Think-tank calls for devolution funding rethink

26 Oct 09
A new financial settlement should be worked out for the UK and devolved governments, a leading Scottish think-tank has suggested
By David Scott in Edinburgh

23 October 2009

A new financial settlement should be worked out for the UK and devolved governments, a leading Scottish think-tank has suggested.

In a report published on October 18, Reform Scotland said a settlement for the whole of the UK would identify which were Westminster taxes and what they were funding. It would also separate taxes and spending for each of the component nations. This would require the establishment of a body to represent English interests.

The think-tank said its preferred option would give the UK government control over all national insurance contributions; 40% of income tax revenues from Scotland; 40% of Scotland’s geographical share of North Sea oil revenues; and additional income from TV licences, passport fees and national lottery tax.

‘The Scottish Government would set the rates for all other taxes, except for VAT, which would be set at a UK level, with 40% of the revenue from Scotland going to Westminster and the remainder assigned to the Scottish Parliament,’ the report said.

According to Reform Scotland, a major feature of the new financial settlement should be lower, simpler taxes. Scotland would need its own Exchequer.

James Aitken, co-author of the report, an update of November’s  Fiscal powers, stressed that work needed to start now for this to happen. He added: ‘This will include, for example, preparing the draft legislation that will be required, business planning for the new institutions such as the Scottish Exchequer and further research into government expenditure and revenue in Scotland.

‘This would establish, with greater certainty, the size of the Scottish tax base and the tax revenues collected from Scotland. There is also a need for parallel work to engage both politicians and important institutions in Westminster so that there is an increased understanding of the benefits to Scotland and to the rest of the UK of devolution of fiscal powers to Scotland.’

The report claimed the global financial crisis had strengthened the case for the Scottish Parliament to be given greater power to raise the money it spends.

It pointed out that the debate was no longer about whether Holyrood should have more fiscal autonomy but about which revenue-raising powers should be devolved and how. 

The Calman Commission’s proposal for tax powers for Scotland would not provide real financial accountability, the think-tank argued.   

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