Scottish government refuses £7m tax IT upgrade cost

A FURIOUS ROW has erupted over a demand from HM Revenue & Customs for the Scottish government to pay to maintain Edinburgh’s so far unused power to increase income tax north of the border.

The SNP government failed to meet a demand for £7m by 20 August towards the cost of upgrading software to enable the tax authority to increase or reduce the basic rate in Scotland.

The row over the HMRC demand erupted when Scottish Secretary Michael Moore issued a statement claiming the Scottish government had allowed its tax-raising powers to lapse by failing to agree to pay for the IT upgrade work, despite its policy of demanding greater fiscal autonomy.

The Scotland Office referred to a Treasury Statement of Funding Policy in October making the devolved administrations “meet all the operational and capital costs associated with devolution from within their allocated budgets”.

Furious First Minister Alex Salmond retorted that a previous Scottish administration had paid £12m for the tax varying facility and £50,000 annually to keep it available.

He said Scotland had already paid, and if HMRC chose to replace its technology, it was up to the taxman to replicate agreed functionality, pointing to another section in the funding statement stating that “where decisions of United Kingdom departments or agencies lead to additional costs for any of the devolved administrations, where other arrangements do not exist automatically to adjust for such extra costs, the body whose decision leads to the additional cost will meet that cost”.

He accused Westminster of trying to set a precedent upon the Scottish government of paying for new tax varying powers which fall short of the full fiscal autonomy he is demanding.

The refusal is part of a power struggle over UK government plans drawn up when Labour was in power but adopted by the coalition, to increase the tax-varying power to 10p and require the Scottish Parliament to vote each year on whether the Scottish rate should be the same as the rest of the UK, higher, or lower.

The object is to force the Scottish government to take more responsibility for raising the revenue it spends instead of relying on a block grant fixed under a formula devised a quarter of a century ago that provides Scotland a proportionate increase or decrease is spending in England on those matters that are devolved.

It is said to mean the Scottish administration can spend considerably more per head on health, education, housing, local government, justice, transport and industrial development than can be afforded south of the border.

(Pictures show Scottish Parliament in session © Scottish Parliamentary Corporate Body – 2010)