Think tank calls for single Scottish department for tax and welfare

With welfare expenditure currently divided between two departments,HMRC and the Department for Work and Pensions (DWP), Reform Scotland believes that a single department should be responsible for these new responsibilities to ensure a simpler and more user-friendly system with greater transparency.

A briefing published today by the think tank also called for the Scottish Government to hold income tax at UK level until more taxes are devolved.

The full briefing, Scotland’s new powers: Taxes and welfare, includes new research showing the limited devolution which will come from the latest (Smith Commission) round of devolution.

The research shows that after the Scotland Act 2012 and the Scotland Bill 2015/16:

As a result of this latest round of devolution, Reform Scotland has recommended that the Scottish Income Tax should not diverge from the UK level while only limited tax powers have been devolved and also that Scotland should change the administration arrangements for Carer’s Allowance.

It said: “The Scottish Government will not have a basket of taxes which would enable it to introduce coherent tax reform. As a result, until more varied tax powers have been devolved we would advise the Scottish Government against varying income tax from the UK level.”

The briefing added: “The UK system for taxing benefits is overly complicated, totally inefficient and not at all user-friendly. The benefit should either be taxed at source, which could be done if one department was responsible for tax and welfare, or not taxed in the first place.”

Reform Scotland’s chairman, Alan McFarlane, said: “New powers which bring the Scottish Parliament closer to raising the money it spends are always welcome, as are powers which increase our ability to tailor welfare to local circumstances. However, when those powers are insufficient to effect real reform we must be extremely careful how we use them, otherwise we risk doing harm.

“The reality is that the new tax and welfare powers proposed by the Smith Commission and now being enacted at Westminster are not likely to allow for real reform. The devolution of income tax is a blunt instrument which does not offer the opportunity to create a better environment for economic growth. Until the Scottish Parliament has control over a sufficiently varied basket of taxes, we would call on the Scottish Government to peg income tax in Scotland to the UK rate.

“Similarly, we believe a further devolution of welfare powers is required to enable any meaningful welfare reform. In the meantime, we would urge the Scottish Government to reform the unnecessarily complex administration of Carer’s Allowance in order that we can lead the way on simplifying our welfare system.

“This should not be the final chapter of the devolution story.”