By David Scott
24 February 2010
Proposals to give Scotland its own tax raising powers could leave it with a deficit of more than £1.2bn, leading academics have warned.
Professors Drew Scott, of Edinburgh University, and Andrew Hughes Hallett, of St Andrews University, have reviewed proposals made in a UK white paper last autumn to reform Scotland’s funding arrangements.
The UK government plans to allow the Scottish Parliament to create an income tax, initially set at 10p, following proposals from Sir Kenneth Calman’s commission on Scottish devolution.
The yield from the tax would be a new ‘own source’ element in the devolved administration’s budgetary revenue and its Westminster-determined block grant would be reduced proportionately.
But the academics point out that, rather than using tax receipts generated in Scotland as the basis of the adjustment, the yield to be attributed from the Scottish tax would be based entirely on a Treasury forecast in the first instance.
The report said: ‘As public spending decisions will be driven in part by these forecasts and because Treasury forecasts are neither reliable nor uncontested by other forecasters, inter-governmental disputes over funding are all but unavoidable.
‘We estimate that the trajectory of funding implicit in the new proposals would have resulted in a significant shortfall of revenues available to the Scottish administration had it been in place since 1999 by an amount in excess of £1.2bn.
‘Making good this revenue deficit would have required an increase in the Scottish rate of income tax by approximately 1p every five years just to retain the same level of public services.’
A Scotland Office spokesman dismissed the report as ‘a simple case of scaremongering’.
He added: ‘One of the paper’s primary concerns is based on erroneous speculation on proposals set out in the white paper. It agonises about circumstances that will simply never happen.’
But Scott told Public Finance that he found the Scotland Office response ‘deeply irritating’. He said: ‘We have crunched some numbers and I would challenge the Scotland Office to come up with anything that is different.’
24 February 2010
Proposals to give Scotland its own tax raising powers could leave it with a deficit of more than £1.2bn, leading academics have warned.
Professors Drew Scott, of Edinburgh University, and Andrew Hughes Hallett, of St Andrews University, have reviewed proposals made in a UK white paper last autumn to reform Scotland’s funding arrangements.
The UK government plans to allow the Scottish Parliament to create an income tax, initially set at 10p, following proposals from Sir Kenneth Calman’s commission on Scottish devolution.
The yield from the tax would be a new ‘own source’ element in the devolved administration’s budgetary revenue and its Westminster-determined block grant would be reduced proportionately.
But the academics point out that, rather than using tax receipts generated in Scotland as the basis of the adjustment, the yield to be attributed from the Scottish tax would be based entirely on a Treasury forecast in the first instance.
The report said: ‘As public spending decisions will be driven in part by these forecasts and because Treasury forecasts are neither reliable nor uncontested by other forecasters, inter-governmental disputes over funding are all but unavoidable.
‘We estimate that the trajectory of funding implicit in the new proposals would have resulted in a significant shortfall of revenues available to the Scottish administration had it been in place since 1999 by an amount in excess of £1.2bn.
‘Making good this revenue deficit would have required an increase in the Scottish rate of income tax by approximately 1p every five years just to retain the same level of public services.’
A Scotland Office spokesman dismissed the report as ‘a simple case of scaremongering’.
He added: ‘One of the paper’s primary concerns is based on erroneous speculation on proposals set out in the white paper. It agonises about circumstances that will simply never happen.’
But Scott told Public Finance that he found the Scotland Office response ‘deeply irritating’. He said: ‘We have crunched some numbers and I would challenge the Scotland Office to come up with anything that is different.’
