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Parliaments near crunch time on devolutionary powers

15 Jan 2015


Scotland awaits legislation on its proposals for power

Parliaments near crunch time on devolutionary powers

For a moment there, it looked as though 2014 would indeed herald the biggest change for Scotland in hundreds of years.

But while 45% of the nation remains downcast over September’s referendum vote, last-ditch promises rushed through in the dying days of the ‘No’ campaign mean 2015 could still be a true landmark year.

Scotland is staying put, but matters constitutional are now at the very forefront of the agenda - in a year which also plays host to a make-or-break General Election.

This 25 January, Burns Night, marks the somewhat theatrical deadline for draft legislation implementing “The vow”- as outlined in the Smith Commission.
The Smith proposals outline the biggest single transfer of powers since the Scottish Parliament was delivered in 1999, and would transform it into one of the most powerful devolved administrations in the world.

So what is likely to be ratified in the legislation, and how well placed will the next UK Government be to enact it?

Here we take a look at four key areas of change.

Tax

While UK and Scottish Parliaments will share control of income tax, Scotland will be given flexibility within this framework to set its own rates.

The Scottish Parliament would be handed the power to adjust both the rates and the thresholds at which these are paid for the non-savings and non-dividend income of its taxpayers.

So essentially, this means it could re-introduce a top level tax rate of 50p - something the UK coalition scrapped in 2013 - ensuring added funds from those who can afford it, without squeezing those who can’t.

Other aspects of income tax will remain within shared control - including annual charges, personal allowances, savings tax and tax relief - and it will still be collected and administered by the HMRC.

But crucially the Scottish Government will receive all tax paid by its residents, with a corresponding adjustment in grants received from Westminster.

In a further headline tax shake-up, the power to charge tax on air passengers leaving Scottish airports will be devolved to Scotland, leaving it free to make its own arrangements.
All tax proposals are part of plans to strengthen the financial responsibility of the Scottish Parliament, but could problems lie ahead for those in the rest of the UK?

“In light of the oil price collapse, the Scots might think they have had a lucky escape”, says David Pitt-Watson, Executive Fellow, Finance, London Business School. “But Scotland already has taxation powers that it doesn’t use. The proof of the pudding will be in the eating, but what holds true for Scotland must surely hold true for the regions of England.”

Employment provision

The dominant Scottish National Party leads a popular call that the Smith Commission fails to go far enough in its proposals. But one area which would be widely acknowledged as a success in Scotland is employment.
Through a transfer of the Work Programme and other employment schemes currently contracted by the Department for Work and Pensions (DWP), Scottish Parliament will receive all power over support for its unemployed people.

As such, it will have the power to decide exactly how it wants to operate these services, once funding is transferred over from the UK.

Previous Joseph Rowntree Foundation evidence suggests how, in other countries, prospects for the long-term unemployed improve markedly through better commissioning and accountability of local and regional employment services.

It should give Scotland the chance to introduce greater flexibility for those who face additional barriers to work, including better in-work support and adequate childcare to promote sustainable employment.

So how can Scotland’s employment situation be strengthened under its new powers and what will it look to set about first?

Universal Credit

Launched in 2013, the UK welfare benefit Universal Credit (UC) replaced six means-tested tax credits and benefits, including Housing and Jobseeker’s.

Under draft guidelines, UC will remain under the administration of the DWP, but again, within this framework the Scottish Parliament will be given the power to change the frequency of payments, vary existing plans for single household payments and pay landlords direct for housing costs.

This is includes new, isolated powers over controversial elements such as under-occupancy charges, as well as local housing rates and eligible rent.

Alongside this, new powers would be created for Holyrood, including unique, autonomous responsibility for benefits for carers, disabled and ill people.

Furthermore it would have new powers to create benefits in areas of devolved responsibility; a move it hopes will allow it to better protect the vulnerable.

Borrowing powers

All devolution of further responsibility will be accompanied by an updated fiscal framework for Scotland. This will incorporate a number of budgetary elements, among them the operation of borrowing powers.

Scotland’s new fiscal framework will provide sufficient extra borrowing powers to ensure stability - seeing as the nation is taking on additional economic risks. Holyrood also wants the borrowing capability to support capital investment.
Once drafted, both governments would work collaboratively via a Joint Exchequer Committee to agree on the suitable framework.