The Smith Commission has recommended that Holyrood should take almost complete control over income tax. The UK Treasury would retain control of personal allowances and taxation of savings income.
The Scottish Parliament should be given the power to set income tax rates and bands on earned income and retain all of the income tax raised in Scotland, the commission said this morning.
A share of VAT would be assigned to the Parliament, and air passenger duty would be fully devolved.
The Smith Commission report is available on the commission’s website. The UK government has undertaken to publish draft clauses, implementing the consensus set out in the report, by 25 January 2015.
Lord Smith of Kelvin was asked to work with the five political parties represented in the Scottish Parliament – Conservative, Green, Labour, Liberal Democrats and the SNP – to agree on what further powers should be devolved. “Significantly more devolved spending in Scotland will now come from tax raised in Scotland with the remainder coming from the block grant provided by the UK government,” he said in a foreword.
The Barnett Formula “will continue to be used” to determine the remaining block grant, he said.
The UK and Scottish Parliaments will share control of income tax and MPs representing constituencies across the whole of the UK will continue to decide the UK’s Budget, including income tax, the commission said. “Within this framework, the Scottish Parliament will have the power to set the rates of income tax and the thresholds at which these are paid for the non-savings and non-dividend income of Scottish taxpayers (as defined by the Scotland Act).”
There will be “no restrictions” on the rates or thresholds the Scottish Parliament can set.
“All other aspects of income tax will remain reserved to the UK Parliament, including the imposition of the annual charge to income tax, the personal allowance, the taxation of savings and dividend income, the ability to introduce and amend tax reliefs and the definition of income.”
HMRC will continue to administer and collect income tax.
“All aspects” of national insurance contributions, corporation tax, capital gains tax, inheritance tax, and fuel and excise duties, will be remain reserved, the commission said.
The receipts raised in Scotland by the first 10 percentage points of the standard rate of VAT will be assigned to the Scottish Government’s budget.
Air passenger duty charged on passengers leaving Scottish airports will be devolved to the Scottish Parliament, and aggregates levy will be devolved once current legal issues have been resolved.