News story

Scottish Variable Rate of tax no longer available

The main tax raising power voted for by the Scottish people in the 1997 Devolution Referendum is currently not available to MSPs.

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

The main tax raising power voted for by the Scottish people in the 1997 Devolution Referendum is currently not available to MSPs. The Scottish Secretary Michael Moore has today written to the First Minister and other Holyrood leaders to inform them that a decision by the Scottish Government not to commit resources to maintain the Scottish Variable Rate (SVR) tax power means that HMRC could no longer collect such a tax.

The SVR is the power to lower or raise the basic rate of income tax by 3p.

Mr Swinney told MSPs yesterday that he would not raise the Scottish Variable Rate of income tax but Mr Moore makes clear in his letter today that decisions taken by the Scottish Government mean the SVR power could not now be used before the 2013/14 tax year. The Scottish Secretary has written to the other main parties to advise them that they will not be able to use this power until the penultimate year of the next Parliament.

Michael Moore said:

“The previous arrangements to ensure that the SVR tax could be invoked within 10 months were allowed to lapse in 2007.  I am not privy to the discussions that went on between 2007 and 2010 but I do know that the Scottish Government informed us in August that they were not going to pay for HMRC to work on the PAYE systems to enable the SVR to be available after the 2011 election.

“It is now clear that because the system has not been maintained at the previous ten-month readiness, HMRC would require two years notice to invoke the SVR. I am conscious that the various political parties will be considering their policy programmes for next year’s Holyrood election. I felt it was imperative to inform them that this tax power, which formed part of the original devolution settlement, is not  available to whoever forms the next Scottish Government.

“It is worth saying that the forthcoming Scotland Bill that I will publish in the next few weeks will contain the biggest transfer of financial powers from London since the creation of the UK. Our expectation is that these greater powers would be available to MSPs from 2015.”

The 1998 Scotland Act section 80 allows for any administrative costs incurred by HMRC in relation to the Scottish Parliament’s tax varying power to be met by Scottish Ministers, whilst it is an established principle that the costs of devolution should be met from the Scottish Budget. The SVR power has never been used by the Scottish Parliament.

John Swinney made the following comment in the Scottish Parliament yesterday:

“Within the Parliament’s existing revenue powers, we have explored options for maximising our income. We have been mindful of the need to consider the effect of the significant tax rises that the UK Government has announced before we act. I therefore confirm that we will not raise the Scottish variable rate of income tax.”

Published 19 November 2010