Current Steps in the Scottish Devolution Journey
It may seem a while ago, but in November 2014 and following the Scottish independence referendum, the UK and Scottish Governments agreed to change the devolved settlement for Scotland. This was set out in the Smith Commission Report. The recommendations made by the cross-party commission chaired by Lord Smith of Kelvin recommended further powers be devolved to the Scottish Parliament in areas such as income tax, welfare payments and voting rights. Some of those changes will come into force as of April next year such as the devolution of income tax and the setting of Air Passenger Duty.
In addition, recently, the Scottish Government published its draft Crown Estate Scotland (Interim Management) Order 2017, with arrangements to devolve control over the Crown’s Estate in Scotland.
The Smith Agreement recommended that responsibility for the management of the Crown Estate’s economic assets in Scotland and the revenue generated from these assets, be passed to the Scottish Parliament. The draft statutory instrument establishes a body to be known as Crown Estate Scotland (Interim Management). This body would assume control of the Crown Estate but as the name suggests, this is intended to be a temporary arrangement to allow Scottish Government more time to consider how best to manage the assets for the benefit of Scotland.
The changes to devolve the Scottish Rate of Income Tax (SRIT) may at first seem straightforward but they raise a number of complex issues. The Scottish Parliament will be given the power to set the income tax rates and bands that apply to Scottish taxpayers without restriction from the UK Government. This is a significant change from the powers introduced by the Scotland Act 2012 which devolves 10 percentage points of each tax band, but only allows them to be increased or reduced together, not independently. Following the proposed changes, the Scottish Parliament could, in principle, create entirely new bands and rates.
This shall result in part of the income of Scottish taxpayers (bank interests and dividends) being subject to UK rates of income tax while the remainder of their income shall be subject to the new Scottish rates. There are also wider ranging complexities as to how any differences in income tax levels between Scotland and the rest of the UK shall impact upon the block grant under the Barnett formula. According to the Smith Commission Report, the budget of neither government should be altered as a result of the initial devolution of tax and the block grant should be adjusted accordingly.
It is expected that further details on these changes shall emerge in the 2017 Budget. Commentators have pointed out the complex economic implications call for robust and independent economic analysis to assist MSPs in exercising these powers.
Please see MacRoberts website for additional information.