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SNP drops local income tax after HMRC's letter 5 March 2009

The Scottish National Party has ditched its plans for a local income tax after HM Revenue & Customs refused to collect it.

The Scottish Authority, led by a minority SNP administration, had made the local income tax a flagship policy, but was forced to concede it would be inoperable without HMRC’s co-operation. In a letter to the Scottish Executive, David Hartnett, director-general (business) of HMRC said the devolved authority did not have the powers to impose a local income tax, only to use its tax-varying powers under the Scottish Variable Rate.

‘There is some suspicion that the Treasury leaked it [Hartnett’s letter] deliberately,’ said Kate Upcraft, independent payroll expert.

‘I’m surprised there hasn’t been more discussion about it, as it is a constitutional Westminster versus Scotland matter. However, it’s great news from the point of view of the payroll profession.’

The move would have added yet another tax collection duty on payroll teams, for which employers are not paid.

Politically, this is a tactical victory for Westminster over Holyrood, but it raises a constitutional controversy that could strengthen longer-term moves towards more tax varying powers for Scotland, and ultimately independence.

A spokesman for Scotland Finance Minister John Swinney said: ‘Scrapping the unfair council tax and introducing a fair local income tax based on ability to pay is a matter for the Scottish Parliament to determine - through the proper procedures that apply to every Bill - not for the Treasury to dictate from London.

‘The Scottish Government and Parliament is not a Whitehall department that can be bullied by the Treasury. We represent a country, and we have every right and ability to scrap the council tax and replace it with a local income tax.’



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Is the National Insurance system out of date?