EVER since the dawn of devolution in 1999, the Scottish Parliament has had the power to raise – or lower – income tax. But it only amounted to 3p up or down on the basic rate and was never used.
Today, Finance Minister John Swinney will for the first time have to set a Scottish Rate of Income Tax – which means he could increase or cut all the rates, but with no flexibility to shift the burden from the poor to the rich. In those circumstances it would be a surprise if he announces a tax rate any different from the rest of the UK.
But as from 2017, Holyrood will get much wider control over income tax, including the opportunity to raise the top rate without doing the same to other rates. Or will it?
The next set of new powers – contained in the Scotland Bill currently going through the House of Lords – is due to be signed, sealed and delivered by the time of the Scottish Parliament elections next year. But there is a catch.
Since so much control is being transferred, the block grant which Scotland gets from Westminster must be adjusted – and that opens up the whole issue of exactly how much UK funding should come north of the Border.
It’s not just for one year – there needs to be an agreement on how the grant should be calculated from one year to the next, to keep it fair to both to Scotland and the rest of the UK. And so far, no deal has been reached.
Indeed, the Scottish Government, amid warnings from academics that Scotland could lose hundreds of millions of pounds a year under the proposed arrangements, has threatened to walk away from the extra powers rather than sign up to a bad deal.
Talks have been going on a while and when Nicola Sturgeon met David Cameron in Downing Street on Monday, she set mid-February as the target date for an agreement. There is said to be an “impetus” to reach a deal by Valentine’s Day. But nothing is guaranteed.
Although it would look odd for the SNP to stand in the way of more powers being handed to Holyrood, agreeing to a deal which left Scotland at a disadvantage would surely be a mistake. Sceptics on the UK government side say if both sides want a deal, one can be reached “tomorrow”. They argue the only reason for not coming to an agreement would be if the SNP decided it was not in its political interests.
This scenario has the Nationalists denouncing the UK government offer as unfair and Ms Sturgeon and colleagues going into next year’s elections claiming they are fighting Scotland’s corner.
One source said the SNP could not argue for all the powers it needed to help encourage economic growth and then demand a whole series of “insurance policies” and “safety nets” from the UK government if it did not work.
However, recurring rows over many years about the Barnett formula – invented in the 1970s as a supposedly temporary measure to resolve the issue of Scotland’s share of UK spending – are a reminder of just how controversial and potentially damaging the whole issue of cross-border finance can be.
Ms Sturgeon has said she will continue to work in good faith to reach a fair deal. But she reasonably added: “I can’t in all good conscience agree to something that would be so disadvantageous to Scotland and to Scotland’s budget.”
The issue at stake is too important to be lost in a political battle between the two governments.