Comment

Scotland to get more powers in historic agreement

ACE's director of policy and external affairs assesses the impacts for business of plans for new powers for Scotland announced last week.

The Smith Commission set up in the wake of the Scottish referendum to oversee cross party talks with the purpose of agreeing a package of powers to be devolved to strengthen the Scottish Parliament within the UK has announced a historic agreement on the future of Scotland.

The five main parties have agreed that the Scottish parliament should be handed direct control over billions of pounds of income tax and welfare benefits worth around £11bn that will have a significant impact on how the UK operates in the future.

"This could lead to the creation of separate sets of rights and case law for employers that will have an impact on them for existing teams and the movement of staff across offices in Scotland and the rest of the UK."

Some of the key provisions that have been agreed are:

 ·       The Scottish parliament will have complete power to set income tax rates and bands.

·       Holyrood will control the first 10 percentage points of revenue raised from VAT.

·       It will have increased borrowing powers, to be agreed with the UK government, to support capital investment and ensure budgetary stability.

·       UK legislation will state that the Scottish parliament and Scottish government are permanent institutions. The parliament will also be given powers over how it is elected and run.

·       It will have control over a number of benefits including disability living allowance, the personal independence payment, winter fuel payments and the housing elements of universal credit, including the under-occupancy charge (bedroom tax).

·       The Scottish parliament will also have new powers to make discretionary payments in any area of welfare without the need to obtain prior permission from the Department for Work and Pensions.

·       It will have the powers needed to support unemployed people through employment programs, mainly delivered at present through the Work Programme.

·       Responsibility for the management of the crown estate’s economic assets in Scotland, including the crown estate’s seabed and mineral and fishing rights, and the revenue generated from these assets, will be transferred to the Scottish parliament.

Although this looks at first sight to be a significant grant of financial power to the Scottish government it is mitigated by the fact that the block grant from the UK government to Scotland will continue to be determined via the operation of the Barnett formula. New rules to define how it will be adjusted at the point when powers are transferred and thereafter will be agreed by the Scottish and UK governments and put in place prior to the powers coming into force. These rules will ensure that neither the Scottish nor UK governments will lose or gain financially from the act of transferring a power.

These proposals will have an impact on businesses that work on both sides of the border as social welfare rules and provision are likely to change as the Scottish government exercises its autonomy placing an increased administrative and financial burdens on those firms. Not only will the Scottish government be able to either modify existing benefits or else create new benefits they will be able to change employees income tax liabilities with implications for PAYE schemes.

"Companies  involved in the infrastructure supply chain can now no longer ignore developments in Scotland and they will need to adjust their engagement strategies to  reflect the new reality."

Alongside this all powers over the management and operation of all reserved tribunals (which includes administrative, judicial and legislative powers) will be devolved to the Scottish Parliament other than the Special Immigration Appeals Commission and the Proscribed Organisations Appeals Commission. This could lead to the creation of separate sets of rights and case law for employers that will have an impact on them for existing teams and the movement of staff across offices in Scotland and the rest of the UK.

A draft bill will now be drawn up to incorporate these proposed changes and will be placed before Parliament by the 25 January with the aim of passing the new Scotland Act before the next general election in the May.

The passage of this bill will be stormy as these proposals are bound to upset English MP’s who will seek to disrupt a process that has so far been pushed through with little oversight.  For companies that are concerned about the proposed extension of power, the forthcoming debates during the parliamentary passage will mark the only point during this process when they will be able to make their views heard and lobby to secure changes.

Given the fact that the Scottish government will now have the power to increase borrowing to support increased capital investment projects, companies  involved in the infrastructure supply chain can now no longer ignore developments in Scotland and they will need to adjust their engagement strategies to  reflect the new reality.

Julian Francis is ACE’s director of policy and external affairs