Chancellor says new Scots powers could result in UK tax competition

Chancellor George Osborne has told MPs that new powers being handed to Scotland could result in a UK-wide competition over tax rates.

The Tory minister was giving evidence to the Treasury select committee which is examining the Smith Commission plan.

Mr Osborne said it would be up to Scotland to decide whether to vary future tax rates and therefore spark “competition”.

He added that Holyrood would bear the consequences of using its new powers.

On Thursday the draft Scotland Bill is due to be published.

That represents the next stage in a process to send more powers across the border.

During the Scottish independence referendum campaign, the Tories, Labour and Liberal Democrats vowed to give greater responsibility to Holyrood if voters said “No”.

On 18 September, the electorate decided 55% to 45% against change.

Tax thresholds

Lord Smith, who headed the devolution commission, recommended that control over income tax would be shared between the UK and Scottish parliaments.

But within this framework, MSPs would have the power to freely set the rates of income tax and the thresholds of Scottish taxpayers.

Mr Osborne was asked whether that move could lead to “tax competition”.

He told the committee: “Ultimately that is a decision primarily for the Scottish Parliament and the Scottish government as to whether they pursue that or not.

“I think it is quite interesting that off the back of the changes we announced at the Autumn Statement to stamp duty that then led to the Scottish government saying it would revisit its proposals on stamp duty.

“You could say that that is a bit of tax competition in action.”