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Scotland Act 2016: Further Tax Powers Come North

Document Cited authorities 2 Cited in Related
Vincent
Author
Date01 September 2016
Published date01 September 2016
DOI10.3366/elr.2016.0371
Pages376-382
<p>Once the fiscal provisions of the <a href="https://vlex.co.uk/vid/scotland-act-2016-808434845">Scotland Act 2016</a> (“SA 2016”) are fully implemented, around half of Scotland's expenditure will be financed directly from the Scottish tax base. This will bring Scotland's obligation to raise its own revenue more in line with other sub-central governments,<xref ref-type="fn" rid="fn1"><sup>1</sup></xref> reduce vertical fiscal imbalance,<xref ref-type="fn" rid="fn2"><sup>2</sup></xref> and deliver increased fiscal accountability. The devolution of taxes is, in part, a practical matter – there are some taxes which, for example, deliver a more stable base, generate stronger local policy levers or limit economic distortions more than others. In part, it is also a political issue, depending on the relationship envisioned between national and sub-national governments. Not surprisingly, debate continues in Scotland as to whether tax powers have been devolved to an appropriate degree. This article examines the tax powers devolved under SA 2016 and briefly comments on the 2016 fiscal settlement as a whole.</p> Why devolve tax powers?

There are many reasons not to have multiple tax systems within a single state. There are complexities involved in identifying where a particular tax base is situated – relatively easy when the base is land, but rather harder in the context of individuals' income and particularly difficult in relation to profits of cross-border enterprises. Each layer of tax administration brings extra layers of compliance burdens, with potentially different procedures, deadlines, and definitions. Possibilities of tax arbitrage open up, leading to increased legislative complexity as anti-avoidance rules are introduced. And, of course, there is the risk of tax competition between the two tax jurisdictions and a potential race to the bottom. Whilst the debate about “unfair” and “fair” tax competition between sovereign states rumbles on within the EU and beyond, issues of tax “poaching” are particularly sensitive within a single state. It might be regarded as acceptable for Northern Ireland to receive control over corporation tax3 in order to compete effectively with the Republic of Ireland, with its famously low rate of corporation tax, but is it equally acceptable across internal borders of the same state?

So why devolve tax powers? The arguments in favour are underpinned by notions of greater fiscal accountability and responsibility, the delivery of economic levers, and the ability to use the tax system in furtherance of local ambitions towards distributive justice. Particularly in relation to the UK, moving away from the Barnett formula4 will reduce the financial impact of policy decisions by Westminster which apply only outside Scotland. For example, the reduction in funding of higher education in England resulted in a proportionate reduction in the block grant in Scotland.

 Devolution of tax powers to Scotland

Apart from local authority finance, prior to the implementation of the tax powers in the Scotland...

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