Smith Commission – Full control of income tax & further powers

1st November 2014

At just past 9am this morning, Lord Smith of Kelvin started the biggest speech of his life to present the report recommending further devolution from Westminster to Holyrood. The Smith Commission was set up in the wake of the 'No' vote in September's independence referendum to produce a cross-party agreement on the transfer of new powers to the Scottish Parliament. Whatever the makeup of the next UK Government, all parties have pledged to support the proposals outlined today. Key points from the report are:

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Energy Efficiency and Fuel Poverty
Powers to determine how supplier obligations in relation to energy efficiency and fuel poverty, such as the Energy Company Obligation and Warm Home Discount, are designed and implemented in Scotland will be devolved. Responsibility for setting the way the money is raised (the scale, costs and apportionment of the obligations as well as the obligated parties) will remain reserved. This provision will be implemented in a way that is not to the detriment of the rest of the UK or to the UK’s international obligations and commitments on energy efficiency and climate change.
• The Scottish Parliament will have the power to set income tax rates and bands on earned income and will retain all of the income tax raised in Scotland.
• The receipts raised in Scotland by the first 10 percentage points of the standard rate of Value Added Tax (VAT) will be assigned to the Scottish Government’s budget.
• Air Passenger Duty (APD) will be devolved to the Scottish Parliament.
• There will be an adjustment to the block grant (the amount of money received from the UK Government) to take into account the increased money that will be generated and kept in Scotland from income tax.
• As a result, Scotland will now have significantly more devolved spending power.
• Benefits for carers, disabled people and those who are ill, including Attendance Allowance,Carer’s Allowance, DLA, PIP, Industrial Injuries Disablement Allowance and Severe Disablement Allowance.
• The Scottish Parliament will have new powers to create new benefits in areas of devolved responsibility and new powers to make discretionary payments in any area of welfare without the need to obtain prior permission from DWP.
• Scotland would be able to nationalise rail franchises, although in practice it would not be able to use this until the 2020s.
Onshore Oil and Gas Extraction
• The licensing of onshore oil and gas extraction underlying Scotland will be devolved to the Scottish Parliament.
• Responsibility for mineral access rights for underground onshore extraction of oil and gas in Scotland will be devolved to the Scottish Parliament.
• Scotland would have more power over authorising fracking.
Other powers
• Management of the Crown Estate’s economic assets in Scotland, and the revenue generated from these assets, will be transferred to the Scottish Parliament.
• The Parliament will also have the power to extend the vote to 16 and 17 year olds, allowing them to vote in the 2016 Scottish Parliament election.
• The Scottish government and Scottish Parliament should have a “formal consultative role” in the process of reviewing the BBC Charter.
• Scottish Parliament will have power over MSPs and elections. • Scotland would have power over health and safety rules.
What happens now?
• The Smith Commission recommendations will be used as a basis for a Government white paper to be published in the next few days.
• A draft new “Scotland Act” law will be published by Burns Night (25 January) 2015 ready for the House of Commons to vote on.
• Government legislation enacting this will be passed after the 2015 General Election which is likely to be in the first 100 days of a new Parliament.
• The recommendations are likely to be implemented prior to the next Scottish Parliament elections on Thursday 5 May 2016.
Scotland Act 2012- Powers to be introduced in April 2015 & April 2016
It shouldn’t be forgotten that further powers to Holyrood are being granted separate from these proposals with the majority in place prior to the next general election on May 7 2015.The Scotland Act passed in 2012 with little fanfare, will grant Holyrood powers to set stamp duty (April 2015), landfill tax (April 2015), and set a separate Scottish income tax rate which can vary from 10p in the pound from the UK rate (April 2016). In addition the Scottish Parliament will have the ability to borrow up £296 million for capital spending in 2015-2016 from April next year. Together, these changes mean that the Scottish Parliament will be responsible for funding around a third of devolved spending – roughly double the amount it currently funds.
What about England?
After today’s report David Cameron will now be under huge pressure from English MPs to deliver English only votes for English laws, plans of which he has promised by Christmas. Many English MPs will feel that Scotland has been given additional powers far too easily on tax and welfare; as well as being able to keep the Barnett Formula and Scottish MPs still being able to vote on English legislation. Many will agree that it would be unfair to allow Scottish MPs to vote on UK income tax when Scotland could set its own income tax rate. In addition local government leaders are now up in arms demanding further powers to be devolved to English cities and English regions. The Prime Minster now has some very tricky constitutional waters to navigate in the next few months which will serve as a final distraction before the election campaign starts in earnest.
Whatever your thoughts were on Scottish independence, the proposals released today are major and could lead to a huge constitutional shakeup. Pro-union parties will believe that these new powers will halt the tide towards separation and that ‘a promise was made and a promise was kept’. The Labour Party had reluctantly reversed their decision to oppose the full devolution of income tax, knowing that if they hadn’t it would have haemorrhaged even more votes to the SNP in Scotland come the general election next year. This is a huge gamble and if it goes wrong it could very well be the firing gun towards Scottish independence. The Nationalists will use this report as a reference point for future bargaining of more powers led by the new First Minister Nicola Sturgeon and a resurgent SNP. Yesterday in her first major speech as First Minister to unveil the annual programme for the Scottish Government, she said that ‘her duty’ was to continue to push for Scotland to be an independent nation. Clearly they will not let matters end there and a future comprise with Westminster could led to the formation of a UK federal state.

Maitland Political/AMO Smith Commission Report 27 November 2014