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Devo-max: How will David Cameron’s shake-up affect advisers?

Prime minister David Cameron has today outlined plans for a massive programme of devolution across the UK’s four nations in response to the Scottish referendum.

In the final days of campaigning the Better Together camp and three party leaders pledged to give more powers to the Scottish Parliament.

Today, Cameron launched a commission, led by Lord Smith, to examine devolution for tax, spending and welfare to England, Wales and Northern Ireland as well as Scotland.

He said change for the other three nations must happen at the “same pace” as Scotland, even raising the prospect of only English MPs voting on English laws in the House of Commons.

The tentative proposals amount to the fragmentation of UK tax and spending in a range of important areas.

It could lead to a myriad of new advice opportunities, so we look at what it could mean in practice for you and your clients.

Income Tax

The Scottish Parliament can already vary income tax by up to 3p and from 2016 it will gain new powers to vary it by up to 10p.

Under plans for greater powers, the Conservatives and Liberal Democrats want to give the Parliament complete power over setting income tax.

Labour is less radical and wants to allow the Scottish Parliament to vary rates by up to 15p and be barred from cutting the top band.

While this would amount to a significant shift of power, it is worth noting that the Scottish Parliament has never varied income tax despite having the power to do so for 15 years.

Subject to a referendum Wales will also be given the power to vary income tax rates.

However, they must raise rates in tandem, so a 1p increase to the basic rate must be accompanied by a 1p increase to the top rate. Today, Welsh Secretary Stephen Crabb has signalled these restrictions could be dropped.

Cameron’s statement today indicates English MPs and Northern Ireland could also be handed powers to vary income tax too.

Welfare spending

All three parties are planning to devolve powers over welfare spending to the Scottish Parliament.

This would include control over housing benefit, including the so-called “bedroom tax” that cut housing benefit to claimants with a spare room.

Institute of Economic Affairs editorial and programme director Phillip Booth supports more devolution of welfare spending.

He says: “When it comes to welfare the closer you do it to the people, the better as you produce a system appropriate for the problems you have.

“For example, the problems in Hackney or Islington are very different from those in Glasgow and different still more from those in the Orkneys on welfare.”

Property tax

Scotland also has power to control stamp duty and has set out plans to end the slab structure and introduce a more “progressive” system.

London mayor Boris Johnson has long called for the power to set stamp duty rates in the capital to reflect its difference with the rest of the nation.

It could mean four different property tax regimes within the UK, so would this have an impact on the housing market and mortgage lenders?

Council of Mortgage Lenders’ head of communications Sue Anderson says: “It comes down to how one manages an increasingly local set of issues.

“I doubt stamp duty is the only issue we are looking at as we are seeing increasing diversification between regions.

“We want to make sure we don’t create systems that large lenders with national operating systems would struggle to deliver against.

“That is our overarching objective but I don’t think there is any reason or concern that we are creating that environment. But that is the risk we want policymakers to be attuned to.”

Other taxes

The Scottish National Party planned to slash corporation tax post-independence in a bid to attract global business to Edinburgh.

A similar tactic has worked in Ireland where 12 per cent corporation tax has seen advertising giant WPP, Google and Facebook locate their in recent years.

Cicero Group head of public affairs Tom Frackowiak says: “I doubt we would see differential corporation tax rates. That would be opening a can of worms. None of the Westminster parties seem to support it.

“The SNP will, of course, fight to have control over corporation tax – I just don’t think they’ll get it, particularly in an international environment seeking to harmonise corporate tax policies.”

The EU has strict rules governing the variation of VAT making any attempt to devolve powers potentially subject to a legal challenge.

The three party leaders promised how much is spent on the NHS is a matter for the Scottish Parliament, giving a theoretical blank cheque for revenue raising powers.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I only ever hear calls for the tax system to be simplified, whereas these proposals sound like a complete and utter mess.

  2. Every Government tells you that they are going to simplify the Tax system. Then when they are in office they just make it more complicated and create new ways of squeezing more tax out of us.

  3. Incompetent Regulators 19th September 2014 at 4:42 pm

    What about England. We should not be begging the Scots to stay but in fact let them go. Then we wouldn’t have 50 Labour MPs from Scotland deciding on what happens in England. The outcome was wrong and it has raised more questions and problems for the English.

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