News story

First annual report on financial provisions of Scotland Act 2012 published

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

The UK government today published its first annual report on the progress of carrying out the financial provisions of the Scotland Act 2012.

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The act was granted Royal Assent in May 2012 and represents the largest ever transfer of fiscal powers from Westminster to the devolved Scottish Parliament. These include:

  • a Scottish rate of income tax
  • borrowing powers for Scottish ministers
  • the power to create new devolved taxes
  • enabling the replacement of UK Stamp Duty land tax and UK landfill tax with new Scottish equivalents

The progress so far

The annual report lays out the substantial progress that has been made towards implementing these powers. Among other things, the UK and Scottish governments have worked to assess the impact of a new Scottish rate of income tax, which will come into effect in 2016, and have signed a Memorandum of Understanding setting out both governments’ roles and responsibilities.

Similar preparations have begun for the devolution of stamp duty land tax and landfill tax - both of which will come into effect in 2015. Powers for creating new devolved taxes are now in force, but yet to be used.

Alongside the work to devolve tax powers, ministers from both governments agreed a set of principles through the Joint Exchequer Committee to assess options for adjusting the block grant to reflect the taxes devolved by the Scotland Act 2012.

Borrowing by Scottish ministers for capital investment, up to an overall limit of £2.2 billion, will also come into effect in 2015. Scottish ministers have already been able to use prepayments to fund early work on the Forth Road Bridge Replacement Crossing.

The Secretary of State for Scotland, Michael Moore, who took the Scotland Bill through Parliament, said:

The issue of the referendum may be taking up a great deal of public attention at the moment but the devolution settlement which has served Scotland and the UK so well continues to grow and strengthen.

Scotland is benefiting from the best of both worlds: an integral place within the UK family balanced with a Scottish Parliament receiving more devolved powers to address issues in ways that suit Scotland. It is the best combination of security and flexibility. It also brings a much higher level of accountability for tax and spending to the Scottish Parliament.

Both of Scotland’s governments, working together, are making good progress in preparing the financial powers for use and I am proud to be playing a key role in delivering these for the people of Scotland.

Cash reserve

To support the transition to these new arrangements, the Chief Secretary to the Treasury has also agreed the Scottish government can make the first payment into a Scottish ‘rainy day fund’. The UK government announced in June 2011 that the Scottish government would be able to make payments into this fund, or cash reserve, up to a total of £125 million over 5 years. This will mean millions of pounds will not return to the Treasury but will instead remain in Scotland. This is in addition to the Scottish government’s existing budgeting flexibilities.

The Scottish government will also publish its own report on the transfer of powers.

Published 25 April 2013