Economists raise doubts on tax levers for Holyrood

The majority of a panel of economists does not believe the benefits of devolving control over income tax to Scotland would outweigh the cost.

The views of the 28 economists from around the UK are likely to heighten doubts about devolution proposals to be announced next week.

Lord Smith of Kelvin is scheduled to unveil a package of new powers for Scotland before the end of November. Pro-union parties are scrambling to make good on pledges of rapid devolution they made before September's independence referendum.

Lord Smith's package is widely expected to include proposals made by the Conservatives and Liberal Democrats to give Edinburgh full control over income tax rates and bands, though with thresholds and deductions set in London.

However, the proposals are contentious within the Labour party, which has called for more limited devolution of income tax. Gordon Brown, the Labour former prime minister, has said transferring full control would be "anti-British and anti-Scottish".

However, many observers in Scotland say Labour is likely to drop its opposition, not least because a resurgent Scottish National party would be sure to accuse the Westminster parties of failing to match expectations raised by pre-referendum promises.

Supporters say income tax devolution would allow Scottish governments to tailor fiscal policy to the country's needs, but experts polled by the Economic and Social Research Council's Centre for Macroeconomics raised doubts about the proposals.

Only four out of 28 economists who responded agreed that the benefits of transferring full control over income tax would outweigh the costs for Britain as a whole, according to the poll, which will be published on Friday.

More than 85 per cent of the economists either disagreed or strongly disagreed, citing a range of reasons including concerns that it would undermine the state, open the door to tax competition, create accounting difficulties and inhibit fiscal policy.

<

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

"Will Scottish income be regarded as foreign income in England for tax purposes? The accounting difficulties that this will generate will be a nightmare," Sir Christopher said.

Jonathan Portes, director of the National Institute of Economic and Social Research, said complete devolution of income tax would mean Scots paying nothing directly from their incomes toward "quintessentially state-level functions" such as defence and foreign affairs.

"It is difficult to see how a nation-state is politically sustainable under such circumstances," Mr Portes said.

The poll also found limited support for proposals from the Conservative party to restrict Scottish MPs' voting rights on matters deemed relevant to England only.

A third of the economists agreed that there was a "clear economic case" for "English votes for English laws", but half disagreed.

 Sceptics said England's much larger size and the highly integrated British economy meant English legislation would often inevitably affect the other nations.

© The Financial Times Limited 2014. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation