From 1 April 2016 the Scottish Parliament will have responsibility for a Scottish Rate of Income Tax.
This responsibility will be a partially devolved power.
Essentially, Westminster will still set the overall rate of tax for the UK - but for Scotland, this basic rate will be reduced by 10p for every pound across the various tax bands. This means the Scottish Government will have to set an additional tax rate to compensate for the 10p reduction. This 'Scottish Rate' will be generated from Scottish taxpayers and affords a degree of flexibility for the Government. If they set the Scottish rate at 10p, they will have restored the UK national rate and overall, Scottish taxpayers will pay the same rate of tax as everyone else in the UK. If they decide to increase this 10p base figure, the Scottish Government will generate more tax from Scottish taxpayers. Conversely, if they decide to reduce the base figure, Scottish taxpayers would pay less in taxes and the Scottish Government would reduce their tax revenue.
At a first glance, this looks like a useful power - but there is a sting in the tail.
Kirsty Blackman MP
There's a lot of misinformation flying around about the fiscal framework. In one daily newspaper I read a completely misleading description of how Per Capita Index Deduction differs from other methods of adjusting the block grant.
I'm guessing I've managed to lose some of you already, so I will go back to the start and explain.
Currently, the Scottish Parliament is funded by a Block Grant. The change in this Block Grant every year is determined by a method called the Barnett Formula. In simple terms, the Barnett Formula looks at the change in each department’s funding in England for that year, and applies either an increase or a decrease in the level of funding Scotland receives. The calculation takes into account the level of devolution of each department and allocates Scotland a population share on that basis.
The price of oil as quoted in the media is the price of a commodity that's different from the fuel you fill your car with - it is in fact crude oil.
Crude oil is the raw fluid that is extracted from the well and this base material gets processed into a variety of products at oil refineries. So if the price of oil goes up, the price of fuel goes up. However, there are a number of other factors affecting the price of fuel and that's why the fuel price doesn't always fall with the price of oil.
Refining capacity can rise and fall. If a major refinery develops problems and has to shut down, then the global volume of products that can be refined will fall. The price of fuel rises because of shortages, but the price of crude oil will fall because of gluts.
Eight months before the Scottish Referendum, Standard & Poor's (the much respected international credit agency) published a report that analysed the fortunes of an Independent Scotland in terms of its credit rating.
The findings of the report didn't make good reading for the Better Together Campaign who launched a new round of scaremongering to deflect attention away from S&P's conclusion that Scotland could probably attract a very high credit rating, possibly as high as AAA.
The justification of this potential rating blew holes in most of the 'Project Fear' scare stories and exposed the lies and twisted assumptions the Unionists claimed would be a disaster for an independent Scotland's financial and economic viability.
The report states emphatically that S&P would expect Scotland to ‘benefit from all the attributes of an investment-grade sovereign credit’ due to its ‘wealthy’ economy, and that it saw ‘no fundamental reason’ in terms of Scotland’s balance sheet why Scotland could not float its own currency if it so wished. It also upheld the rating if Scotland should elect to share Sterling.
This is a video released by the Scottish Government (5th January 2016) that briefly explains the mechanism behind Scotland's funding from the UK Government.
This is a good introduction (although very brief) to the various components of the funding, who decides what sums are allocated and where that allocation should go.
The video begins with a reference to how the collected taxes are distributed via the Block Grant (roughly £30 Billion) and goes on to explain how this is derived via the Barnett Formula. Following on from this, there is an explanation of the various factors that influence the amount of money that is available and what areas these amounts will address.
The video is short and concise and as such, presents a useful introduction to this very important source of funding. We will have numerous in-depth articles and presentations on funding in the Knowledgebase in due course.