Happy New Year to you all.

I think I will start with something I have blogged on a few times before.  This week’s storm has caused a huge amount of damage in Scotland and in other parts of the UK.  This is going to mean a lot of extra work for our building industry.  That will mean increased revenue for the UK Government primarily through VAT receipts.  That gives us the perfect opportunity to justify a reduction in VAT on residential property repairs and improvements.  As I have noted before this already happens in the Isle of Man.

I was interested to hear what Nick Clegg was saying on Radio 4 earlier today.   In essence he said: “… the public is angered that large companies and a wealthy elite get out of paying their fair share of tax.”   It seems that the UK Government has at last realised that the public must feel that, and to borrow a well worn phrase, “we are all in this together”.  This was in fact the main point of my last blog of 2011 which can be found here.

I am also sure it is not a coincidence that the Prime Minister in his New Year message and again today vowed to tackle excessive “City” pay and to promise a new clampdown on tax avoidance.  David Cameron said: “While a few at the top get rewards that seem to have nothing to do with the risks they take or the effort they put in, many others are stuck on benefits, without hope or responsibility.”  Reward without risk is a terrible combination.

In addition HMRC have been accused of focusing on small firms while taking a more relaxed approach to the tax liabilities of major companies.  Again this goes back to an issue that I wrote about in my last blog of 2011.   It is claimed that up to 20,000 firms will be inspected from April to assess if they can back up their tax returns with paperwork going back several years.   The article from the Guardian can be found here.

The UK Government has also this week had to defend its policy of tax breaks for hiring new workers after the Labour Party estimated that just 10,000 companies had taken advantage of the incentive since its introduction.  In the 2010 Budget George Osborne said that up to 400,000 small businesses would take up relief on national insurance payments for new employees.  The BBC news report can be found here.

Couples with young children will be hardest hit by changes in the tax and benefit system, with the typical family losing more than £1,200 over five years, a new study has estimated.  The report from the Institute for Fiscal Studies also suggested that the UK Government’s welfare reforms will reduce the financial incentives for mothers to go out to work.   The BBC news report can be found here.

Now to a phrase that I had thought had gone out of fashion: “stealth taxes”.  Labour are claiming that the sharp rise in the cost of council services for elderly and disabled people in England and Wales is in effect a “stealth tax”.  Pot kettle black springs to mind.  The BBC news report can be found here.

I would also like to finish on a winter theme.  Winter fuel allowance became a news topic just before Christmas when it was reported that this payment is also made to British expatriates in Europe’s hottest countries.  These payments have almost doubled in five years to around £14m a year.  That though is not the main issue.  If we are truly in such a poor financial state not only does the payment to those living in sunnier climes need to be looked at but whether we can continue to make such a payment at all.  The cost of this allowance is now approaching £3bn.  At the very least there needs to be a debate on whether it should be means tested.

Have a good weekend.

A year in which we were told the economy would grow and the recovery would begin in earnest.   A year ending with almost everyone predicting hard times ahead.

The past year has been dominated by the economic crisis and the fiscal powers debate.  Let’s start with the economic crisis.

The link between what a government spends and how it funds this spending is an obvious one.  Whatever the government spends it needs to match by taxation or borrowing.  The consensus now is that we have a “debt crisis” rather than a recession.  The main political debate is between those who wish to restrict government spending and those who argue for more government spending to grow the economy.

I agree that spending must be reduced.  There is little doubt that the UK has been living beyond its means.  Even when the UK Government manages to balance its books the national UK debt needs to be serviced and at some point paid off.  The scale of the task is such that even under coalition government plans it is going to be at least another five years before the books are balanced.

If there is to be additional spending on say infrastructure then public spending in another should be reduced.  Growth is important but so is reducing the debt mountain.  The trick is to somehow do both.  Is there a simple answer to this conundrum?  Of course there isn’t.

There is though a related issue that needs to be addressed.  We are often told “we are all in this together”.   The problem with that statement is we keep hearing about sections of society that seem to be treated differently.  Bankers and their bonuses is close to becoming a cliché but what of those in senior positions in the public sector.  Can it be right that salary levels, bonuses and the numerous associated benefits of many of those who work in the public sector are so high and wide ranging and far in excess of the majority rest of the workforce?  One example.   Dave Hartnett head of HMRC is to take early retirement next summer with a pension pot of £1.7 million.  I have blogged on Mr Hartnett before.  It seems he may even get a bonus this year.

That is where the public spending debate is moving.  If public spending needs to be reduced, and let’s be clear it does, then the starting point cannot be reducing those who in the public’s eyes actually do the work.  First things first.  I keep hearing and reading about highly paid public sector managers who earn lots but no one is sure what they do.  My question is a simple one.  Is this actually true?

Then there is HMRC and the claim by the House of Commons Public Accounts Committee that there is £25bn in tax owed by large companies.  HMRC has “previous” with this Committee of which I have blogged on before.  The taxation of large companies is complicated but that is a huge sum of money.  Again this makes me wonder if we are all in this together.

The taxation of large companies is complicated but does HMRC treat all businesses the same?    Evidence gathered by the law firm McGrigors showed that HMRC is increasingly using legal powers to force the settlement of unpaid tax bills in Scotland.  The use of similar powers in England and Wales fell over the same period.  Does this mean that not all businesses are treated equally?  I don’t know but the question needs to be asked and answered.

What about the richest in our society?  Our governments, both in London and Edinburgh, along with HMRC must do more to defeat the perception that for the wealthy paying tax is a choice.  One example.  The avoidance of Stamp Duty Land Tax on valuable residential properties via offshore companies should be stopped.

Are we all in this together?  It does not seem so.

One last point before I move on to the fiscal powers debate.

The UK Government’s decision to waive VAT on the Military Wives Choir Christmas single is an example of what is wrong with how we decide as to whom and what we tax.  Is this a great cause?  Yes of course.  Are there lots of other equally great causes?  Yes there are.

Now to the fiscal powers debate.  The result of the Scottish General Election has ensured that the fiscal powers debate in Scotland has taken centre stage.  The Scottish Parliament may even refuse legislative consent for the Scotland Bill.   I like to refer to the Scotland Bill as “Calman minus”.  My own opinion is that the Scotland Bill was never meant to be fit for purpose.

The fact that the UK Government will not even agree to devolve air passenger duty or control over the Crown Estate shows how out of touch they are.   The debate has moved on.  My last few tax blogs show how quickly the debate is moving.  Even senior members of the Labour party in Scotland favour “devo max”.  Hopefully in 2012 we will learn more of what “devo max” actually means.

The fiscal powers debate is no longer confined to Scotland.  I must admit I did not see this coming.  The Eurozone crisis and proposals such as a European Financial Transaction Tax has stirred the euro sceptics and that was before the call for greater fiscal union amongst the Eurozone countries.  The analogy between Scotland’s relationship with the UK and the UK’s relationship with the European Union is an obvious one.  The European angle to the fiscal powers debate has the potential to cause problems for those who arguing for major fiscal powers for the Scottish Parliament and those who oppose this.  I suspect I will be blogging on this regularly throughout 2012.

A quick word on Ireland.  How far will countries such as Ireland be willing to go to stay a member of the Eurozone?  Will Ireland give up its treasured low rate of corporation tax?  Does Ireland have a choice?

Lastly what am I hoping for on the tax front in 2012?  Now is not the time to be greedy.  A VAT reduction for home repairs and improvements is much needed.  A tax exemption for the governing body and the competitors of Glasgow 2014 is essential for the success of these games.  Less specifically I would like to see some evidence from the powers that tax us that we are all in this together.

Merry Christmas and best wishes to you and yours for 2012.   See you again in the New Year.

Let’s start with the fiscal powers debate.

Another interesting week.  When I started writing about the fiscal powers debate I was of course writing about Scotland and its relationship with the rest of the UK.   That debate is now reaching maturity and the end of the Scottish “Phoney War” is in sight.  That being the Scotland Bill.  The real debate between “devo max” and independence is just about to break through the Ardennes.

What I have found fascinating this week is the emergence of a second fiscal powers front into the public domain.  This is no longer just an issue for a relatively small group of Euro sceptics.

Prior to WWII the Germans feared a second front.  Even though they feared it, that is what they ended up with.  The UK now finds itself fighting on two fiscal powers fronts.  The second front being its fiscal relationship with the European Union.  This goes further than the proposed European financial transaction tax.  How much fiscal union will Germany and France press for?  That is the elephant in the room.

As I have blogged on before, the analogy between these two fiscal powers debate is an obvious one and poses difficult questions for each side in the debate.   Just to add to the complexity of this matter, two other fronts could flair up at anytime: Northern Ireland and Wales.

So what has been happening here in Scotland.  The Scottish Parliament’s Scotland Bill Committee has now issued its final report.  The report can be found here.  The Committee has said it is “unable to recommend” the Bill.  The  Committee also found that the plans were “not yet fit for purpose”.

What will the UK Government do?  I suspect many in Westminster and not just in the coalition would like to see the Bill fail.  Excellent blog by Alan Trench on this point.  Alan’s blog can be found here.

The report shows perfectly how the gulf between the UK Government and those arguing for “devo max” or independence is as wide as ever.  One example.  The UK Government’s refusal to devolve complete control of the Crown Estate to the Scottish Parliament.  Last week a similar announcement was made concerning air passenger duty.  Even the Labour, the Tory and the Lib Dem members of the Scotland Bill Committee want control over the Crown Estate to be devolved.

The UK Government, and the Labour party, will also have to deal with an amendment by George Foulkes to the Scotland Bill.  His amendment calls for all fiscal powers to pass to the Scottish Parliament.

As I said another interesting week.  Also difficult to keep up with all that is happening.

A quick point on Europe.  Glad to see that the Prime Minister finally started to talk about Scotland and Birmingham in the context of financial services.  He clearly realised that continuously banging on about the City of London was not going down well in other parts of the UK.

Now to other matters.  Finance Secretary John Swinney has announced that business rates will rise by 5.6% next year.  The rate currently stands at 42.6p, and will rise to 45p.  An opportunity missed?  Possibly.  We might not have heard the last on this.

HMRC have published information on the new “Rural Fuel Duty relief scheme” for retailers of road fuel on the Inner and Outer Hebrides, the Northern Isles, the Islands of the Clyde and the Isles of Scilly.  This is being introduced on 1 January 2012.  More information can be found here.  This has received relatively little publicity.

I was not surprised to read that the controversial head of HMRC, Dave Hartnett, will “retire” in the summer of 2012.  Mr Hartnett is no stronger to controversy.  His recent apology to the House of Commons Public Accounts Committee MPs for the tax deal negotiated by HMRC with Goldman Sachs was I suspect the final straw.

Finally, I found myself agreeing with the claim made by McGrigors that tax officials are increasingly using legal powers to force the settlement of unpaid tax bills in Scotland.   Information obtained by McGrigors under the Freedom of Information Act showed the number of petitions for bankruptcy filed by HMRC in Scotland increased by 97% over a three-year period.  The use of similar powers in England and Wales fell over the same period.  The story from BBC News can be found here.  Excellent work by McGrigors.

Have a good weekend.

Let’s start with Edinburgh.

It has been a better week for Edinburgh as we are talking about pandas and not trams or statutory repairs.  Even its pro rugby team is winning.  But what about tax?  The City of Edinburgh Council have taken the idea of a “tourist tax” a stage further.

The policy and strategy committee of the Council has agreed in principle to this revenue raising plan.  The committee has asked officials to look into the proposal in more detail.  It is estimated that the Council could raise up to £10m a year by charging between £1 and £2 per room each night.  If formally adopted Edinburgh would be the first place in the UK to levy the charge on visitor accommodation.  The exact nature of how the tax would be raised is as yet unclear.  The officials have also to look at both a compulsory and voluntary version of this idea.

Now to the fiscal powers debate.  I was not surprised to see that the UK Government has ruled out devolving Air Passenger Duty to the Scottish Parliament.  This simply provides further evidence that the Scotland Bill is “Calman minus”.

The attitude of the UK Government is though of more interest.  The UK Government seem quite happy to go against the wishes of many businesses and business organisations in Scotland on APD.  Also by refusing to devolve APD they are failing to implement the extremely modest Calman proposals of which they said they would implement in full.

To put this in context.  Who would have thought even a few months ago that  we would see senior members of the Labour party arguing for “devo max”.  The election of Ruth Davidson to lead the Conservatives in Scotland and the stance of “Scotland Bill and no further” shows, at least in the short term, where they stand.  The Liberal Democrats are trying to distance themselves from the Conservatives and that is why they created yet another Commission on this issue.  Hopefully their recommendations will not end up as “Steel minus”.

What does this mean?  The unity surrounding Calman, the previous UK Labour Government’s proposals and now the Scotland Bill is crumbling.   It may be that the Conservatives are becomming more and more distracted by Europe and just simply do not see, or maybe do not want to see, how fast the fiscal powers debate is moving.

Now to Europe and that other fiscal powers debate.  There is so much happening here it is difficult to keep up.  The call for greater fiscal union as a means of solving the Euro crisis.  The call for a European Financial Transactions Tax.  The call to safeguard the City of London and the European single market.  The call for a referendum on UK membership of the EU.  The call for powers to be repatriated to the UK.

Before the summit Ken Clarke was urging the Prime Minister to concentrate on maintaining financial stability and to forget about the repatriation of powers.   The Prime Minister is sticking to the view that any changes would only impact upon the 17 Euro countries and thus do not necessitate a referendum about the issue in the UK.

It was also not a surprise that the Prime Minister has effectively vetoed an EU wide treaty change saying it was not in the UK’s interests.   The sticking point as expected was how to “protect” the City of London.  Not surprisingly the French and others do not hold the City in such high reagrd.   They again made the point that some of the blame for why we are in this position is becuase of a lack of proper financial services regualtion in the City of London.

I have blogged before on how much pressure Ireland is under regarding its low rate of corporation tax and that was before the latest crisis.  If further powers are to be transferred to Brussels Ireland will have to have another referendum.  Will the Irish vote for closer fiscal union with its Eurozone countries knowing that its prized low rate of corporation tax will have to be conceded?  Then there is the Scottish fiscal powers and independence debate.  Who knows what impact the Euro crisis will have on this debate.

Lastly, I enjoyed the following comment piece from Eversheds.  It seems that the rule where footballers must be paid first in the event of a club going into administration is again under attack.   The comment piece can be found here.

Have a good weekend.

Let’s start with the Autumn Statement or in old money the pre-Budget Report.

There were only a few tax announcements of note.   January’s planned rise in fuel duty has been cancelled.   Not yet heard whether next August’s increase is also to be cancelled.  There have been further calls for the fuel duty escalator to be abandoned.  It will be interesting to see how the Scottish Government responds to the increase in business rates by the UK Government.  Tax competition within the UK; surely not.  There was also a tiny increase in the Bank Levy.

The Autumn Statement was of course dominated by the poor growth and debt figures.  It seems the reality of how we have got to this point and what lies ahead is slowly dawning.  According to figures published by the Institute for Fiscal Studies household incomes will fall by 7.4 per cent between 2009/10 and 2012/13 due to inflation and austerity measures.  This reportedly represents the worst fall in living standards since the three-day week in the 1970s and it would see an average family lose nearly £2,500 over the period.

Has the UK been living beyond its means?  Yes.  Is it going to take a number of years for the debt to work its way through the system?  Yes.  Do we now have a two tier public sector where the top tier earns more and has far greater benefits than the vast majority of those who work in the private sector?  Yes.  Will the UK and Scottish Governments have to deal with public sector wages, bonuses and benefits as well as pensions?  Yes.  Is there a quick fix.  No.

Now to the fiscal powers debate.  Interesting to see “devo max” being mentioned on the BBC’s One Show on St Andrew’s Day.  Did not expect  that.    The quality of the debate also surprised me.  Further evidence that this debate has now reached new pastures.

Interesting news report on the BBC website pages concerning the glacial process of devolving some parts of the corporation tax legislation to Northern Ireland.  It seems that a joint ministerial meeting is to take place before Christmas.  Three key points are to be addressed.  These are cost, how would this be administered and what form would the legislation take.  Not sure who is credited with first saying this but they are right.  “The main difference between evolution and devolution is that devolution takes longer.”  The article can be found here.

Now to Europe.

German Chancellor Angela Merkel has said: “Europe is working towards setting up a fiscal union in a bid to resolve the eurozone’s debt crisis.”  How quickly this debate is moving.   For example the European Union’s council of finance ministers has endorsed European Commission proposals for tax policy coordination through the so-called “Euro Plus Pact” concluded in March by 23 of the 27 member states. The report calls for avoidance of ‘harmful’ tax practices.

Interesting article on the proposed European Financial Transactions tax and how not everyone from the city of London is opposed to this proposal.   The article from the Scotsman can be found here.

One last point.  If you did not see this week’s Panorama programme on PFI and I would recommend you do so.  A school without light switches!  No transparency.  “Dodgy accounting”.  You could not make this stuff up.  This issue is not going away.  How lucky we are that we are now doing things differently in Scotland.   That said, the huge cost to us in Scotland is still going to be with us for a least a generation.   The programme can be found here.

 Have a good weekend.

Let’s start with the fiscal powers debate.

The fact that Douglas Alexander, shadow foreign secretary and Scottish Labour MP, has now entered the debate provides further evidence of a possible change in direction by the Labour party.  If you add to this the recent comments by Malcolm Chisholm MSP, former First Minister Henry McLeish and George Foulkes, former MP and MSP and presently a member of the House of Lords, something is clearly going on within the ranks of the Labour party.  Clearly plenty of opposition still exists but it seems that a number of senior figures are acknowledging that: arguing ‘the Scotland Bill and no further’ is not a realistic option.  The question is will Labour break the Calman consensus?

Now to England.  Research by the Local Government Chronicle has shown that up to a fifth of councils in England may not accept the UK Government’s offer to help pay for a freeze in council tax next year.  That is interesting as Scotland has had a council tax freeze for a number of years now. Although a number of councils have questioned this policy each council has in the end gone ahead and implemneted this policy.

That said this cannot go on forever.  At some point we will need to decide how we fund local government in Scotland.  The Scottish Government still favour a local income tax.  As I mentioned in a recent speech at Holyrood’s Scotland Bill conference this would now be possible under the proposals contained in the Scotland Bill.  Not that it is certain that the Scotland Bill will become the Scotland Act.  My speech can be found here.  Other options should include a Land Value Tax.  My preference is to allow councils some choice in the matter.  Some councils may prefer a form property tax over an income tax or possibly even both.

Now to the UK Chancellor’s Autumn Statement.  This takes place next Tuesday.  How much room to manoeuvre does he have?  Not much I suspect.  Recent debt and growth figures confirm that.  I cannot imagine him deviating from the view that reducing the national debt is his priority.  Although I have a fair bit of sympathy for that position it is equally clear that if the economy is to grow some additional investment or one or two targeted tax cuts is needed.  That is why I am hoping to see a reduction in VAT for home repairs and improvements as already happens in the Isle of Man.

What about the top rate of income tax?  The Eurozone crisis and in particular the possible introduction of a European financial transaction tax have pushed the 50p rate debate from the front pages.  I suspect this is only temporary and battle will soon commence again.  I do not expect to see any specific announcement on the 50p rate next week but I do expect to some comments along the lines of this needs to be looked at and how much if any revenue does it bring in.

I am sure we will see more anti-avoidance measures announced and possibly a consultation on a general anti-avoidance rule.

I will finish on an issue I wrote about a few weeks ago.  My earlier piece can be found here.  Ales Belyatski’s, one of the leading opponents of the Belarus government has been sentenced to four and a half years in jail.  He had been charged with tax evasion.  The Belarus government had obtained details of his bank accounts by invoking an information exchange agreement with Poland.  Several senior Polish government officials lost their jobs over the affair.

Have a good weekend.

The debate over a European financial transaction tax is gathering pace.  Let’s start with terminology.  The UK Government like to refer to this as a tax on London.  What they don’t understand, or maybe they do, is that this really annoys the European proposers of this tax.   Many European leaders and commentators blame London and New York for the banking crisis and cannot understand why the UK Government should be so protective of London.  I should add the continual reference to London also annoys me as Edinburgh is also a financial centre.  London is not the UK it is just part of the UK.

The UK Government say any such tax must be imposed world wide and not just confined to Europe.  The proposers point out that you have to start somewhere and if we wait for world wide agreement nothing will happen.  They also imply that this is what the UK Government secretly wants.  Do the European proposers understand the importance of London to the UK Government?  It seems not.  To complicate matters further Ireland has said that it will not introduce this tax if the UK does not.  I wonder what a fiscally autonomous or independent Scotland would do?

This debate cannot be separated from David Cameron’s newly found European scepticism.  I am sure the French will have laughed heartily when they heard David Cameron’s joke about a cheese tax!  I also suspect that commentators will soon catch on to the analogy between the UK Government’s desire for repatriation of powers from the European Union and the Scottish constitutional debate.  The analogy is an obvious one.

We also now know a bit more about the proposed tax:

• The European Commission says the tax would be levied at 0.1% on all transactions between financial institutions when at least one party is based in the EU
• Derivative contracts – bets on movements in currencies and other assets – would be taxed at 0.01%.
• The tax would be expected to raise about £50bn a year and would come into effect in 2014

Glad to see that the UK and Scottish governments have finally reached an agreement on allowing the Scottish Government to access its own fossil fuel levy funds.  This is a tax paid by suppliers of non-renewable energy sources.  The account holds approximately £206m.  Under the agreement, £103m will go towards Scottish renewable energy projects, including wave and tidal schemes.  The remaining £103m will be made available to support the capitalisation of the proposed Green Investment Bank.

Now to HMRC and its latest staff survey.   The conclusion is that its staff still have little faith in the abilities of their senior managers.   The latest staff survey showed only 13% felt changes were usually for the better; only 15% felt change was well managed; and only 17% had confidence in the decisions of senior managers.  Although these results were better than last year, 20% of staff still wanted to leave immediately or in the next year.  The 38,416 staff who responded represented a 52% response rate.  HMRC commented: “Since our last survey results there have been improvements that give rise to cautious optimism”.  The full story can be found here.

Every taxpayer may be given online access to their tax records.  This idea is part of a UK Government consultation on making the personal tax system easier to use and understand.  Other ideas include supplying pre-filled tax returns to people in the self-assessment system, using information from employers and banks, and sending each taxpayer an annual tax statement in addition to their normal P60 form and PAYE tax code notice.  Good to see a UK Government thinking about things from the point of view from the taxpayer.

Now to a claim from a Scottish accountant that HMRC is disproportionately targeting Scottish businesses.  HMRC said it would launch nine new task forces to investigate specific industry compliance in the 2011/12 year, seven of which are already running.

One for the first task forces to launch, targeting the restaurant trade, has so far launched investigations into 531 UK restaurants with 222 (42 per cent) of those in Scotland.  This compares with just 159 investigations for the whole of London and 150 in the North West of England.  The full story can be found here.

I will end with the Scotland Bill and whether it will become an Act.  What is interesting is how commentators have suddenly woken up to the fact of how much danger the Bill is in.  The Bill could be scuppered by either the Scottish or UK Governments.

One reason for this is the supposed supporters of this Bill seem unable to defend or even explain the contraversial income tax proposal.  As Malcolm Chisholm MSP pointed out last week at Holyrood’s Scotland Bill conference, the proposers of the Bill have failed to explain why the Bill is a positive move for either the Scottish Parliament or the Scottish people.

Have a good weekend.

Let’s start with the highlight of my week.  This would have been the result of last weekend’s Gala v Melrose game but a try in the last few minutes put paid to that.  So instead it has to be speaking at Holyrood’s Scotland Bill conference.  The text of my speech can be found here.

I was very impressed with Malcolm Chisholm MSP and not just becuase he said some nice things about the fiscal power papers I had a part in drafting for Reform Scotland.  He also summed up nicely why is there is so little support for the Scotland Bill including it seemed at this conference.  His argument was a simple one.  Those who should be campaigning for this Bill are not doing so mainly because there is almost nothing positive to say about it.

Next to a worrying story from BBC News.  I am not sure what is more worrying. The fact that MPs had to put a senior official under oath or that civil servants get paid bonuses.

Members of the Commons Public Accounts committee felt they had been unable to get answers from Anthony Inglese, HMRC’s senior lawyer, so they took the highly unusual step of making him swear an oath to tell the truth.  Parliamentary staff said that nobody had been asked to swear an oath by a parliamentary committee for more than a decade.

The session before the committee was part of an inquiry into tax deals negotiated by HMRC with Vodafone and Goldman Sachs.  The full story can be found here.  An earlier story from the Guardian on the background to this can be found here.

Back to the fiscal powers debate.  Not surprised to hear that the UK Government has already ruled out giving the Scottish Parliament even partial control over corporation tax.  Graham Gudgin made the claim while giving evidence to the Scotland Bill committee.  He said he had “reliable information” that the tax power would not be given to Scotland “under any circumstances”.

As I mentioned in my speech earlier this week it seems that the UK Government is just not interested in adding any powers to the Scotland Bill or dealing with some niggly issues such as a tax exemption  for the Glasgow Commonwealth Games.

I see that the Scottish Government are again asking the UK Government to reduce VAT on home repairs and renovations.  I am wondering why they are still not referring to the situation in the Isle of Man.  If anyone from the Scottish Government is reading this you might want to have a look at this.

Now to North Sea revenue and a report by Aberdeen and Grampian Chamber of Commerce. The 15th Oil and Gas survey said confidence and investment were still being dented by the changes announced in this year’s UK Budget. More than half of oil and gas operators surveyed believe the Budget’s £2bn industry tax hike has harmed North Sea investment.  The supplementary tax on North Sea oil production rose from 20% to 32% to fund a cut in UK government fuel duty.

Have a good weekend.

This is the text of my speech to this morning’s Scotland Bill conference.

Good morning.

I recently resigned as a trustee of Reform Scotland.  Pressure of work and joining the board of the Borders Chamber of Commerce were the main reasons.  I did though also want a break from this debate.

That though has allowed me to take a step back.  What I have noticed is how quickly the debate is now moving.  The term “devo max” is suddenly everywhere.  The debate is not now confined to Scotland.  It has taken a while but London is now taking a real interest.  Then there is Eurozone crisis and the debate over how much fiscal union is needed where you have monetary union.  The analogy between the UK’s relationship with the EU and Scotland’s relationship with the UK is an obvious one.

Back to the small matter of the Scotland Bill.  My interest starts with the fact that I am a lawyer.  I want to know about the legislation.  I want to know how and by whom the tax will be collected.  Is someone asking for a right to vary a tax or to have complete control of a tax.  What about the underlying and connected legislation.  These questions should remind us how complicated devolving powers can be.

I will cover four points today.

1. The Scotland Bill is Calman minus;
2. learning from experience and is “HMRC fit for purpose”;
3. institutions as a missing element of the debate; and finally
4. there was a better option.

The Scotland Bill is Calman minus.

People forget that the interim Calman report recommended almost no fiscal or tax powers.   The final report contained a small number including the controversial income tax proposal.  The Scotland Bill is meant to be based on the Calman report but what happened to air passenger duty and aggregates levy?

Air passenger duty was not included as it seems to be under constant review; however, the UK Government has indicated that parts of air passenger duty may be devolved to Northern Ireland.

Aggregates levy was not included because of an action raised in the European Courts by a trade body.

We have been told that these minor taxes might be included at a future date.  There is no reason for a delay.  The Scottish element of these taxes should simply be carved out of the relevant UK legislation.  Then leave it up to the Scottish Parliament to decide what to do next.

In addition Calman recommended that 50% of income tax on savings and distributions was to have been assigned to the Scottish Parliament.   Why 50%?  As with the income tax proposal no-one can give any justification for that figure.  This power has been dropped from the Scotland Bill completely.

Then there is the debate over adding additional tax powers to the Scotland Bill.

The previous Scotland Bill committee said that some powers over corporation tax should be included if Northern Ireland is granted any such powers.  Up until recently it looked as if Northern Ireland would soon be getting this power.

The Scottish Government have also produced papers on adding corporation tax, alcohol duty and control over the Crown Estate to the Scotland Bill.

I think it is fair to say that none of these suggested additions have been taken up enthusiastically by the Scottish Secretary.

Some powers might actually be re-reserved such as parts of insolvency and charity law.  The Scottish Parliament is at fault on insolvency by not updating the law.

Instead of arguing about re-reserving part of our charity law why was it not agreed that when OSCR registers a charity it automatically becomes entitled to the various charity tax reliefs.  Presently you also have to make an application to HMRC.  There is a lot of talk about tax simplification.  This was an obvious opportunity missed.

So which tax powers are we left with?

Two minor taxes, SDLT and landfill tax, and an income tax proposal that some commentators think is unworkable.   I will leave it to the accountants and economists to argue back and forth on that one.  That said, as a lawyer I would not start this process with income tax unless you devolve the tax in its entirety.  Only VAT is more complicated.    The longer I have been involved in this debate the less inclined I am to argue for a tax to be shared between parliaments.

The other problem is an eggs and baskets one.   Income tax is just one economic lever albeit a major one.  We have seen what has happened to income tax receipts during the current economic crisis.

Also a right to vary a tax is not much of a power on its own.  What about the underlying law that allows you to create reliefs or vary the tax base. What about connected legislation that affects the tax legislation.  For example for income tax: the tax residency rules or employment legislation.

To change tack for a minute.  What do I like about the Scotland Bill?  The borrowing powers provisions have been improved.   The way the two minor taxes are being devolved makes sense.  They are being carved out of the UK legislation and the Scottish Government are to draft a new Scottish act.  One word of warning on the drafting.  Who is drafting this legislation? What experience do they have in drafting tax law?

I also like the fact that the Scottish Parliament will be able to create new taxes albeit with Treasury approval.

Moving quickly on.  I always think it is a good idea to see how things have been done in the recent past.  What can we learn?  Given the importance of HMRC to this process I also want to discuss whether HMRC is presently fit for purpose.

I will start with HMRC.   I do have quite a bit of sympathy for them just now.  Can you imagine them being told: “I know we are cutting job numbers and your budget.  I know we are already asking you to do a number of new things but can you also deal with the Scotland Bill.”  You can see why HMRC do not treat this matter with much if any enthusiasm.

Is HMRC fit for purpose?  The House of Commons Treasury select committee thinks not.   A further £1.6bn is to be cut from its budget over the next four years.  10,000 more job losses.  Offices are to close.  This is in addition to the cut of approximately 30% in staff numbers and budget since 2004.  I will not even attempt today to answer the question of whether the UK tax system is fit for purpose.

It is though not just staff numbers and budget.   The centralisation of the administration of various taxes is causing problems for us in Scotland.  Two examples.  Birmingham for SDLT.  Nottingham for inheritance tax.

Why is this important?  UK tax law applies English & Welsh legal principles.  Property law and succession law are governed by Scots law.  These can conflict.  In addition, as these taxes are now primarily dealt with in England the amount of Scottish expertise has declined.   One example.  The guidance for SDLT in Scotland had to be written by a sub-committee of the Law Society of Scotland’s tax committee.

Then there is the news that as part of the HMRC cutbacks the Edinburgh Stamp Office is under threat of closure again.  The Trusts and Estates office in Edinburgh is being run down.   I have not heard one Scottish politician ask questions about this.

Now three examples of why I am not confident that this will be done be well.

Remember also that these examples are from a time when HMRC was better staffed and resourced.  Also it is not just HMRC that needs to do better.  The Scottish Government also needs to raise its game.

It has been well documented as to how much of a shambles the introduction of SDLT in Scotland was.   I was at meetings where HMRC openly said they did not realise that Scotland’s property law was different to English property law.  They also made it clear that they did not have time to change the legislation.  “Don’t worry we will have plenty of time to sort things out later”, they said.  The only reason that SDLT worked in Scotland was due to the goodwill and pragmatism of the Scottish legal community.

Then there was the proposal for a UK wide planning-gain supplement.  This was also pre-recession and the debate was all about how much should developers contribute.   I remember my first meeting with HMRC and Treasury officials about this.  The meeting started well with me saying: “I hope you make a better job of this than you did with SDLT”.

Again the level of knowledge of Scots law and which powers the Scottish Parliament had was not great.  My main argument against a UK planning-gain supplement was a simple one.  This was a matter for the Scottish Parliament as planning and housing are devolved matters.   A point so obvious that they said it had never occurred to them.  Maybe, maybe not!

This debate went on for many months but finally the proposal in Scotland was dropped.

My third example is I suspect the one you are most familiar with.  The Scottish Government’s local income tax proposal.  I remember being asked about this 2007 SNP manifesto commitment.  I made three points:

1. Why do you think HMRC will cooperate and work to your deadlines?
2. What about Council Tax Benefit?  I pointed out that the Treasury have withheld attendance allowance funding since the Scottish Parliament introduced free personal and nursing care.
3. This proposal relied on the yet unused tax varying powers.  Is 3p in the pound adequate I asked? Is there even a list of Scottish taxpayers?

I was not surprised when the Scottish Government dropped, possibly temporarily, this proposal.

Ironically this proposal will be soon be possible as under the Scotland Bill the tax varying powers are increased and Council Tax benefit powers are likely to be devolved in 2013.   Whether HMRC would cooperate is of course another matter entirely.

Now to institutions.

The Scottish Parliament is going to need an Exchequer.  An Exchequer that ideally combines the functions presently undertaken by HMRC and the Treasury.   Even under the limited powers contained in the Scotland Bill the Scottish Government will need an Exchequer not just a finance department.  Hopefully the Scottish Government is already thinking about this.

Does Scotland need a separate Stamp Office, Registers of Scotland, Trusts and Estates Office and Companies House?  Of course not.  Why not create a one stop shop to combine these and other government tax, legal and registration services.   By doing this we could also have sub-offices.  Just as London is not the UK Edinburgh is not Scotland.  Remember some benefit powers are already to be devolved in 2013.  Why not create a tax and benefits office?

As far as institutions go we pretty much have a blank sheet of paper.  Let’s not waste this once in a lifetime opportunity.

A few final points.

It is all very well for me to criticise the Scotland Bill.  Do I have or rather had I a better option?  Yes I think I did.

When I started looking at the fiscal powers question my starting point was to look at which powers were already devolved.  The starting point for the Calman Commission was very different and much has already been written about that.

The imbalance in the powers of the Scottish Parliament is obvious.  The Scottish Parliament is responsible for 60% of government spending in Scotland but only has control over 7% of all tax raised in Scotland.  That is the starting point for the debate on financial accountability.

The Scottish Parliament had very few economic levers.  It only has two local taxes out of over 20 taxes and duties.

The lack of tax and fiscal powers also affects policy making.  For example the recent debate on alcohol minimum pricing.  I am sure the Scottish Government would prefer to use alcohol duty if it had the power to do so.

So what to do?

Instead of spending so much time trying to devolve income tax I would have firstly devolved the taxes and duties that are closely connected with already devolved areas of responsibility.

Some examples.

• Property law is devolved but SDLT and the property parts of capital gains tax are not.
• Succession law is devolved but inheritance tax is not.
• Environmental law is devolved but the environmental taxes are not.
• Health is devolved but alcohol and tobacco duties are not.
• Transport is devolved but transport related taxes are not.

This increases the number of economic levers and would greatly help with joined up policy development.   Almost all of the miscellaneous taxes could be devolved under this option.

I would also give the Scottish Parliament the power to decide which of, and when the miscellaneous taxes and duties are devolved.

The other advantage less commented upon is how this would simplify the taxation system of the rest of the UK as less specific “Scottish” guidance would be required.

The point of how small a percentage of revenue the Scottish Parliament raises is though not resolved.  The Scotland Bill takes us to about a third.  Devolving the majority of the minor taxes takes us to about a quarter.

Only be devolving one or more of the big “5” can this be dealt with.  VAT cannot be devolved.   National Insurance is very closely linked with benefits which is still primarily a UK matter.

That leaves corporation tax, North Sea revenue and income tax.  On balance I would go for corporation tax and North Sea revenue as income tax is so closely linked with national insurance.

On timing I also think that the miscellaneous taxes and duties could be devolved relatively quickly.    The Scottish Parliament could also agree that for a period of up to two years to not change any tax that is devolved.  That would provide a degree of certainty.

Also why does the Scotland Bill not make provision for a tax exemption for our Commonwealth Games and as is already in place for next year’s London Olympics.   Or deal with the fossil fuel levy issue.

Last point.  The Scottish Government should deal directly with the UK Government and in particular HMRC and the Treasury.   The Scotland Office is simply a further complication.

Although this is complicated it is also a great opportunity.  Is the opportunity still there?  I am not sure.  But we would not be Scottish if we did not try to snatch victory from the jaws of defeat right at the last moment.

Thank you.

Let’s start with the proposal for a Financial Transaction Tax.  The Archbishop of Canterbury has now come out in support of this.   Even at this early stage there are a number of obvious questions.  Just the Eurozone countries? All of the European Union?  Wider?  Who will it apply to, buyer or seller or both? Who will collect it?  Who will administer it?  What happens to taxes such as UK stamp duty which is a financial transaction tax.  All financial transactions?  Do you look to where the parties or the assets are located?  What if any reliefs will apply?  Think that is enough for now.

Now to the fiscal powers debate.  First to Labour.  Ed Milliband said this week that “devo max” is not the right option for Scotland.  This places him at odds with other senior members of the Labour party in Scotland.  Labour MP and candidate for the Scottish Labour leadership contest Tom Harris argued that a permanent ‘Calman Commission’ should be set up to ensure devolution was constantly monitored.  Mr Harris also suggested that such a commission should have a remit that would allow powers to be handed back to Westminster.

The Liberals also announced another commission on fiscal powers for Scotland.  This one is to be named “Home Rule”.  A favourite term of the Liberals.  Between 1889 and 1914 four Bills advocating Scottish “Home Rule” were defeated.  In 1913 a Home Rule Bill passed its second reading, however World War I intervened and the idea was dropped.  Menzies Campbell is in charge of the latest commission.  One question that does need  to be asked.  Are the Liberals updating the well regarded Steel Commission or are they starting from scratch?  I also find it interesting that each of those mentioned above is an MP.

Three Scottish local authorities have been given the green light to raise funds for infrastructure projects.  The Scottish Government this week approved the schemes to be developed under the tax incremental financing model.  This allows councils to borrow against the likely business rate gains that will result from an infrastructure project.  The article from the Scotsman can be found here.

Now to air passenger duty.  It seems that this tax is in the news every week.  The Scotsman reported that aviation bosses have launched a scathing attack on a planned increase in air passenger duty.   The heads of 12 airports sent an open letter to UK Chancellor George Osborne warning that the increase next year will further stifle the aviation industry at a time when passenger numbers are flat-lining.  As I have blogged before the three Scottish airports are  supporting a campaign for air passenger duty to be devolved.

Now to the never ending battle between the UK tax authorities and those seeking to avoid paying tax.  In case you don’t realise how serious an issue this is remember the situation Greece is now in.  HMRC have created a new 200 strong team of investigators and specialists who it is said will use new and innovative risk assessment techniques to identify areas where wealthy individuals are avoiding and evading taxes and duties.  One of the first groups being targeted is wealthy individuals who own land and property abroad.