A fairly quiet week in “tax land”

I would like to start with an observation.  Over the last few weeks I have attended a number of tax and law update seminars.  Without exception the speakers have commented on the constitutional debate.  Why should that surprise me?  Even a few months ago this would not have happened.  There might have been the odd mention of the Scotland Bill but even that would just be in passing.  As one of the few lawyers who were willing to discuss tax issues in a constitutional context over the last few years I find this a welcome development.  You never know someone may even listen to my call for a review if all government tax, law and registration services in Scotland.

Most Scottish local authorities will by now have sent out their 2012/13 council tax bills.  This is of course an unusual bill as we know in advance that it will be the same as last year.  One notable exception is Stirling Council which it seems almost by accident reduced its council tax.  Although I get the sense that the council tax “freeze” is being taken for granted it cannot go on forever.  It is obviously important politically and not just because we are just a few weeks away from our local elections.  That said, at some point there needs to be a new review of how we finance local government.  As someone who believes that our councils should have a degree of choice in this matter I would like to see this review begin as soon as possible.

The fiscal powers debate had a fairly quiet week.  No new “commissions” have been announced which is a relief.  An old favourite of those who oppose devolution and independence did though rear its head again.  Ruth Davidson talked about giving Scotland something called “real devolution”.  For “real devolution” read “no more powers for the Scottish Parliament”.  Ruth Davidson said: “I want to talk about devolution – not devo max or devo plus, or devo mix, or I can’t believe it’s not devo – but real devolution from Holyrood to people and communities across Scotland.”  This in my opinion is   similar to the argument that the Scottish Parliament already has lots of fiscal powers that it simply fails to use.  That particular argument is rarely seen outwith the opinion pages of the Scotsman.

An example of this type of thinking was given recently when the UK  Government decided not to devolve control over the Crown Estate to the Scottish Parliament.  Instead the UK Government passed some control over Crown Estate revenue to the National Lottery.  A decision that I think it is fair to say was unexpected.  More on Ruth Davidson’s statement can be found here.  I will ignore the fact that Ruth Davidson appears to be at odds with what the Prime Minister said on his recent visit.

I have been following with interest the debate on introducing a “minimum price” for alcohol.  This is a rare example of a policy where the aim is clearly to change behaviour and not just raise revenue.  I have written before on how policy makers sometimes disingenuously argue that a policy is to change behaviour rather than increase revenue or vice versa.  Personally I have struggled to understand the opposition to this policy.  That said, do I think that a policy of minimum pricing on its own is enough?  Of course not, nor does the Scottish Government and the myriad of health professionals who support this policy.

Do I think that an even better policy could be developed if powers over alcohol duty were to be devolved to the Scottish Parliament?  Yes I do.  This was also pointed out in the Scottish Government’s paper on “Devolving Excise Duty in the Scotland Bill”.  Specifically this would allow the Scottish Government to “align the revenue benefit with the public spending costs of alcohol consumption.”  This would also ensure that the main downside of a minimum price policy, extra revenue for the retailers of alcohol, can be balanced out.  Lastly devolution, as I often say, is complicated.  It makes sense to devolve those tax powers that are clearly connected with already devolved areas of responsibility such as health.  The Scottish Government paper can be found here.  A report from the BBC news website on this issue can also be found here.

The UK coalition government are clearly worried as to how they are being perceived on the now rather unfortunate phrase: “we are all in this together“.  The Deputy Prime Minister is reportedly softening his proposals on a so called “tycoon tax”.  I am not sure why this idea is being called a “tycoon tax” as this is simply a minimum net tax rate for a person’s total income.  In a speech to the Liberal Democrat conference on Sunday he made no mention of a minimum tax rate less than 48 hours after announcing it.  This idea is not a new idea.  Most recently it has been advocated by President Obama.  It is also has the advantage of a being a fairly simple idea.  The Deputy Prime Minister has suggested a 20% rate.  President Obama a 30% rate.  The Obama proposal appeared shortly after it was reported that Republican candidate Mitt Romney, a multimillionaire, had a net tax rate of around 13%.  More on this can be found here.

Let’s finish with London.  Ken Livingstone has denied claims that he has not paid the “correct” amount of tax on his income.  Livingstone also claims that he is the victim of a “smear campaign”.  This story has some similarities with the furore that greeted the news that highly paid public officials were being paid via a company.  My earlier blog on this can be found here.  I have to admit to some sympathy with Livingstone on this one.  Yes there is an element of hypocrisy here but Livingstone is not an elected politician, albeit a candidate, nor is he is a public official.  An article from the Guardian on this can be found here.

Have a good weekend and let’s hope for some good news from Rome.

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Another week in “tax land”

I think I will start with VAT and the proposed new Scottish national police force.

It was reported this week that the proposed new Scottish police force may face an annual VAT bill of £22 million.  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.  The Scottish Government is currently in talks with HM Treasury to eliminate or minimise this potential financial liability.

I suspect that the Northern Ireland police force will be mentioned during these talks and in particular the fact that it has VAT exempt status.   So what is the problem you might ask.  The same exempt status will surely apply to the new Scottish police force.

The “just because it happens in Northern Ireland” argument does not always work with HMRC and HM Treasury.  Northern Ireland already has borrowing  and welfare powers.  Anyone involved in the Scotland Bill deliberations knows how hard HMRC and HM Treasury resisted calls for borrowing powers to be included.  They succeeded in ensuring that only restricted powers were included.  Welfare powers were not even seriously considered.  Northern Ireland is also to get partial control over air passenger duty and also possibly corporation tax.

In addition it seems that HMRC and HM Treasury cannot help but react negatively to any policy proposed by the Scottish Parliament that deviates from or impinges on reserved matters.  Examples include free personal and nursing care, local income tax, the Scottish Futures Trust and minimum alcohol pricing.  A report from the BBC news website on this issue can be found here.

Now to a surprise cut in council tax.  Stirling Council has become the only local authority in Scotland to reduce its council tax after councillors passed a budget on their second attempt.  The 1% cut, effective from 1 April, will see Band D council tax go down £12 from £1,209 to £1,197 a year.  Labour and Conservative councillors voted the measure through in an “alternative” budget after rejecting the minority SNP administration’s proposals.  More on this can be found on a BBC news website report which can be found here.

An article from the Evening News reports that The City of Edinburgh Council wants to investigate the idea of creating a “business improvement district” for Edinburgh’s tourism industry.  This would involve businesses making contributions to promote the city.  The article from the Evening News can be found here.  This is the latest in a series of revenue raising ideas from Edinburgh Council and of which I have written about previously.  See for example my blog of 9 December 2011.

Now to the fiscal powers debate and the latest group to enter the fray.  “Devo Plus” is a creation of the think tank Reform Scotland.  I should declare an interest as a former trustee of Reform Scotland and one of the authors of Reform Scotland’s “Devolution plus” fiscal powers paper.  I am though not involved in this campaign.  The position taken by the Devo Plus group is that they are opposed to “devo max” and independence and do not think the Scotland Bill goes far enough.  Instead they argue that the Scottish Parliament should be able to raise an amount roughly equal to what it is responsible for spending.  VAT and national insurance would remain in the hands of HM Treasury to ensure that Westminster was also accountable for its spending in Scotland.  It will be interesting to see what impact this campaign has in the coming weeks.  More on Devo Plus can be found here.

Now to the debate over the top rate of income tax.  Those arguing for the abolition of the top rate of income tax will be analysing preliminary UK Government statistics which suggest that the 50 per cent top rate of income tax has not raised any extra revenue.  A press release from Grant Thornton on this can be found here.

The “fuel duty discount pilot scheme for remote island communities” comes into operation today.  I was not surprised to see a report on the BBC news website of how HM Treasury had warned oil suppliers against attempting to profiteer from this scheme.  The report also notes that over the past week rises in the cost of fuel supplied to Orkney, Shetland and the Western Isles have been greater than the proposed discount.  Petrol and diesel at island pumps can be 20p more expensive than mainland prices.  I also read this week that the UK has the highest fuel tax burden in Europe with 60 per cent of the cost of unleaded petrol and 58 per cent of diesel made up of fuel duty and VAT.  I will resist the urge to make an ironic comment about North Sea oil.  The BBC news website report can be found here.

The BBC has reported that Barclays Bank has been ordered by HM Treasury to pay half a billion pounds in tax which it had tried to avoid.  Barclays was accused by HMRC of designing and using two schemes that were intended to avoid substantial amounts of tax.  The schemes, described as “highly abusive”, enabled the bank in question to avoid paying corporation tax on the profits it made from buying back its own debts, and to reclaim tax credits from HMRC on certain investment funds. The BBC website news report can be found here.

Now to a good idea.  A new “Assurance Commissioner” is to be appointed by HMRC following criticism from the House of Commons Public Accounts Select Committee about the relationship between HMRC and big businesses.  The following is from an article in the Telegraph and nicely sums up this matter: “In a move that amounts to a humbling mea culpa, HMRC is set to admit it needs to improve “transparency, scrutiny and accountability” after being publicly lambasted by the Parliamentary Public Acounts Committee over deals with Goldman Sachs and Vodafone.”  The article from the Telegraph can be found here.

I think I will end with France.  I will resist the urge to talk about last weekend’s game and instead mention a report by Reuters.  According to Reuters there has been a sudden rise in the number of French residents asking their wealth advisers about tax exile. They fear that the socialist party’s candidate Francois Hollande may win the forthcoming presidential election and increase wealth taxes.  I have heard similar claims many times before.  I have often wondered how many people actually leave.  I suspect not that many and, of those who leave, many regret doing so.

Have a good weekend.

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