HOLYROOD should be given major new powers over taxation north of the border, a long-awaited report on the constitutional future of the nation will say tomorrow.
An expert group, backed by all three of Scotland's pro-union parties, will declare that the Scottish Parliament should take greater control over taxes to make MSPs more accountable for their actions.
Among the options explored by the group are set
ting VAT and National Insurance levels in Edinburgh and giving Scottish ministers more freedom to vary income tax. But the paper, written for a commission ordered by Labour, the Liberals and the Conservatives, shies away from "full fiscal autonomy".
The conclusions are the result of a year's research and evidence-gathering by an expert group of economists appointed by Sir Kenneth Calman, whose Commission on Scottish Devolution was asked last year to review Holyrood's workings.
Published on the 10th anniversary of the Scotland Act, which created devolution, the report will trigger renewed debate about the division of powers between Westminster and Holyrood.
Currently, the Scottish Parliament is funded via a block grant of £30bn. The expert group, led by leading economist Professor Anton Muscatelli, argues strongly that Holyrood must be made more accountable by having greater powers to raise taxes.
"The report is saying that total fiscal autonomy may have some downsides, but that doesn't mean that greater degrees of fiscal autonomy may not be more desirable," said Professor David Ulph, head of the school of economics at St Andrews University and a member of the group.
One possibility explored by the group includes letting Scottish ministers set income tax. Currently, they are only able to vary the standard rate of income tax by up to three pence in the pound. Other options include devolving VAT, introducing an US-style sales tax, and devolving National Insurance contributions.
Professor Ulph's remarks were backed by another member of the 11-strong group, Jeremy Peat, the former group chief economist at the Royal Bank of Scotland and a former economic adviser at HM Treasury and the Scottish Office.
"I am very pragmatic in that we need to look at these options," Peat said. "We are clearly drifting towards more fiscal devolution, if that can be fitted in with managing the macro-economy effectively."
Peat said there was a need to make MSPs more accountable for their actions. "I do believe that the incentives for good management are limited in the case of Scotland in that it doesn't raise its own finances," he said.
A third member of the group, Iain McLean, professor of politics at Oxford University, has recommended strengthening fiscal powers. In a recent paper, he said: "This could involve extending its powers over income tax, and could also be accompanied by assigning tax revenue, for instance a proportion of VAT. This would be topped up with a grant based on a needs assessment. This would be in line with Scottish public opinion, which supports stronger tax-raising powers for Scotland."
The report could create tension within Labour. Senior figures at Westminster favour the "assigned revenue" system whereby the Scottish Government's funds would be calculated on the basis of the total amount of tax revenues paid by Scots to the UK Treasury. The move would not involve the transfer of any new tax powers.
UK ministers are thought to be especially attracted by the plan because it is likely it would play well among English voters who believe Scotland's current funding deal is unfair. But Scottish Labour has set up its own working party to respond to the Calman Commission and is understood to be open minded about an extension of powers. Yesterday a source close to Iain Gray, the Scottish Labour leader, said: "Calman is to be a vehicle for change, but not change for change's sake. But change to improve the way Scottish devolution operates."
The report backs the need to replace the Barnett Formula, which results in Scots receiving £1,500 per head more of public spending than the English. Experts on the group believe in the principle that if a government wants to spend an extra pound it ought to raise it.
Speaking to Scotland on Sunday, Calman said that the findings of the paper would be considered before the commission made a final report.
Calman added that the report would look at regional economic models operating in Australia, Spain, Germany and Canada. "They all have drawbacks and I suspect that one of the conclusions is that there is no obvious model. One of the options I am sure (Muscatelli] will recommend is that whatever financial system he wants has to be decided by the kind of constitutional settlement we have."
A spokesman for First Minister Alex Salmond said: "The more economic and financial powers the Scottish Parliament has, the better able we are to respond to economic opportunities and difficulties, and the more successful Scotland will be."
The full article contains 826 words and appears in Scotland On Sunday newspaper.
