On 30 November the Coalition Government introduced the Scotland Bill, in implementation of the recommendations of the Commission on Scottish Devolution’s (Calman Commission) final report.
The Bill proposes a number of important changes to the way in which the Scottish Parliament is run, and its legislative competencies. The Scottish Parliament would gain legislative competence in relation to the regulation of air weapons. It would surrender to Westminster legislative competence in relation to certain aspects of the process for winding up companies in Scotland, and for regulating health professionals in Scotland. However, the biggest matters dealt with by the Bill are the proposed changes to the tax raising powers of the Scottish Parliament.
Under the previous Scotland Act, the Scottish Parliament had the power to vary the rate of income tax paid by Scottish taxpayers; a power which was never used. Under the new Scotland Bill, the Scottish Parliament will now be forced on an annual basis to set the Scottish rate of income tax which will apply to non-savings income of Scottish taxpayers. The rate of income tax set by the Scottish Parliament will only apply to non-savings income - income from investments will be unaffected. The effect of this power is that the Scottish Parliament will raise some of its revenue from its own direct tax raising powers and, as such, there will be a corresponding reduction in the block grant which Scotland receives from Westminster.
The proposed tax raising power would involve all non-savings income tax rate bands being cut by 10p and then increased by the Scottish rate which has been set by the Scottish Parliament. The Scottish rate will be applied equally to each band, so it will not be possible to increase the basic rate band by less than the increase applied to the higher rate tax band. As the Scottish tax rate will need to be at a level to make up the shortfall in the block grant received from Westminster, whilst it would theoretically be possible for the Scottish non-savings income tax rate to be lower than the rate which applies in the rest of the UK, this may be unlikely to happen.
The Bill states that the Scottish rate of income tax will apply to those who have a "close connection" with Scotland. The practicalities of applying a tax, the majority of which will be collected through the existing PAYE system, based on whether or not a taxpayer has a "close connection" with Scotland will obviously require greater consideration.
The Bill also provides that stamp duty land tax (SDLT) shall no longer apply to land transactions in Scotland; instead the Scottish Parliament will have the ability to develop its own land tax. SDLT has never sat comfortably with the way in which Scottish land law works, so this change is likely to be a welcome one, even although there is no indication as yet as to what the alternative might be.
There are also provisions in the Bill which will disapply landfill tax in Scotland, with the Scottish Parliament being given the power to impose an alternative. The Bill does not contain any provisions relating to either Air Passenger Duty or the Aggregates Levy, both of which were identified by the Calman Commission as taxes which could be devolved. These taxes are currently subject to a UK-wide review and a dispute in the European Court of Justice respectively, so this is perhaps unsurprising.
It is anticipated that if the Scotland Bill becomes law, the tax raising powers will take effect in the 2016/17 tax year.
Changes are also proposed to the borrowing powers of the Scottish Ministers, who will be able to run up to £2.7bn of outstanding debt, of which up to £500m of debt can be from current borrowing and £2.2bn of debt from capital borrowing.
The Bill has been hailed by the SNP as "Calman Minus", and is bound to remain controversial as it makes its way through Parliament at Westminster. The Scottish Government's wish for full fiscal independence and the lesser level of fiscal autonomy which the tax-raising powers in the Bill would actually deliver will be hotly debated, including by the Scottish Parliament in due course.
The Scotland Bill also re-reserves (retrospectively) the regulation of activities in Antarctica, but presumably this is not related to the weather in Scotland this week!