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Not so much more power as more paperwork

Smith Commission is a lost opportunity

It was supposed to unlock the political and economic gates and give the country’s policymakers the freedom to roam. In truth, Westminster has kept a firm grip on the keys and told Scottish MSPs not to wander too far from home.

The Smith Commission delivered a package of recommendations last week dressed up as new powers. Take a closer look. There are so many caveats and counter-measures that it is no such thing.

What the commission is transferring is a load of paperwork. It is an exercise in making Scotland feel like it is gaining control when the reality is a list of administrative tasks that will help no one, and in some cases actually make the country less efficient. The commission far from proposing a major transfer of power is doing nothing of the sort. The report is a sham.

Scotland gets an opportunity to vary income tax rates and air passenger duty. But income tax will remain “shared” with Westminster. In other words, MPs and HMRC will continue to ensure it is effectively a unified system.

Air passenger duty was always likely to be passed on, but once the English airports start kicking up a fuss about unfair competition it will be cut or scrapped in England too.

In a more surprising move Scotland gets 10% of VAT receipts, but not control over the rate of VAT. Calculating this assignment of receipts will be a messy and bureaucratic exercise.

VAT is a regressive tax (it affects those on lower incomes disproportionately) and without the ability to lower the rate of VAT then the Scottish government, unlike Westminster, cannot use it to counter the upward effects of any other tax changes. This would have been a useful power in helping the Scottish government to achieve its goal of reducing poverty. It can use VAT receipts in this way, if it so chooses, but it cannot target cuts at certain goods or sectors which it may have preferred.

In order to balance the books, Scotland gets new borrowing powers, but only after agreeing the arrangements with Westminster and, no doubt, the Bank of England and Uncle Tom Cobbley.

Scotland can put someone on the board of telecoms regulator Ofcom, but it does not get any regulators of its own. Having a minority voice on a watchdog whose main interests are multinational businesses won’t add up to very much.

Most levies, including fuel and excise duties, capital gains tax , inheritance tax, corporation tax and national insurance remain reserved matters, as does the taxation of oil and gas receipts. The minimum wage also stays with Westminster even though a Scottish differential would have been as easy to manage as the London weighting on salaries.

Sadly, the Smith Commission has been a clever sleight of hand. Giving some power over income tax may look like a huge gift to Holyrood. It is not. Just as no Scottish government has used the the power to vary income tax by 3p included in the original devolution settlement, it is doubtful that any future government will make drastic income tax changes that are likely to backfire at the polling stations.

Let’s face it, the chances of a Scottish government already committed to more child care and better education, on top of other social benefits such as free prescriptions, cannot afford to cut taxes.

So if income tax is going to change, the only way is up.

Even the business community has quietly admitted that it can handle variations in income tax. It has to do it already for a workforce often scattered around the world and, in any case, it is just another tax code among zillions of tax codes.

Westminster knows this. Of all taxes, income tax is the only one that affects voting behaviour and Westminster has effectively said to the Scottish government: “Go on then, raise taxes if you dare!”

That is why the one taxation power that Scotland really didn’t need was control over income tax. Had it been given powers over all those others listed above – corporation tax, inheritance tax, capital gains, etc – it could have raised them without the great mass of the population being affected or even noticing.

Great hope was vested in the Smith Commission settling most of the arguments and setting Scotland on a path to greater freedom. It has not. It barely adds up to Devo More, let alone Devo Max.

That is not to say the report is all bad. Devolving corporation tax was always questionable because it would have created a ‘race to the bottom’ as companies simply relocated taxable profits to the lowest jurisdiction. To that extent, Scotland would have lost out, rather than gained. Northern Ireland may get control over corporation tax this week, but its circumstances are somewhat different to those of Scotland because of its shared border with a eurozone country having a much lower rate.

Aside from that, the proposals are disappointing. Lord Smith of Kelvin and his commission were given only a few weeks, but they had a one-off chance to deliver a real set of powers that would have drawn a line under the arguments. Instead, they have only succeeded in ensuring those arguments continue.

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