04 April 2008
A dispute has broken out between the Scottish government and the Treasury over whether ministers in Edinburgh have the power to levy a nationally set local income tax.
The difference of opinion over the flagship policy of the Scottish National Party administration emerged this week after a meeting between Chief Secretary to the Treasury Yvette Cooper and Scotland's Finance Secretary John Swinney.
The talks in London on April 1 focused on a number of issues, including Cooper's concerns over a £750m 'black hole' in the LIT plans and Swinney's insistence that the £400m Scotland currently receives in council tax benefit should be retained after council tax is abolished.
It emerged later that the Treasury believes the Scottish government does not have the power to implement its proposals for a nationally set LIT levy of 3p in the pound.
A Treasury source told Public Finance it recognised that the Scottish administration had the right to change the local taxation system. But he added: 'The proposal in the consultation paper is for a 3p in the pound tax, set centrally and administered and collected nationally by Revenue & Customs. In that situation, it is not a devolved matter in terms of the Scotland Act.'
The Treasury believes that an LIT set locally by councils could be admissible. The source said: 'My understanding is that the proposed tax rate would be set centrally and collected nationally. That makes it non-local and that is reserved under the Scotland Act.'
The Treasury also emphasised that R&C does not have the power to collect the tax and that legislation would be required to enable it to do so.
But a source close to Swinney said: 'It is crystal clear that there is devolved competence for changing the local taxation system in Scotland. The Scottish government's proposals for a local income tax will be set out in that context. It would be helpful to all if the Treasury took a more constructive role in that process.'
Cooper, who described the meeting as 'constructive', said the Treasury had a duty to be 'straight' with taxpayers across the country about whether there was a funding shortfall in terms of proposals put forward.
A spokesman for Swinney accused the Treasury of 'trying to lay down the law to the Scottish government and Scotland, as if we were just another Whitehall department'.