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Framework prompts further pledges

Sturgeon: ‘tax powers will be used to promote enterprise’

Nicola Sturgeon at BIPC2015First Minister Nicola Sturgeon made an immediate pledge last night to use Scotland’s new tax powers for the country’s “long term social and economic benefit.”

Addressing an audience at the David Hume Institute, after agreement was finally reached with Westminster, she said the Scottish Government has used existing tax powers to good effect.

The Small Business Bonus Scheme has helped support small businesses in tough financial times; Land and Building Transactions Tax has made the property market more progressive, and Landfill Tax is being increased to encourage recycling, she said.

Ms Sturgeon said the proposed new tax powers can be used to complement the existing powers.

Praising the collaborative approach of the Commission on Local Tax Reform, she confirmed that the Scottish Government will announce detailed plans on local taxation next week – which will propose incentives for councils to boost economic growth by assigning them a share of income tax revenues.

The First Minister said: “Taxation policy is, at heart, inseparable from questions about the sort of society we want to see – the sort of country we want to live in.

“Our approach to taxation recognises the interdependence of greater equality and higher growth; of encouraging enterprise and promoting fairness.

“David Hume’s great friend, Adam Smith, argued that taxes should be certain, convenient, administratively efficient and proportionate to the ability to pay. Those principles underpin the Scottish Government’s approach.”

Using local tax reform as an example, Ms Sturgeon added: “The changes to council tax that we will propose are part of a longer-term plan. In particular, we will discuss with local authorities how we can assign a share of income tax revenue to their funding.

“That means that if councils succeed in boosting economic growth, and consequently income tax receipts, they will share in some of the benefit. And it also means that local government funding will be more broadly based. Income tax, and a more progressive council tax, will both play an important part.

“It’s an approach which goes a long way towards meeting an important concern of the Commission on Local Tax Reform – that income and property-based taxes together would be a better source of revenue than council tax alone.

“It’s a further example of how considering expert evidence can help us to propose a better tax system.”

Earlier, the Treasury said the new framework agreement would lay foundations for the Scottish parliament to become “one of the most powerful of its kind in the world,” while ensuring the deal was fair to taxpayers in the rest of the UK.

In a statement, it said: “The Scottish Government will get new borrowing powers – so that it can manage its budget effectively and invest up to £3 billion in vital infrastructure, while being accountable to the Scottish people for its decisions.”

The Scottish government said the deal was fair and ensured that the budget would not be reduced during a six-year transition period in which new tax powers would be handed over.

Scottish Conservative leader Ruth Davidson welcomed the fiscal framework deal, describing it as “devolution delivered” and said it throws a “major challenge” to the SNP on how to use the new powers.

“Today’s agreement delivers the stronger, more responsible Scottish Parliament that the people of Scotland were promised. It is devolution delivered,” she said.

“It delivers on exactly the kind of Scotland that most people want – not separated from our neighbours, but a Scotland with more power and control over its own affairs, still backed up by the strength and security of the United Kingdom.

“I am very proud of the role my party has played in making this vision a reality. It was the Scottish Conservatives who set out the plan for devolution – now it’s a Conservative government at Westminster which has acted on that.

“It has not been easy and compromises have been required by both sides, but today’s deal shows that our two governments can work together for the good of Scotland.”

First Minister Surgeon in parlThe First Minister told Parliament:

“I provided an update to Parliament earlier today on the negotiations between the UK and the Scottish Governments to reach a deal on the fiscal framework that is required to accompany the Scotland Bill.

At that time I confirmed that we had made significant progress on a range of issues but that negotiations on the key issue of the Block Grant Adjustment mechanism were ongoing and further proposals had recently been received from the Treasury.

I made clear that for this Government to sign up to a deal on the basis of a transitional arrangement we also required there to be a fair review mechanism that did not prejudge the outcome and that would not default to a funding proposal that delivered population driven detriment to the Scottish budget.

I have been clear throughout that I would not sign up to a systematic cut to Scotland’s budget – whether that cut is being applied today or by a pre-judged review in five or six years time.

During the course of this afternoon, negotiations have continued on that basis and I have spoken to the Chancellor.

As a result of these conversations, I can report to Parliament that there is now an agreement in principle that I believe we can recommend to Parliament. Draft Heads of Agreement will be published for scrutiny by Parliament by the end of this week.

That agreement – if it is supported by this Parliament – will secure the following outcome.

There will be not a single penny of detriment to the Scottish Government’s budget as a result of the devolution of powers during the transition period, for the next six years to March 2022.

The UK Government will guarantee that the outcome of the Scottish Government’s preferred funding model, which is Per Capita Indexed Deduction, is delivered in each of those years. In addition – we have agreed that at the point of the review, the conditions that I set out will be met in full.

Transitional funding arrangements will be reviewed following the UK and Scottish Parliament elections in 2020 and 2021 respectively.

The review will be informed by an independent report with recommendations presented to both governments by the end of 2021.

And crucially the fiscal framework will not include or assume the method for adjusting the block grant beyond this transitional period. The two governments will require to jointly agree that method as part of the review. We also agreed that the method adopted will deliver results consistent with the Smith Commission’s recommendations, including the principles of taxpayer fairness, economic responsibility and, crucially, the principle of no detriment.

In summary, the agreement we have reached on the Block Grant Adjustment ensures that there is no detriment for the next six years and that there can be no default by the UK Government after that to a funding model that would deliver detriment in the future.

We have secured no detriment now, and for the next six years, and we have ensured that there can be no detriment imposed on Scotland at any point in the future.

As the Deputy First Minister and I have made clear, there has been give and take in these negotiations, we did not get everything we wanted. But when these discussions began in June last year, the Deputy First Minister faced a proposal from the Treasury which would have delivered £7 billion of detriment to the Scottish budget over the next ten years.

During these negotiations we have made absolutely sure there will not be £7 billion or £3 billion of detriment. This deal will not allow a single pound, or even a penny, to be taken from the Scottish Government’s budget.

This deal will ensure that the funding for Scotland cannot be changed without the Scottish Government’s agreement. It protects the Barnett formula. And it will allow the powers in the Scotland Bill to be delivered.

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