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Scotland Bill delayed by income tax and national insurance merger

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George Osborne’s plan to merge income tax and national insurance threatens to delay the Scotland Bill which hands more powers to the Scottish Parliament, politicians and economists warned yesterday.

Historic legislation to hand more income tax powers to Holyrood may now have to be revisited as it was based on an assumption that Westminster should keep control over national insurance. One of the architects of the enhanced Holyrood powers yesterday called for a “rethink” of the Scottish tax plans. And the SNP said a “coach and horses” would be driven through the Scotland Bill with the amalgamation of the two taxes, one of the key proposals of the Chancellor’s 2011 Budget.

Yesterday, the SNP finance secretary John Swinney said: “The Chancellor’s decision to progress the merger of the tax and national insurance systems is a good thing, but it drives a coach and horses through the Scotland Bill’s financial proposals – and there has been no explanation from UK Ministers about its implications. This new factor creates uncertainty over the time scale for the tax powers, which could well be delayed.”

The Scotland Bill proposes cutting the block grant from Westminster and cutting income tax for Scots by 10p in the pound. However, more powers to raise or lower Scottish income tax to above or below the 10p level would be handed to MSPs. The Scotland Bill is based on the work of the Calman Commission, the body set up by the pro-Union parties of Labour, the Conservatives and the Lib Dems to examine the constitutional question.

The Calman Commission report concluded that the link between national insurance and the benefits system meant that the levy was an “explicit expression” of the Union between England and Scotland and ought to remain reserved to Westminster. Yesterday, Iain McMillan, a member of the Calman Commission and the director of CBI Scotland, said: “If there is a change to the structure of personal taxation – income tax in particular – then the Chancellor and the UK Government would need to rethink how Scottish devolved income tax would interact with the revised organisations within the UK.”

John Aldridge, a former Scottish Executive finance director who advised Calman, said: “My main criticism is that the (UK] Government is not being joined up at all – in that you have a Chancellor who is coming up with the idea of merging income tax and National Insurance at the same time as putting a Bill through parliament in which National Insurance is symbolic of the Union and income tax is less so.”

A UK Treasury spokesman said: “The income tax/national insurance proposal is going out to consultation and this is exactly the kind of thing that will come up in the consultation.”
A Scotland Office spokesman said: “We are confident in the Scotland Bill and believe it would be possible to accommodate any such changes over time.”

Source : Scotsman.com