quickly things change.  An article from the BBC news website can be found here.  If you are registered with the Herald website an article on APD can be found here.

The Guardian reports that the House of Lords Financial and Economic Affairs Committee has warned against the planned European Union financial transaction tax.  That is not a surprise.  What is interesting about this article is that it covers a possible alternative to the proposed financial transaction tax.  The alternative is the introduction of national stamp duties on share transactions, which the UK already has and which France is set to follow in August.  The Guardian article can be found here.

Now to Ireland and news that almost half of Ireland’s 1.6 million households have refused to register to pay the new €100 annual tax on residential property by the 31 March deadline.  The mass non-compliance was organised through an Internet campaign and backed by protest marches.  The levy, which also applies to foreign owners, is expected to rise sharply next year.  A report on this from the Irish Times can be found here.

Swiss authorities have issued warrants for the arrest of three German tax inspectors.  The three are accused of buying a CD containing bank client data stolen from Credit Suisse in Zurich, which led to the investigation of hundreds of German taxpayers with undeclared Swiss accounts.  The Prime Minister of North-Rhine-Westphalia has come to the defence of the tax inspectors and has said that the tax inspectors were only doing their duty.  Given the escalating war of words between these countries in this issue, I suspect that this matter will run for a while yet.  A report from Spiegel online can be found here.

Good luck to Edinburgh Rugby this weekend and also to those competing at the new look Gala RFC sevens.  I wonder if any politicians will be pictured eating hot pasties or sausage rolls at these events.  Have a good Easter weekend.

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.

As with any Budget statement, it is best to take a few days before passing judgement.  That said, and even before all of the detail has been analysed, there are a number of issues that stand out even just 24 hours after the Chancellor sat down.

The first concerns the debate, for “debate” read “leak everything”, that has surrounded a large number of Budget issues over the last few months.  We have a come a long way from the days when Gordon Brown did not even tell Tony Blair what was going to be in the Budget statement.

The proposed reduction in the top rate of income tax has dominated the political news coverage over the last few months.  The debate over how much it has raised will not end with the Budget statement.  There is no doubt it has led to a great deal of tax avoidance, aggressive tax avoidance.  That was to be expected.

The changes to the personal allowance and tax rate thresholds, has already begun to dominate the news coverage.  The coalition government must be hoping that the news coverage concentrates on the increase in the personal allowance and not the 300,000 more people who will be drawn into the 40% income tax rate from 2013/14.  To put this in context.  In the 1980’s approximately 5% of people were higher rate taxpayers.  Now it is 15%.

The freezing of age related allowances is also likely to cause problems for the coalition government.  Somehow they need to show that this is a good example of tax simplification.

The claim that does stand out is that by reducing the top rate of income tax, combined with other avoidance measures, five times more tax will be raised from the richest.  The Institute of Fiscal Studies noted today that that this is the third worst Budget statement for measures relating to tax avoidance.  This is measured on how much tax the avoidance measures to be introduced are likely to save.

Now to an old Budget favourite, stamp duty and Stamp Duty Land Tax (SDLT).  The SDLT changes were not unexpected especially for anyone who buys a Sunday newspaper.  The Chancellor announced that the level of stamp duty on residential properties over £2m which were bought via a company would increase to 15% with immediate effect.  In addition, overseas companies that already own UK residential property worth more than £2m will be subject to capital gains tax (CGT) from April 2013.  The CGT point was less expected but nonetheless welcome.  This though should have been dealt with many years ago.  The Chancellor also made it very clear if avoidance of this kind continues, further measures would be introduced without warning which have retrospective effect.

That though is not the main issue with SDLT in Scotland.  In Scotland only around 10 properties a year are sold that are worth over £2m.  The jump from 1% to 3% of SDLT at £250,001 is a much bigger issue.  Hopefully that will be one of the first issues dealt with when this tax is finally under the control of the Scottish Parliament.

One change I was hoping to see, in vain I might add, was a targeted VAT reduction for home repairs and renovations.    

Now to the fiscal powers debate.

The UK and Scottish Governments have agreed a number of changes to the Scotland Bill.  Both Governments will now recommend that their respective Parliaments support the Bill.  A number of minor changes have been agreed.  The Scottish Government has secured changes to the sections of the Bill dealing with borrowing powers and the Supreme Court.  It was also agreed that the measures contained in the Scotland Bill would only be implemented with the agreement of the Scottish Parliament.

The proposed reservations of insolvency procedures and regulation of health professions will also be removed preserving the Scottish Parliament’s existing legislative competence for these areas.  More on this can be found on the Scottish Government’s website which can be found here.  The list of proposed amendments agreed by both the present, and previous, Scottish Parliament Scotland Bill committees is also listed.  These lists show how few changes have been made to this Bill.  A report from the BBC news website on this matter can be found here.

The House of Commons Scottish Affairs Committee has said that the Crown Estate’s control of 50% of Scotland’s coast and almost all the seabed should be devolved to Scotland’s local authorities.  The Scottish Affairs Committee said management of the marine environment lacked transparency and public consultation.  It is now difficult to find someone who is opposed to devolving this power.  Does that mean the Scotland Bill will be further amended to include this power?  I suspect not.  More on this can be found on a report on the BBC news website which can be found here.

I was intrigued to see the Secretary State for Scotland, Michael Moore, asking for tax clarity from the Scottish Government and in relation to the independence referendum.  There is a simple answer to this question, and which would provide a degree of certainty for individuals and businesses alike.  There should be no major changes for two or even three years to the tax legislation, and system of administration, that the Scottish Government inherits in the event of a “yes” vote.

I was not surprised to read that the Scottish Government is struggling to persuade HM Treasury that the new Scottish police and fire services should be exempt from VAT.  This is likely to mean an annual VAT cost of between £22 and £36m.  Under the current structure police forces are treated like local authorities and are exempt from VAT.  However, if they merge they may be subject to VAT.  A report on this from the BBC news website can be found here.  My earlier blog on this can also be found here.

The new definition of a charity will apply to all UK charity tax reliefs from April 2012.  More information on this can be found here.  I still find it odd that when it seems that everyone is talking about tax simplification, that bodies wishing to become a charity have to meet various conditions set by OSCR (Office of the Scottish Charity Regulator) and then by HMRC.  The reason for this is that the definition of a charity in Scotland is different from that used in England and Wales.  HMRC apply English and Welsh law.  This means if Scottish charities wish to claim the various UK charity tax reliefs then they also have to submit an application to HMRC.  What utter nonsense.  If the UK Government were serious about tax simplification, the fact that you are registered as a Scottish charity should be enough to allow a charity to claim the various UK tax reliefs.  The same issue applies in Northern Ireland as it now has its own charity regulator.

I was interested to see that the European Parliament has finally voted to approve the cross border inheritance law proposed by the European Commission to clarify which jurisdiction’s succession law should govern an international estate. The UK and Ireland remain opted out of the regulation.  A report on this from the BBC news website can be found here.

François Hollande, the Socialist candidate for the French presidency, has provided more detail of his plan for a 75% top rate of income tax.  He now says there will be a ceiling on the total tax paid by an individual in one year; and that the rate will be only temporary until the public sector budget is balanced.

Finally to Greece and some encouraging news.  The head of the European Union’s Greek task force, Horst Reichenbach, has reported the collection of almost €1bn (£830m) in back taxes.  Almost double the target figure.  A good start but still a fraction of the amount outstanding as they believe there is around €8bn in uncollected tax revenues.  More on this from a report on the BBC news website can be found here.

Have a good weekend.

Let’s start with my favourite Chicago politician and the small matter of the next US Presidential election.

I was interested to read this week that President Obama is considering a form of “minimum taxation”.   The plan seems to be if you make more than $1 million a year you should not pay less than 30 per cent in taxes.  In addition if you earn more than $1 million a year you will not be allowed to claim any tax relief or deductions.  On corporate taxation no American company will be allowed to avoid paying its “fair” share of taxes by moving jobs and profits overseas.  Again multinational companies will be liable for a basic minimum tax.  I wonder if we will see our politicians thinking along similar lines in the near future.  I suspect that we will.

Now to the independence and fiscal powers debate.  Two major developments this week. Firstly sources close to the Prime Minister are reported to have said: “that a substantial increase in financial powers for Holyrood is not an option if Scotland wants to remain within the United Kingdom.”  If the UK Conservative party sticks with this line in the sand then how will those who support “devo max” or “devo plus” vote in 2014?  Will the Liberal Democrats and the main UK opposition party continue to support this policy?

Only time will tell as far as these questions are concerned.  One thing is though certain and that is the UK Government will face opposition on this point.  This week groups from the voluntary sector, churches, trade unions and the business community have formed a coalition to explore the possibility of a “middle-ground” option which is short of independence.  This group is termed “civic Scotland” and has the support of two think tanks Reform Scotland and the Centre for Public Policy.  For completeness sake I should mention that I am a former trustee of Reform Scotland and that I was one of the authors of Reform Scotland’s fiscal power papers.  I am though not involved with this group.

I was surprised that more was not made of the new statistics produced by HMRC this week.  UK tax receipts up to January 2012 show that total tax revenues in the 2010-11 fiscal year very nearly recovered to their pre-recession 2007-08 level and are set to be substantially higher in the current 2011-12 tax year.

Now to something we in Scotland are going to have to consider as tax powers are devolved to the Scottish Parliament.  It is easy to suggest a new tax.  Recent examples include a “bed tax” for Edinburgh.  Another possible new tax is the so called “bag tax”.  It was reported this week that Northern Ireland is to introduce such a tax from April.  Wales introduced a similar tax last year and the Republic of Ireland has had such a tax since 2002.  The Scottish Government is presently consulting on this issue.

As I said it is easy to suggest a new tax.  It is harder to explain what that tax is meant to achieve.  That should always be the starting point.  Are we looking to increase tax revenue or change behaviour or possibly a bit of both?  When environmental taxes such as aggregates levy and landfill tax were introduced the politicians struggled to answer this question.

I would also expect an explanation as to how the tax will be collected, the cost of collection and who carries that cost.  Any claim as to potential revenue also needs to be looked at closely and also put into context.  Most taxation revenue comes from just a handful of taxes.  Many of the UK’s minor taxes produce a relatively small amount of revenue.

Any new tax should also have a review date.  This ensures that any claims as to revenue or the cost of administration can be checked within a relatively short period of time.

Now to an update in the Scotsman on Edinburgh airport’s so called “kiss and fly” tax.  A total of 15p of every £1 generated by the charge for dropping off passengers beside the airport terminal is being channelled into its environmental fund.  The article can be found here.

Now to business rates and an excellent piece in the Scotsman newspaper.  The Scotsman reports that an unprecedented number of firms in Edinburgh have demanded reduced business rates as they struggle with a weak global economy and local difficulties such as tram works.  The article can be found here.

Now to Europe.  I was not surprised that President Sarkozy has decided to introduce a French financial transaction tax in August.  Will he still be in power then is of course another question.  The plan is to unilaterally impose a 0.1% tax on financial transactions.  The UK Prime Minister’s reaction was as expected.  Of greater interest is whether other European countries follow Sarkozy’s lead.

I have been following the Harry Redknapp trial with interest.  It is alleged that he received undeclared payments via a Monaco bank account from his former boss at Portsmouth Football Club.  Reports such as this one from the BBC News website, found here, make fascinating reading.

It seems that the Chief Executive of the Student Loan Company has his salary of £182,000 salary paid via a company and without tax being deducted.  The article claims that both HMRC and HM Treasury were aware of this arrangement which allows Ed Lester to pay corporation tax of 21% rather than up to 50% income tax on his earnings.  You have to wonder if the people who approved this arrangement have any sense of what is happening in the real world just now.  This is an excellent piece of journalism from the Guardian and the article can be found here.

Finally to more serious matters.  Good luck to new Scottish captain Ross Ford this weekend.  No pressure!

Have a good weekend.

The term “another week” does not seem appropriate as the title to this blog.

I do not remember all that much about the 1979 referendum and I was living in Chicago during the 1997 referendum.  Odd to think how much I do still remember about Argentina 78.  This week’s announcement ensures that 2014 will now be added to Scotland’s constitutional dateline.  A yes vote in the Autumn of 2014 leads to an independent Scotland by May 2016.  That is why this is not just another week.

What does a yes vote mean?  A yes vote means a Scottish Exchequer.  I have written about a Scottish Exchequer regularly over the last few years including in these blogs and the fiscal powers papers I co-authored with Reform Scotland.  Creating a Scottish Exchequer is not going to happen overnight.  We do though need to start somewhere.  Let’s start with the question: do we need separate HMRC and HM Treasury type bodes?  No.

We also need to look at what other institutions an independent or even a fiscally autonomous Scotland might need.  For example a one stop shop for all Scottish Government legal, registration and tax services.

We also now have to thinking about practicalities.  Would I copy en masse the UK tax legislation as exists in 2014 and declare that no changes will be made for two years?  Yes. This will ensure a degree of certainty for the general public and the business community.  Another advantage is that it would take some pressure off the new Scottish Exchequer.

I am sure I will come back to these and many other issues in the coming weeks and months.

I read with interest that Jeremy Paxman compared Scotland with Zimbabwe in an interview with the First Minister earlier this week.  I remember a similar point being put when I was giving evidence to the Calman Commission.  The transcript for this, page 478, can be found here.

Now to a question I was asked earlier this week.   How would I explain “devo max”.  Two areas need to be looked at.   Government spending and control over taxation.  The percentage that the Scottish Parliament has over each of these areas gives a good idea of how much autonomy it has.   Presently the Scottish Parliament has control over 60% of all government spending but only 7% of taxation.   The Scotland Bill increases taxation control to around 30%.   The latest Reform Scotland proposal, “devolution plus”, moves this closer to 70% for both government spending and control over taxation.  Fiscal autonomy or “devo max” would be around 90% for both government spending and control over taxation.  Fiscal autonomy does not reach 100% because control of VAT cannot be devolved with European Union states and foreign affairs, defence and some economic matters would still be controlled by Westminster.

The Liberal Democrats concerted campaign to dominate the news coverage in the run up to the March UK Budget  continued apace this week.   This week it was the UK Business Secretary, Vince Cable, calling for a mansion tax to be introduced on properties worth over £2 million.  It is estimated that a mansion tax could raise as much as £1.7 billion a year.  Nick Clegg, it is reported, also wants to speed up plans plans to increase the level at which income tax becomes payable, from its current £7,475 to £10,000.   This is presently scheduled for 2015.

Now to Europe.  I have previously blogged on how hard Ireland has had to fight to retain its low rate of corporation tax as a result of its bailout.  What is less well known is how the bailout might impact the Irish legal system.  Excellent article on this in the Law Society Gazette which can be found here.

Now to England and Eric Pickles, UK Communities Secretary, saying that councillors have a “moral duty” to sign up to the UK Government’s council tax freeze.  A moral duty to sign up to government policy.  A tax policy no less.  Interesting tactic.  Not surprisingly this has not gone down well with many English councillors.

More on business rates this week and the debate, for debate read spat, between the STUC and the FSB on the “Small Business Bonus Scheme”.  More on this can be found here.   Good to see that neither side used “morality” in their arguments.

Scottish Water has announced that its charges are to be frozen for the fourth year in a row.  The move means the average annual household charge from April in Scotland will remain at £324.  This is the same level it was in 2009-10.

Some more good news.   The UK Government has agreed to an income tax exemption for non UK competitors at the 2014 Glasgow Commonwealth Games.   This is something I have blogged about before and takes away another point of potential conflict between the Scottish and UK Governments.   Now that agreement has been reached on this and the fossil fuel levy fund I wonder which other niggly issue could be dealt with next?  How about adding aggregates duty, air passenger duty, corporation tax and alcohol duty to the Scotland Bill?  Likely to happen?  No.

One last point.  If you have still not dealt with your tax return please do so as soon as possible even though HMRC have effectively put back the deadline for two days due to possible strike action.  HMRC’s new penalty regime is not something you want to have to deal with.

Have a good weekend.

Given that I am working in Dundee this week this seems like the best place to start.  Dundee is also my favourite Scottish city.  The plans for the town centre and the waterfront are very impressive.

So why is Dundee in the news this week?  Scottish Finance secretary John Swinney named a series of “hubs” where incentives will be offered to companies in manufacturing, life sciences and low carbon renewable energy.   The ports of Dundee and Leith is one of two low carbon and renewables areas proposed.   A number of questions remain to be answered including what are these “incentives”.  For example a reduction in business rates?  The announcement from the Scottish Government can be found here.

Also on business rates. The Scottish Chambers of Commerce called for the planned rise in business rates to be reconsidered.  The rate is planned to rise by 5.6% in April with the figure based on last September’s inflation rate.  This week saw the CPI rate of inflation fall to 4.2%.

A year in which we were told the economy would grow and the recovery would begin in earnest.   A year ending with almost everyone predicting hard times ahead.

The past year has been dominated by the economic crisis and the fiscal powers debate.  Let’s start with the economic crisis.

The link between what a government spends and how it funds this spending is an obvious one.  Whatever the government spends it needs to match by taxation or borrowing.  The consensus now is that we have a “debt crisis” rather than a recession.  The main political debate is between those who wish to restrict government spending and those who argue for more government spending to grow the economy.

I agree that spending must be reduced.  There is little doubt that the UK has been living beyond its means.  Even when the UK Government manages to balance its books the national UK debt needs to be serviced and at some point paid off.  The scale of the task is such that even under coalition government plans it is going to be at least another five years before the books are balanced.

If there is to be additional spending on say infrastructure then public spending in another should be reduced.  Growth is important but so is reducing the debt mountain.  The trick is to somehow do both.  Is there a simple answer to this conundrum?  Of course there isn’t.

There is though a related issue that needs to be addressed.  We are often told “we are all in this together”.   The problem with that statement is we keep hearing about sections of society that seem to be treated differently.  Bankers and their bonuses is close to becoming a cliché but what of those in senior positions in the public sector.  Can it be right that salary levels, bonuses and the numerous associated benefits of many of those who work in the public sector are so high and wide ranging and far in excess of the majority rest of the workforce?  One example.   Dave Hartnett head of HMRC is to take early retirement next summer with a pension pot of £1.7 million.  I have blogged on Mr Hartnett before.  It seems he may even get a bonus this year.

That is where the public spending debate is moving.  If public spending needs to be reduced, and let’s be clear it does, then the starting point cannot be reducing those who in the public’s eyes actually do the work.  First things first.  I keep hearing and reading about highly paid public sector managers who earn lots but no one is sure what they do.  My question is a simple one.  Is this actually true?

Then there is HMRC and the claim by the House of Commons Public Accounts Committee that there is £25bn in tax owed by large companies.  HMRC has “previous” with this Committee of which I have blogged on before.  The taxation of large companies is complicated but that is a huge sum of money.  Again this makes me wonder if we are all in this together.

The taxation of large companies is complicated but does HMRC treat all businesses the same?    Evidence gathered by the law firm McGrigors showed that HMRC is increasingly using legal powers to force the settlement of unpaid tax bills in Scotland.  The use of similar powers in England and Wales fell over the same period.  Does this mean that not all businesses are treated equally?  I don’t know but the question needs to be asked and answered.

What about the richest in our society?  Our governments, both in London and Edinburgh, along with HMRC must do more to defeat the perception that for the wealthy paying tax is a choice.  One example.  The avoidance of Stamp Duty Land Tax on valuable residential properties via offshore companies should be stopped.

Are we all in this together?  It does not seem so.

One last point before I move on to the fiscal powers debate.

The UK Government’s decision to waive VAT on the Military Wives Choir Christmas single is an example of what is wrong with how we decide as to whom and what we tax.  Is this a great cause?  Yes of course.  Are there lots of other equally great causes?  Yes there are.

Now to the fiscal powers debate.  The result of the Scottish General Election has ensured that the fiscal powers debate in Scotland has taken centre stage.  The Scottish Parliament may even refuse legislative consent for the Scotland Bill.   I like to refer to the Scotland Bill as “Calman minus”.  My own opinion is that the Scotland Bill was never meant to be fit for purpose.

The fact that the UK Government will not even agree to devolve air passenger duty or control over the Crown Estate shows how out of touch they are.   The debate has moved on.  My last few tax blogs show how quickly the debate is moving.  Even senior members of the Labour party in Scotland favour “devo max”.  Hopefully in 2012 we will learn more of what “devo max” actually means.

The fiscal powers debate is no longer confined to Scotland.  I must admit I did not see this coming.  The Eurozone crisis and proposals such as a European Financial Transaction Tax has stirred the euro sceptics and that was before the call for greater fiscal union amongst the Eurozone countries.  The analogy between Scotland’s relationship with the UK and the UK’s relationship with the European Union is an obvious one.  The European angle to the fiscal powers debate has the potential to cause problems for those who arguing for major fiscal powers for the Scottish Parliament and those who oppose this.  I suspect I will be blogging on this regularly throughout 2012.

A quick word on Ireland.  How far will countries such as Ireland be willing to go to stay a member of the Eurozone?  Will Ireland give up its treasured low rate of corporation tax?  Does Ireland have a choice?

Lastly what am I hoping for on the tax front in 2012?  Now is not the time to be greedy.  A VAT reduction for home repairs and improvements is much needed.  A tax exemption for the governing body and the competitors of Glasgow 2014 is essential for the success of these games.  Less specifically I would like to see some evidence from the powers that tax us that we are all in this together.

Merry Christmas and best wishes to you and yours for 2012.   See you again in the New Year.