Scottish independence: Why hasn't Holyrood used its tax varying powers?

http://www.bbc.co.uk/news/uk-scotland-scotland-politics-26630498

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The three pro-Union parties have said they support more devolution for the Scottish Parliament.

Both Labour and the Liberal Democrats have laid out their plans, with the Conservatives due to do so before the independence referendum in September.

But Holyrood already has tax powers it has never used. Why is that?

What tax powers does the Scottish Parliament currently have?

The Scottish government has the power to vary the UK rate of income tax up or down by 3p in the pound. It was part of the Scotland Act 1998, which established the Scottish Parliament, but has never been used.

How will existing tax varying powers be changed by the Scotland Act 2012?

The Scotland Act 2012 came about following the report of the Calman Commission in 2009, which recommended more powers for the Scottish Parliament.

Among them were substantial changes to how tax would be raised in Scotland. From 2016, when the bill comes into force, a Scottish tax rate, paid only by those in Scotland, will be introduced.

In effect this will mean the income tax rate set by Westminster will be cut by 10p for Scots, with the Scottish government responsible for determining the full rate through its own budget.

So, for example, if the Scottish government wanted to set the basic rate at the same as the current UK rate - 20p - it would set the Scottish rate of income tax at 10% (10p in the pound) and be responsible for raising that.

Why have existing tax varying powers never been used?

BBC Scotland's business and economy editor Douglas Fraser explained that setting up the administration around any rise in the tax rate would likely eat up much of the financial advantage gained.

He added that raising income tax is unpopular with voters - and political parties, who want people to vote for them, know this.

In the run up to the first Holyrood election in 1999 , the SNP campaigned for the Scottish Parliament to use its powers not to implement the 1p income tax cut brought in by the Labour government at Westminster.

Called the Penny for Scotland policy, the SNP said it would raise £230m a year for public services.

But the policy didn't appeal to voters - following the 1999 election Labour won the most seats and went on to form a coalition with the Liberal Democrats.

The SNP dropped the Penny for Scotland plan in 2002.

Douglas Fraser says that most politicians see income tax as a bit of a blunt instrument - they are more likely to vary "stealth" taxes such as VAT and national insurance.

The threshold that income tax starts from is also important - the level of income someone earns before they pay tax - but power over this lies with Westminster, and will not change under the Scotland Act 2012.

But the new legislation will mean that the Scottish government may have to be more proactive - they will, in the very least, have to meet every year to determine what the tax rate should be.