Holyrood’s new powers ‘could cripple economy’

A LEADING think tank has warned that using the new income tax powers heading to Holyrood could cause harm and stifle economic growth.

Reform Scotland said the new powers were ‘blunt’ and urged Scottish ministers to keep rates at UK levels.

Both Labour and the Lib Dems want a 1p tax rise with the powers arriving at Holyrood in April.

However, a year later the Scottish Government will have even greater powers, devolved in the Scotland Bill, and will be able to set new rates and bands.

The SNP is expected to back the return of a 50p top rate which could see highly skilled workers and employers fleeing south.

Only the Tories have pledged that Scots’ overall tax bill should not be higher than in other parts of the UK.

Alan McFarlane, chairman of Reform Scotland, said the new powers were welcome, but added: ‘However, when those powers are insufficient to effect real reform we must be extremely careful how we use them, otherwise we risk doing harm.

‘The reality is that the new tax and welfare powers proposed by the Smith Commission and now being enacted at Westminster are not l i kely to allow f or real reform.

‘The devolution of income tax is a blunt instrument which does not offer the opportunity to create a better environment for economic growth.’

The UK Government has said the Scotland Bill will make Holyrood one of the most powerful devolved administrations in the world.

However, Reform Scotland, which backs federalism, said the Scottish parliament will still raise less than 30 per cent of the total tax income collected north of the Border, and be responsible for 15 per cent of welfare spending.

It also found that 71 per cent of tax revenue raised by Holyrood will come from income tax.

Jackie Baillie, Scottish Labour spokesman for public services, said: ‘The new powers coming to Scotland give us the chance to do things differently.’

Faced with the choice between the damaging cuts planned by the SNP to schools and local services and using the tax powers, Labour would raise tax and invest in the future, she added.

A Scottish Government spokesman said: ‘The Scottish parliament recently agreed with the Deputy First Minister’s proposal to set the Scottish rate of income tax at 10p for 2016-17. This is the same as those taxpayers in the rest of the UK.’