The ICAEW gave evidence to the Treasury Select Committee last week on the economic and fiscal consequences of further tax devolution to Scotland.
The ICAEW gave evidence to the Treasury Select Committee last week on the economic and fiscal consequences of further tax devolution to Scotland. Commenting on the effect on HMRC, Frank Haskew, head of ICAEW’s tax faculty, said: ‘As long as the proposed changes are practicable for HMRC, without sacrificing service quality, we will support them whole-heartedly, but devolution of tax powers to Scotland needs to be carefully thought out and planned for. With HMRC under increased pressure to do more with less, our chief concern is that Scottish devolution of tax is achieved without compromising HMRC’s capabilities.
‘HMRC has limited resources and its budget and headcount continue to be reduced, the most recent example being the latest round of office closures. The Smith Commission must be careful not to overestimate HMRC’s resources available for devolution, or underestimate the time needed to vary even one rate in Scotland. Without additional resources and staff, there is a danger that Scottish devolution of tax could significantly overstretch an already thinly spread HMRC.
‘Alternatively, Revenue Scotland … could expand its remit to take some of the pressure away from HMRC. However, this would come with its own set of issues, including the prospect of some individuals having to routinely deal with two different tax authorities. Again the expense of this, both to set up and run on a day-to-day basis, should not be underestimated by the Smith Commission.
‘Realistically, the Smith Commission needs to seek additional guidance on which taxes are suitable to devolve to Scotland, so that any change is macro-economically sound, as well as providing Scotland with additional control over its affairs. The hardest taxes to devolve are also those that raise the most revenue, and devolution of these will make our tax system more complex, not simpler, a promise that this government has yet to deliver. With an increased focus on the devolution of powers to the regions in general, the government should think over how HMRC could be reorganised on a geographical basis, in order to effectively manage changing fiscal regimes.’
Moira Kelly, chair of the CIOT’s Scottish technical sub-committee, added: ‘Scots expect a greater say in what they spend and how they are taxed to pay for it and there is now broad political commitment to the devolution of greater powers to Scotland. However, we must be wary of straying into a post-referendum sentiment of “anything that can be devolved, should be devolved”. Rather, policy regarding tax devolution should be the product of reasoned logic and the current (not envisaged) capacity of Scottish institutions and the taxpayers themselves to make adjustments for the significant changes in administration and collection which will result from devolution.
‘We agree with suggestions that the assignment of an appropriate share of revenue of the tax collected to Scotland, while not providing the total accountability nor the kinds of powers for specific policy objectives the Scottish government seeks, does provide an indirect advantage to Scotland in that greater economic growth as a result of local policies would increase revenue. We recognise that pragmatically, the assignment of tax revenue would be best considered, and subsequently implemented, at a time when there are clearly defined accurate measures of revenue attributable to Scotland. We do not believe it is currently possible to achieve this for VAT or corporation tax. Other countries have developed tax models which allocate revenue on the basis of particular regional circumstances; we believe Scotland can be treated in a similar way.’
The ICAEW gave evidence to the Treasury Select Committee last week on the economic and fiscal consequences of further tax devolution to Scotland.
The ICAEW gave evidence to the Treasury Select Committee last week on the economic and fiscal consequences of further tax devolution to Scotland. Commenting on the effect on HMRC, Frank Haskew, head of ICAEW’s tax faculty, said: ‘As long as the proposed changes are practicable for HMRC, without sacrificing service quality, we will support them whole-heartedly, but devolution of tax powers to Scotland needs to be carefully thought out and planned for. With HMRC under increased pressure to do more with less, our chief concern is that Scottish devolution of tax is achieved without compromising HMRC’s capabilities.
‘HMRC has limited resources and its budget and headcount continue to be reduced, the most recent example being the latest round of office closures. The Smith Commission must be careful not to overestimate HMRC’s resources available for devolution, or underestimate the time needed to vary even one rate in Scotland. Without additional resources and staff, there is a danger that Scottish devolution of tax could significantly overstretch an already thinly spread HMRC.
‘Alternatively, Revenue Scotland … could expand its remit to take some of the pressure away from HMRC. However, this would come with its own set of issues, including the prospect of some individuals having to routinely deal with two different tax authorities. Again the expense of this, both to set up and run on a day-to-day basis, should not be underestimated by the Smith Commission.
‘Realistically, the Smith Commission needs to seek additional guidance on which taxes are suitable to devolve to Scotland, so that any change is macro-economically sound, as well as providing Scotland with additional control over its affairs. The hardest taxes to devolve are also those that raise the most revenue, and devolution of these will make our tax system more complex, not simpler, a promise that this government has yet to deliver. With an increased focus on the devolution of powers to the regions in general, the government should think over how HMRC could be reorganised on a geographical basis, in order to effectively manage changing fiscal regimes.’
Moira Kelly, chair of the CIOT’s Scottish technical sub-committee, added: ‘Scots expect a greater say in what they spend and how they are taxed to pay for it and there is now broad political commitment to the devolution of greater powers to Scotland. However, we must be wary of straying into a post-referendum sentiment of “anything that can be devolved, should be devolved”. Rather, policy regarding tax devolution should be the product of reasoned logic and the current (not envisaged) capacity of Scottish institutions and the taxpayers themselves to make adjustments for the significant changes in administration and collection which will result from devolution.
‘We agree with suggestions that the assignment of an appropriate share of revenue of the tax collected to Scotland, while not providing the total accountability nor the kinds of powers for specific policy objectives the Scottish government seeks, does provide an indirect advantage to Scotland in that greater economic growth as a result of local policies would increase revenue. We recognise that pragmatically, the assignment of tax revenue would be best considered, and subsequently implemented, at a time when there are clearly defined accurate measures of revenue attributable to Scotland. We do not believe it is currently possible to achieve this for VAT or corporation tax. Other countries have developed tax models which allocate revenue on the basis of particular regional circumstances; we believe Scotland can be treated in a similar way.’
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