Scottish Centre on Constitutional Change

ESRC Grant: ES/L003325/1

More Powers: What Powers?

Professor David Bell University of Stirling

Scottish Centre on Constitutional Change

ESRC Grant: ES/L003325/1

Scotland Act 2012 – Landfill Tax – Land and Buildings Transaction Tax – Scottish Rate of Income Tax (SRIT)

– 2015-16 estimated receipts:

• Landfill tax £107m • Land and Buildings Transaction Tax £413m • SRIT £4668m • Total £5188m

Scottish Centre on Constitutional Change

ESRC Grant: ES/L003325/1

Scottish Rate of Income Tax

Income

Income Tax Rate

£10k £32k £100k

20p

40p

45p

10p

Scottish Government

HM Government

= £4.7bn

Vertical tax competition within shared tax base?

Horizontal tax competition over mobile tax base?

15p

Labour Proposal

Scottish Centre on Constitutional Change

ESRC Grant: ES/L003325/1

The Block Grant Adjustment (under the Scotland Act 2012)

Year 1

£30bn?

SRIT

Reduced Block Grant

Year 2

£30bn

Size of reduction determined by growth in UK tax base

Shortfall if Scottish income tax not growing as fast as UK income tax

Indexed Deduction Method

Scottish Centre on Constitutional Change

ESRC Grant: ES/L003325/1

Proposals for tax devolution (1)

£m (2012/13)

Index of revenues per capita relative

to UK

Devo-More Devo-Plus Scottish Conservatives

Scottish Liberal

Democrats

Income tax 10,865 -12% (personal allowance reserved)

VAT 9,347 0% Shared Potentially shared

National insurance contributions 8,521 -2% Devolved

longer term North Sea revenue (geographic share 5,581 909% Devolved

longer term Corporation tax (excl North Sea) 2,872 0% (thresholds

reserved) Shared

Fuel duties 2,258 2% Devolved longer term

Council tax 2,006 -5% Already devolved Non-domestic rates 1,981 -8% Already devolved

Tobacco duties 1,128 41% Devolved longer term

Other taxes, royalties and adjustments 1,082

Scottish Centre on Constitutional Change

ESRC Grant: ES/L003325/1

International comparisons of sub-central revenue and spending autonomy

Scottish Centre on Constitutional Change

ESRC Grant: ES/L003325/1

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2008-09 2009-10 2010-11 2011-12 2012-13

Reve

nue/

Spen

ding

(£m

)

North Sea Oil

Corporation Tax

Other taxes

VAT

National Insurance

Income Tax

Total Managed Expenditure

Tax Revenues in Scotland

Fiscal deficit Borrowing required

1p on basic rate income tax raises between £208m and £395m

Scottish Centre on Constitutional Change

ESRC Grant: ES/L003325/1

The Quota • What if the Devo-Max solution applied? • As in Basque country, would imply payment for central services –

foreign affairs, foreign aid, debt interest, defence – which is known as the Quota

• Our estimates, based on Scottish Government and OBR forecasts of oil revenues and central OBR growth, suggest a Scottish deficit of between £9.3bn and £5.1bn in 2015-16

• This is a negative Quota – requires either funding from UK or new borrowing powers

• Explicit Quota to replace (somewhat) implicit Barnett Formula? • The Treasury would likely insist on a no bail-out clause on such

borrowing – otherwise would be added to UK debt

Scottish Centre on Constitutional Change

ESRC Grant: ES/L003325/1

Issues for the Devolution Commission • What additional taxes? • How extensive will control be?

– tax base/allowances – rates

• What are the constraints on the exercise of these powers? – vertical/horizontal tax competition – factor mobility

• Are the expectations of economic growth consequent on the acquisition of these tax powers unrealistic?

• Should the unionist parties be more prepared to cede control over welfare to refocus expectations on social justice?