Ahead of publication of a draft Scotland Bill on Thursday, Chancellor George Osborne has warned that the Scottish government will need to learn to live with the consequences of any of its decisions to raise or lower the income tax rate once powers to vary the rate are devolved from 2016
Osborne was giving evidence to the Treasury select committee in a session discussing proposals for further fiscal and economic devolution to Scotland which were set out in the Smith Commission report last November and are due to be passed into legislation by the next Parliament following the general election in May.
MPs pressed the Chancellor and Sir Nicholas Macpherson, permanent secretary for the Treasury, for more details about how the ‘no detriment’ principle laid out in the Smith report will operate in practice, with committee chair Andrew Tyrie describing the idea as ‘so vague as to be vacuous’.
The no detriment principle applies to policy decisions post the devolution of tax raising powers and says that in cases where either the UK or Scottish government makes a policy change which affects the tax receipts or expenditure of the other, then the decision-making government will either reimburse any costs the other government incurs, or receive a transfer of funds if the other government benefits.
