Scotland Takes Step to Devolved Tax Power

June 14, 2011 Taxation in UK

George OsborneScotland is stepping closer to a potential future of tax devolution, as the UK government grants Hollyrood an additional set of financial powers and economic responsibilities.

The development came in the afternoon of June 13th, when the UK Chancellor of the Exchequer George Osborne made a speech to the UK parliament, announcing several updates to the Scotland Bill, which sets out Scotland’s financial powers.

The new rules detailed by the Chancellor are regarded as the largest transfer of financial and spending responsibilities between the UK and Scotland since the signing of the Act of Union in 1707. According to estimates, the Scottish government will have nearly GBP 12 billion of extra financial powers once the Scotland Bill completes is legal ratification process.

The latest addition to the Scotland Bill will allow the Scottish government to borrow money in order to fund national infrastructure projects, such as the Forth Road Bridge. The Scottish government will now also have the right to use borrowings to cover cash shortfalls. Scotland will now also be able to issue government bonds, as dictated by the economic circumstances, without consultation with the UK.

The new changes are intended to compliment previously announced additions to the Scotland Bill, which allowed the Scottish government to alter national excise duties and change the basic personal income tax rate by 2 percent. The Chancellor indicated that there is a possibility that even more financial powers could be granted to Scotland in the future, suggesting that there is still a chance that Scotland will see devolved corporate tax rate setting powers. On the day of the announcement the Secretary of State for Scotland Michael Moore commented on the development, saying that the UK government is currently also considering the feasibility of devolving aviation tax powers to Scotland.

Responding to the Chancellor’s announcement, the First Minister of Scotland Alex Salmond said, “…let’s welcome the element of concession today as a down-payment on what Scotland needs to get our economy moving.”

Photo by HM Treasury