Sharon Blain, Tax Director at PwC, says local councils may well seek to have more control over tax-raising powers.
It is entirely possible that we will see a further divergence in the tax position across the UK’s nations and regions.
At the moment, the decentralisation of the UK tax system is a work in progress.
Since 1997, several taxes have been brought into the control of devolved administrations, some fully (land transaction tax) and some partially (income tax).
With VAT, National Insurance, Corporation Tax and Income Tax there are significant political and practical constraints to further devolution. Given the current political landscape, we are unlikely to see major changes to these in the short term.
But there remains an appetite for change, both in the devolved administrations and at local government level.
Short-term options for more change
In the short term, divergence in two areas can be expected.
Firstly, devolved administrations will continue to use their existing powers to create separate tax environments to suit local circumstances, such as the divergence in income tax rates in Scotland.
Secondly, they may seek to use their power over local taxes (such as business rates and council tax) to focus on local priorities, including economic growth or the reduction of inequality.
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The choice of making changes to local taxes or introducing new ones (such as tourist taxes or workplace parking levies) rests with the devolved administrations, so we should expect further divergence here.
On the flip side, the introduction of new taxes (such as the proposal in Wales to introduce a vacant land tax) does need agreement from the Treasury. In this context, the path of least resistance – making changes that do not require engagement with the Treasury – will likely be more attractive.
With increased attention on local issues and concerns, it follows that devolved governments and local councils may well seek to have more control over tax-raising powers.
Further devolution of taxation is inevitable and offers the potential for regions to have greater control. I do not think that we’re far off seeing regional tax setting in England. If anything, it’s a natural consequence of our current direction of travel. However, I worry greatly that this will be at the expense of simplicity.
Brian Palmer, AAT Tax policy advisor
What taxes have been devolved so far?
How much devolution has taken place so far?
- Stamp duty land tax, landfill tax, and income tax (except for the personal allowance).
- Air passenger duty and the aggregates levy.
- Partial income tax powers (as of April 2019 – UK income tax rates will be reduced by 10p in each band, on top of which the Welsh Government will set its own Welsh rate of income tax for each band.
- Stamp duty land tax and landfill tax (2018).
- Plans to devolve corporation tax have been postponed indefinitely due to the collapse of power-sharing in Belfast.
English local authorities
- The UK Government wants all revenue from business rates to be retained by local government, but there is no confirmed timeline for full implementation.
Over the medium term, there is likely to be further delegation in the field of taxation. But the major challenge remains leaving the EU, so it will be a case of evolution, not revolution.
Read more on tax as part of our #AATPowerUp Tax 2020 campaign for September and October;
- Power up your tax knowledge with AAT
- How the UK can straighten out taxes and raise more money
- 5 ways HMRC could plug the tax gap
AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.