THE DEVOLUTION of tax powers was very much at the centre of the Queen’s Speech as the fiscal tone was set out for the new government.
Scotland, Wales, Northern Ireland and the county’s major cities all stand to receive greater tax powers, as Westminster seeks to give other areas of the UK greater responsibility for their budgets.
The Scotland Bill’s proposals will give Holyrood control over 40% of tax and 60% of public spending in Scotland, with the power to set the thresholds and rates of income tax. A portion of VAT and the whole of Air Passenger Duty will also be under Edinburgh’s control.
Westminster said the powers embody the Smith Commission agreement, signed by the SNP, Conservatives, Liberal Democrats and Scottish Greens last year following the referendum on Scotland’s independence.
The bill’s plans will allow Holyrood to set thresholds and rates of income tax on earnings in Scotland and keep all the money raised in Scotland; give it control over the first ten percentage points of standard rate VAT revenue raised in Scotland, and a 2.5% reduced rate; and enable the Scottish government to vary the frequency of Universal Credit payments in Scotland.
However, Scotland’s first minister Nicola Sturgeon had sought power over National Insurance, the minimum wage, corporation tax and full control of welfare and employment and trade union law.
Those powers were not included in the proposals.
The process of Welsh devolution is less advanced and its tax powers are not as wide-ranging with control over land transaction tax and landfill disposals tax proposed.
The move, the CIoT notes, will “enable Wales to develop its own structure for residential and commercial property transactions taking account of conditions particular to Wales”.
“That being said, consistency between the different UK tax regimes for commercial transactions is important for business as many property owners, occupiers and investors hold portfolios of property across England and Wales,” says CIoT representative on the Welsh government’s tax experts group Lakshmi Narain.
“It is therefore crucial that differences introduced in landfill transaction tax are carefully evaluated and are of clear benefit to the Welsh economy to warrant the extra administrative burdens that diverging regimes will inevitably impose on businesses.”
Further devolution to both countries, Northern Ireland and the country’s major cities – starting with Manchester – were promised, although the proposed Northern Ireland Bill primarily deals with historic deaths during the Troubles.
As far as increasing power in the regions, and Manchester in particular, Duff & Phelps managing director Philip Duffy warned that while the idea “sounds great in theory”, it often means “increased power for second-rate politicians and an expensive local democratic process”.
“Business in the north west needs a consistent, visible ambassador; a reduction in red tape and a coherent plan for bringing both public and private sector investment into the region, not more political competition,” he said.
Away from devolution, a five-year tax lock was also pledged, which will see a ban on income tax, VAT and national insurance increases imposed over the lifetime of the government.
ACCA head of tax Chas Roy-Chowdhury describes the policy as one “aimed squarely at tax stability”, but adds the institute would like to see it extended so that tax allowances and reliefs are not decreased, such as pensions tax relief.
That, though, seems unlikely as leaving reliefs out of the tax lock affords the government the wiggle room to later restrict their provision and boost the tax take.
Another area to draw the government’s attention was, predictably, tax avoidance, which the government reiterated its tough stance on.
On the personal tax front, future increases in the income tax personal allowance will be linked to rises in the national minimum wage to help eliminate fiscal drag.
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