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Scotland Tax Deal settled

The cross-party Smith Commission on devolution recommended in 2014 that the Scottish Parliament be given new powers in relation to taxation and welfare payments. On Monday the UK and Scottish Governments reached agreement on the implementation of these recommendations after protracted negotiations following the independence referendum.

Hitherto Scotland has received a £30billion grant under the Barnet formula and all tax and welfare payments were reserved to the Westminster Government. There was no resistance in principle to the devolution of the powers to set income tax rates and collection of the tax. The bone of contention was the scale of the annual grant. The Treasury wanted this reduced in light of projections that Scotland’s population will grow more slowly than that of the rest of the UK. Scotland’s First Minister, Nicola Sturgeon, was determined to ensure that Scotland would not be worse off under the new deal.

This week’s outcome sees the block grant reduced to £18billion per annum, but the Scottish Government will be given powers to raise the other £12billion itself. The level of the income tax personal allowance, the taxation of savings and dividend income will be reserved to Westminster but 10% of VAT receipts in Scotland will be assigned to the Scottish Government which also receives the power to levy air passenger duty on passengers flying out of Scottish airports.

Powers to set benefit rates, apart from the universal credit, have also been devolved and the Scottish Parliament will have new powers to create benefits in areas of their devolved responsibility. The rate of the National Minimum Wage has not been devolved. The Scottish Government did not get everything they wanted but the deal is underpinned by a guarantee that Scotland will not lose out if its population falls. The deal is set until March 2022 and cannot be changed without the agreement of both Governments and they will be given £200million to implement the new powers.

The settlement is hugely important because the Scottish Government will now have real powers to produce its own budget and levy the taxes necessary to fund it. They will no longer be able to blame the Westminster Government for its inability to deliver what Scottish voters want.  The deal also gives the Holyrood Government borrowing powers and its electors will hold them to account for their exercise of these new powers.

 The Prime Minister described the deal as “A major milestone in delivering a powerhouse parliament for Scotland”.  From his perspective the SNP will now have to use these new powers instead of constantly complaining that his Government has not kept its promises made during the referendum.  However, falling income from the Scottish offshore oil fields will not make John Swinney’s task of managing the Scottish economy an easy one. Moreover, if the British people vote to leave the European Union on 23rd June this whole deal will become irrelevant if the Scottish people vote to leave the UK and remain in the EU.

As ever, the need for prayer, both for the Scottish people as they prepare for parliamentary elections in May, and for the Scottish Government as they exercise their new powers, should be a priority for us all, not just the Scots, if we are serious about being a United Kingdom.

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