Scottish secretary David Mundell says Holyrood could get new powers to set tax rates from April 2017, up to two years earlier than expected

The Conservative government has offered to bring forward the introduction of major new devolved income tax powers for Scotland, in a bid to force the SNP’s Nicola Sturgeon into a political battle over tax and spending at next year’s Scottish parliamentary elections.

David Mundell, the Scottish secretary, has disclosed that Holyrood will get new powers to set different tax rates to the rest of the UK from April 2017, up to two years earlier than expected, though he indicated that the earlier implementation date would need to be accepted by the next Scottish government.

The new tax powers, which include the right to raise or cut air passenger duty and several other levies, as well as new spending powers over housing benefit and the work programme, mean that the Treasury’s block grant to Edinburgh will be cut.

Mundell indicated that the earlier implementation date for the new tax powers would need to be accepted by the next Scottish government.

The fast-tracked powers will allow the Tories to campaign for tax cuts but challenge Sturgeon, the Scottish first minister and SNP leader, and Labour in Scotland to implement a new higher rate of 50 pence, as promised by both parties at the general election in May.

Ruth Davidson, the Scottish Tory leader, has made clear she plans to go into the 2016 Holyrood elections pledging tax cuts, hoping that will bolster the party’s appeal. Sturgeon, who is expected to win next year’s election comfortably, has hinted she would cut taxes for lower earners and at least maintain higher rates of tax.



Holyrood is already due to be given limited powers to alter income tax rates from April next year under reforms agreed in the Scotland Act 2012. But those powers only allow Scottish ministers to change the main rates of income tax by exactly the same amount, removing any flexibility.

Widely derided by critics, those powers will be substantially increased in the new Scotland bill, which was introduced after last year’s independence referendum and the all-party Smith commission inquiry into increasing Holyrood’s powers. Ministers at Holyrood will instead be able to vary all the tax bands separately, cutting some or raising others.

Mundell told BBC Radio Scotland: “That will allow at next year’s Scottish parliament elections a debate about tax and spending in Scotland [and] for the parties, including the SNP, to set out what they propose in relation to income tax in Scotland and how they intend to spend that money.

“I think people in Scotland want to move on; they want to see the new powers that are coming being used; they want a debate about tax, spending, what the priorities are in health and education,” he said.

The UK government’s gambit, which is understood to have been approved by George Osborne, will increase pressure on the Treasury and Scottish ministers to reach a quick deal on the complex arrangements needed to restructure Holyrood’s £37bn a year spending.

There are still outstanding technical issues about defining and registering who will be a Scottish income tax payer. The Treasury and Scottish government are also wrestling over how to measure how much Scotland will need from the block grant in future and how much it can borrow.



Facebook Twitter Pinterest Under the new powers, ministers at Holyrood will be able to vary all the tax bands separately, cutting some or raising others. Photograph: Murdo MacLeod/The Guardian

Scottish government sources said the Treasury was trying to greatly limit Holyrood’s flexibility and spending power; it had already tried to scrap direct UK funding of Scottish government capital spending and replace it with extra borrowing powers.

A spokesman for John Swinney, the Scottish finance secretary, said: “The Tories just need to get on with the job of delivering more powers for Scotland, and a deal which meets the spirit and letter of the Smith commission recommendations.

“We still need to reach agreement on a fiscal framework that gives the Scottish government flexibility to use the new powers effectively, to boost the economy and create jobs – and we have made it crystal clear that we will not support any proposed deal which risks leaving Scotland worse off.”

Mundell said: “We’ve been in very cordial, constructive discussions with the Scottish government. Nobody wants to see a financial deal which would make Scotland worse off, other than the SNP. Only a few weeks ago the SNP was in parliament arguing for full fiscal autonomy, which even they would accept would leave Scotland with a £10bn black hole.”

Scottish officials were puzzled by a further claim by Mundell that the new powers could allow Holyrood to set up its own system of paying working family tax credits – a benefit being scrapped at UK level, cutting the incomes for several million families by at least £1,000 a year.

The Smith commission explicitly bars Holyrood from changing the tax relief system, but it does allow Scottish ministers to introduce new welfare payments – but only if the Department for Work and Pensions agrees that they are on areas of devolved responsibility.

Ian Murray, the shadow Scottish secretary, said: “We welcome the news that the tax powers in the Scotland bill are to be brought forward, and we will look closely at what the government proposes.

“These major new tax powers, whenever they are introduced, will give us the chance to really transform Scotland and give everybody the best chance in life. Now the Scottish government need to live up to their word about making our country a fairer place to live.”