Let’s start with my favourite Chicago politician and the small matter of the next US Presidential election.

I was interested to read this week that President Obama is considering a form of “minimum taxation”.   The plan seems to be if you make more than $1 million a year you should not pay less than 30 per cent in taxes.  In addition if you earn more than $1 million a year you will not be allowed to claim any tax relief or deductions.  On corporate taxation no American company will be allowed to avoid paying its “fair” share of taxes by moving jobs and profits overseas.  Again multinational companies will be liable for a basic minimum tax.  I wonder if we will see our politicians thinking along similar lines in the near future.  I suspect that we will.

Now to the independence and fiscal powers debate.  Two major developments this week. Firstly sources close to the Prime Minister are reported to have said: “that a substantial increase in financial powers for Holyrood is not an option if Scotland wants to remain within the United Kingdom.”  If the UK Conservative party sticks with this line in the sand then how will those who support “devo max” or “devo plus” vote in 2014?  Will the Liberal Democrats and the main UK opposition party continue to support this policy?

Only time will tell as far as these questions are concerned.  One thing is though certain and that is the UK Government will face opposition on this point.  This week groups from the voluntary sector, churches, trade unions and the business community have formed a coalition to explore the possibility of a “middle-ground” option which is short of independence.  This group is termed “civic Scotland” and has the support of two think tanks Reform Scotland and the Centre for Public Policy.  For completeness sake I should mention that I am a former trustee of Reform Scotland and that I was one of the authors of Reform Scotland’s fiscal power papers.  I am though not involved with this group.

I was surprised that more was not made of the new statistics produced by HMRC this week.  UK tax receipts up to January 2012 show that total tax revenues in the 2010-11 fiscal year very nearly recovered to their pre-recession 2007-08 level and are set to be substantially higher in the current 2011-12 tax year.

Now to something we in Scotland are going to have to consider as tax powers are devolved to the Scottish Parliament.  It is easy to suggest a new tax.  Recent examples include a “bed tax” for Edinburgh.  Another possible new tax is the so called “bag tax”.  It was reported this week that Northern Ireland is to introduce such a tax from April.  Wales introduced a similar tax last year and the Republic of Ireland has had such a tax since 2002.  The Scottish Government is presently consulting on this issue.

As I said it is easy to suggest a new tax.  It is harder to explain what that tax is meant to achieve.  That should always be the starting point.  Are we looking to increase tax revenue or change behaviour or possibly a bit of both?  When environmental taxes such as aggregates levy and landfill tax were introduced the politicians struggled to answer this question.

I would also expect an explanation as to how the tax will be collected, the cost of collection and who carries that cost.  Any claim as to potential revenue also needs to be looked at closely and also put into context.  Most taxation revenue comes from just a handful of taxes.  Many of the UK’s minor taxes produce a relatively small amount of revenue.

Any new tax should also have a review date.  This ensures that any claims as to revenue or the cost of administration can be checked within a relatively short period of time.

Now to an update in the Scotsman on Edinburgh airport’s so called “kiss and fly” tax.  A total of 15p of every £1 generated by the charge for dropping off passengers beside the airport terminal is being channelled into its environmental fund.  The article can be found here.

Now to business rates and an excellent piece in the Scotsman newspaper.  The Scotsman reports that an unprecedented number of firms in Edinburgh have demanded reduced business rates as they struggle with a weak global economy and local difficulties such as tram works.  The article can be found here.

Now to Europe.  I was not surprised that President Sarkozy has decided to introduce a French financial transaction tax in August.  Will he still be in power then is of course another question.  The plan is to unilaterally impose a 0.1% tax on financial transactions.  The UK Prime Minister’s reaction was as expected.  Of greater interest is whether other European countries follow Sarkozy’s lead.

I have been following the Harry Redknapp trial with interest.  It is alleged that he received undeclared payments via a Monaco bank account from his former boss at Portsmouth Football Club.  Reports such as this one from the BBC News website, found here, make fascinating reading.

It seems that the Chief Executive of the Student Loan Company has his salary of £182,000 salary paid via a company and without tax being deducted.  The article claims that both HMRC and HM Treasury were aware of this arrangement which allows Ed Lester to pay corporation tax of 21% rather than up to 50% income tax on his earnings.  You have to wonder if the people who approved this arrangement have any sense of what is happening in the real world just now.  This is an excellent piece of journalism from the Guardian and the article can be found here.

Finally to more serious matters.  Good luck to new Scottish captain Ross Ford this weekend.  No pressure!

Have a good weekend.

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.

Appeal by Dundee City Council against a decision of Dundee Valuation Committee. The question in dispute was whether Mr Hanson, the landlord of a number of (apparently unoccupied) flats in Dundee was liable for council tax on those flats.

The council had determined that Mr Hanson was liable for council tax. However, the Valuation Committee allowed an appeal by Mr Hanson on the basis that, as a valid lease existed over each of the flats, the tenants and not Mr Hansen were liable for the council tax.

The committee found that the leases had been continued by tacit relocation and, although the flats were unoccupied, there was no rule of law requiring the landlord to serve a notice to quit or seek to recover the property where the tenant is not paying rent or appears to have abandoned the property. On the basis there were tenants with leases, the tenants were responsible for the council tax in terms of s75 of the Local Government Finance Act 1992.

The Second Division of the Inner House allowed the council’s appeal finding that the committee had erred in the procedure it had adopted meaning it had reached a decision which was “illogical, erroneous in law and based on inadequate findings in fact”.

Procedure

At the root of the procedural failings was the Committee’s failure to make findings in fact before making its decision. In particular it had failed to consider whether the properties were unoccupied because they had been abandoned by the tenants or whether the tenants were merely absent temporarily from the property.

Legal error

The committee’s understanding was that when the term of a lease expired, the lease was automatically renewed by tacit relocation and continued so to be renewed until either party served notice of termination or the landlord obtained a court order for eviction. Therefore, in the view of the committee, since none of these events had occurred, the tenancies continued by operation of law.

However the Inner House found that interpretation to be unsound:

 “In leases of heritable property, the broad general principle is straightforward. If at the expiry of the contractual endurance of the lease neither party indicates to the other that he does not consent to the renewal of the lease, the lease is held to be renewed on the basis that the mutual consent of the parties is to be presumed from their silence. At common law, any overt indication by either party that he does not consent to the prolongation of the lease is sufficient to exclude tacit relocation.”

 In considering whether the leases have been terminated by notice of termination or by a decree of removal, the Committee has overlooked the rule that the operation of tacit relocation is excluded where the tenant does not retain possession after the contractual ish”

It was noted that, where a flat let under a short assured tenancy appears to be vacant at the end of the lease, the question of whether the tenant has abandoned it will be particularly fact-sensitive.

A special problem in this case was that the landlord’s typical tenant would not be minded to give notice to the landlord and would simply vacate the flat and cease to pay rent. At first sight, that would be evidence of abandonment.  It may be supposed that those facts will come to the notice of the landlord. However, in view of the many diverse circumstances which can prevent the operation of tacit relocation, it was essential that the Committee should hear evidence in respect of each flat and make a decision based on the special facts applying.

Decision

The Inner House allowed the appeal, recalled the committee’s decision and returned the cases to the committee with a direction that it should hear evidence in respect of each flat and to make findings in fact and law in order to decide whether the tenancies remained in force.

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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.

HMRC v Atkinson 2011

The Upper Tax Tribunal has allowed HM Revenue & Customs’ appeal in the case HMRC v Executors of Atkinson.

The decision allows HMRC to refuse agricultural property relief on a farmhouse because the farmer had gone into in a care home just before his death. The executors were unrepresented at the appeal because they could not afford to pay HMRC’s costs if they lost.

The farm was owned by the deceased and let to a farming partnership.  The deceased was a partner in the farming partnership and lived in a bungalow situated on the farm until ill-health meant he had to move into a care home.  The deceased still made occasional visits to the bungalow and his possessions remained in it until his death.

HMRC had refused the Executors’ claim for agricultural property relief because they were of the view that the bungalow was not occupied for the purpose of agriculture for the relevant period required by section 117 of IHTA (“Inheritance Tax Act 1984”).   The First Tier Tribunal allowed the Executors’ appeal.

On the basis of the findings of fact the First Tier Tribunal concluded that, for the purposes of the IHTA, the partnership was in occupation of the bungalow up to the date of Mr Atkinson’s death and that such occupation “was for the purposes of agriculture in the relevant sense because the bungalow was still used to accommodate the diminishing requirements of the senior partner”.

Section 117 (b): “… section 116 above does not apply to any agricultural property unless –

(a)    It was occupied by the transferor for the purposes of agriculture throughout the period of two years with the death of the transferor, or

(b)   It was owned by him throughout the period of seven years ending with that date and was throughout that period occupied (by him or another) for the purposes of agriculture.”

Section 116 grants relief for agricultural property.

Note. There is no definition of the word “occupied” nor is any special given to the words “for the purposes of agriculture”.

The question for the Upper Tribunal was whether the First Tier Tribunal made an error of law when they arrived at a decision of fact which no tribunal properly directed could properly have reached.

The Upper Tribunal found that the First Tier Tribunal did make an error in law.

“Were the matter for us, we would have no hesitation in concluding that the partnership ceased to occupy the bungalow for the purposes of agriculture when Mr Atkinson moved to the care home with no reasonable prospect of ever returning home.”

“In our judgment, the [First Tier] Tribunal failed to apply the correct approach and ask the correct questions.  The correct approach is to identify what does and what does not amount to a sufficient connection between the use and occupation of the property in questions (the bungalow in the present case) and the agricultural activities being carried on on the agricultural property (the farm in the present case); and to ask whether the facts give rise to a sufficient connection.”

“If the [First Tier] Tribunal had adopted such an approach it could, in our judgment, have come to only one conclusion, namely that the bungalow was not immediately before Mr Atkinson’s death, occupied for the purposes of agriculture and had not been since, at latest, it had become apparent that he would never be able to return there to live.  In particular neither the occasional attendance of Margaret [his daughter-in-law] and Gary [his grandson] at the bungalow to deal with post or frost, nor the fact that some of Mr Atkinson’s belongings and furniture remained at the bungalow, can be said to constitute occupation for the purposes of agriculture throughout the seven years prior to Mr Atkinson’s death.”

The full report of the Upper Tribunal can be found here.

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.

HMRC has published an updated Inheritance Tax Toolkit effective for deaths occurring from 6 April 2010. Updates include emphasising the importance of providing HMRC with a copy of the will and any codicils when submitting the form IHT400.

These toolkits provide guidance on areas of error that HMRC frequently see in returns and set out the steps that you can take to reduce those errors.

The toolkits can be found here.

Two main taxation topics from the SNP conference.  Not supprisingly North sea oil and gas taxation was one.  One reason for this are the recent announcements that over half of the North sea and oil gas reserves remain.  That alone ensures that this issue will play a major part in the independence referendum.  The House of Commons Energy and Climate Change select committee has also this week criticised the UK Government’s recent “£10bn raid on North Sea oil profits”.

The other taxation issue that received a lot of coverage was the independent referendum and the number of options given.  The main question will be a yes or no to independence.  It is though a possible second question that has ignited so much debate.  A possible second question is likely to be a yes or no to greater fiscal and tax powers, but short of independence, for the Scottish Parliament.  How “short” is the tricky part.  There are a lot of options between the Scotland Bill proposals and full fiscal autonomy.

The press have termed this option “devo max”.  As one of the authors of Reform Scotland’s “fiscal power” papers I can confirm that one of the hardest issues is trying to find a suitable title.  Other terms commonly used are: fiscal responsibility, “home rule” and fiscal autonomy.  It will be interesting to see this debate develop.  Lots of questions.  Some of these include:

1. what is “devo max”?

2. who is going to define it?

3. who is going to campaign for it?

4. would the UK Government abide by a vote in favour of “devo max” but not independence?

5. what are the estimated costs and timescales?

Now to Europe and the latest agreement by the Eurozone countries.  One likely outcome of this crisis is that the  Eurozone countries will begin the process to more closely align their tax and fiscal policies.  Most commentators now seem to be saying that if you have a common currency you also need similar tax and fiscal regimes.  How “similar” is going to cause a lot of debate.  The debate has of course already started.  I have blogged previously on how hard the Irish government are fighting to retain its low rate of corporation tax.   It is not difficult to see the similarities with the Scottish independence debate as the  Scottish Government’s prefernce is to retain Sterling in the event of independence.

The debate over whether to retain the 50p rate of income tax was reignited this week when Paul Walsh, chief executive of Diageo, said that: “the 50p rate threatened to cause long term damage to Britain’s competitive edge”.  Paul Walsh’s comments contrast with those of Sir Stuart Rose, the former head of Marks and Spencer’s, who has supported the 50p rate.   George Osborne has of course commissioned a study on the revenues being received from the 50p rate.  That said, the debate is much wider than just the question of how much revenue is being raised.  The debate is just as much about the perceived fairness of the UK’s tax system.  It was ever thus.

Now to the so called “Retail tax levy”.  The Scottish Retail Commission claim that the proposed levy on major supermarkets selling alcohol and cigarettes breaches the Scottish Government’s own business rules by not carrying out an impact study on any such change.  The Scottish Government responded that as the levy only affects 0.1% of retail turnover the cost of a Business and Regulatory Impact Assessment would be disproportionate.  This debate is going to run and run I suspect.

Now to Aberdeen and the news that the first phase of work to improve Aberdeen city centre has begun.  More than two thirds of firms in the area voted in favour of a Business Improvement District earlier this year.  The companies agreed to pay into a fund with the aim of raising more than £3m for work to help attract more visitors.  The first phase of work includes cleaning guttering and building facades to help improve the city centre in the run-up to Christmas.

Have a good weekend.