The Scottish parliament is to be handed direct control over billions of pounds of income tax and welfare benefits after an £11bn cross-party deal which will lead to the biggest shakeup to Britain’s taxation system in the modern era.
The historic move, which had been resisted by the Labour leadership in London, means powers to set income tax rates and bands are to be wholly devolved to Holyrood as the pro-UK parties move to outflank the Scottish National party, which has surged in popularity since the referendum on Scottish independence.But not all the way;
But Ed Miliband and Ed Balls, who are expected to offer broad support for the commission while saying the details will need to be studied with care, have decided to bite the bullet to avoid a further slide in Labour support in Scotland.
It is understood that Balls won two important concessions that will give comfort to the Labour leadership in London. The personal tax allowance – the amount of income people can earn before they pay tax – will remain a UK matter that will continue to be decided by the chancellor of exchequer and voted on by MPs at Westminster.
This will make it impossible for a Scottish finance secretary to do what chancellors have done in the past – announce an income tax cut and pay for it by changing the personal allowance.
In the second key concession, it is understood that the commission will say that there is still a UK income tax system.It may well be the case that "there is still a UK income tax system" but that unitary system will potentially have to cope with making differential tax deductions from employees according to their country of residence. I do not know enough about the technicalities, but I imagine that will amount to a massive change in payroll systems for those companies which have employees in both Scotland and England, as well as for the Inland Revenue tax coding systems.
But let us await the details to be announced later this morning.