Queen’s Speech - Holyrood to raise 40 per cent of taxes and rule over 60 per cent of public spending

Queen_SpeechUnder the new plans outlined in yesterday’s Queen’s Speech, the Scottish Parliament is to receive new devolved powers to raise 40 per cent of taxes and decide about 60 per cent of public spending north of the border.

The powers described in the proposed Scotland Bill, which was included in the speech, will include the authority for Holyrood to set the thresholds and rates of income tax, a portion of VAT and the whole of Air Passenger Duty.

The proposals, which the UK Government said will see the implementation of those drawn up by the Smith Commission in the wake of last September’s Independence Referendum, would also set thresholds and rates of income tax on earnings in Scotland and give Holyrood new welfare powers worth £2.5 billion.

Control will also be given over programmes which help people find work.

Meanwhile, the Barnett Formula, which determines the money the devolved Scottish Government receives, will be reduced.

The Queen’s Speech explained: “To implement the Smith Commission, a new fiscal framework for Scotland will be negotiated alongside the Bill.

“This should ensure Scotland enjoys the benefits of economic decision making closer to home within a strong and secure UK system and shared UK currency.

“The Barnett formula would be retained but would account for a smaller share of the Scottish Parliament’s revenues because more than half of it would now be raised by tax decisions made at Holyrood.”

David Glen
David Glen

David Glen, head of tax, PwC in Scotland, said: “The most significant aspect in the forthcoming Scotland Bill will be to give the Scottish Parliament full power over the rates and bands of income tax for Scottish taxpayers.”

“This”, he said, “could potentially lead to a reduction in the tax rate for the lower paid, funded by a comparative increase in the higher rate of income tax. The timing of when the power will commence is yet to be agreed, and businesses and households will be seeking further clarity on what might happen in the months ahead.

“Notwithstanding the confirmation of greater devolutionary powers in Scotland, we also saw plans to align UK personal allowance with the minimum wage in a bid to protect people on the lowest incomes who won’t see their allowance eroded by inflation. UK higher rate tax payers will also be protected from fiscal drag.

“However the benefit won’t be felt for some time, given the personal allowance has already risen substantially over the last parliament - which also makes the measure is a very cost effective crowd pleaser, at least for the time being.”

Scottish secretary David Mundell said the legislative programme laid out in the speech “means positive change for people across Scotland”.

The Scotland Bill will be introduced shortly and will deliver the recommendations of the Smith Commission on further devolution.

Other measures affecting Scotland include a focus on energy security and support for the North Sea oil and gas sector and moves to tackle extremism and strengthen counter-terrorism.

The legislative programme also includes measures on immigration controls and an EU Referendum.

Liz Cameron
Liz Cameron

Commenting on the EU plans, Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “There is an important debate ahead on the nature of our relationship with the European Union. This is the principal overseas market for many Scottish businesses, with almost £13 billion in exports heading to Europe from Scotland each year. With a population of over half a billion people across 28 nations, it is important that we maintain strong trading links to Europe whilst addressing some of the more negative and restrictive aspects of EU membership, such as hindering our local businesses from winning public sector contracts.”

The National Insurance Contributions Bill/ Finance Bill, meanwhile, includes a commitment to ensure no rises in income tax rates, VAT or National Insurance contributions for the next five years.

Mr Mundell added: “Scotland’s future is on a better footing thanks to the government’s ambitious programme with measures to create jobs and support working people at the heart of our plan.

“We are delivering quickly on further devolution by giving the Scottish Parliament wide-ranging new powers. That means Scotland will have a huge amount of flexibility to make its own decisions while keeping the many advantages of being part of the UK. The Scottish Government must now be clear on how it intends to use both these and its existing powers in the interests of Scotland.”

Nicola Sturgeon
Nicola Sturgeon

Speaking before the Queen’s Speech, Scotland’s First Minister Nicola Sturgeon said she wanted the Scotland Bill to go much further than the Smith proposals.

She said she sought Holyrood to be given full control over National Insurance; the minimum wage; Corporation Tax; full control of welfare and employment and trade union law.

Demands the Bill falls short of containing.

David Cameron

In the wake of the Queen’s address, Prime Minster David Cameron issued a stern challenge to the SNP benches, saying: “If you want more taxes, more spending and more borrowing you can now introduce those measures in Scotland. It is time for you to stop talking and start acting.”

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