Devolution (part 1): progress on new powers

The past few years have seen a concerted (and legislative) push for more powers to be devolved to Scotland, Wales and Northern Ireland.  The UK Government’s approach has been to tailor individual devolution programmes according to the different needs of the devolved nations, rather than pursuing a structured programme of devolution.  A House of Lords Report concluded: “Power has been devolved to Scotland, Wales and Northern Ireland in an ad hoc, piecemeal fashion”.

What powers have been devolved so far, and what are the plans for the coming years?

An overview

Devolution has not been uniformly applied to each nation, nor has it always progressed as initially intended. Practical difficulties in implementation have slowed some of Scotland’s steady progress. In Northern Ireland, politics and the non-existence of a functioning Assembly has intervened.

Scotland

Significant tax powers and some spending powers have been transferred to Scotland in recent years. However, in some areas devolution appears harder to implement in practice than originally envisaged:

  • air passenger duty was due to be devolved in 2018-19. However, the introduction of a replacement Air Departure Tax in Scotland has been delayed pending EU state aid approval. The approval is required to allow an exemption for passengers who fly from the Highlands and Islands to continue;
  • the devolution of the aggregates levy (tax on the commercial exploitation of rock, sand and gravel) can also only continue once State Aid disputes have been resolved;
  • devolving some of the welfare powers has proved to be difficult. To ensure “safe and secure” transfer of benefits the Scottish and UK governments have agreed to split and share responsibility in some areas until 2020.

However, some aspects of devolution in Scotland are progressing quickly, and the Scottish Government is using its new powers:

  • since April 2015, landfill tax and UK stamp duty on property have no longer applied. The Scottish Government collects new taxes: Scottish Landfill Tax and the Land and Buildings Transaction Tax (LBTT), which has replaced UK stamp duty.  The thresholds and rates of Scotland’s LBTT are a departure from the UK’s stamp duty on property;
  • since 2017/18, decisions taken by the Scottish Government have seen income tax in Scotland and the UK diverge. For 2018/19, the Scottish Finance Secretary has proposed further income tax reforms, with five income bands replacing three. The changes are forecast to bring in extra revenue for Scotland, but they also show how devolution of some taxes and not others can increase complexity for taxpayers. The chart below shows how some Scottish taxpayers face a peculiar tax schedule, because National Insurance bands are set by the UK Government and align with UK income tax.

Wales

Wales appears to be following Scotland’s devolution path, although a little behind:

  • stamp duty on property and landfill tax, that were devolved to Scotland from 2015–16, will now be devolved in Wales in 2018–19;
  • Welsh rates of income tax will be introduced a year later in 2019­–20;
  • like Scotland, Wales is waiting on State aid disputes on aggregates levy to be resolved before devolution of aggregates levy can take place.

The chart below shows that around a fifth of Welsh Government spending will be funded through devolved taxes, once the powers have been implemented.

Northern Ireland

Northern Ireland’s devolution is primarily driven by the need to compete economically with the Republic of Ireland where corporation taxes are lower than UK. Corporation tax was due to be devolved in 2018–19.  The Northern Ireland Executive has publicly indicated its intention to set the rate of tax set at 12.5% from April 2018, the same as the Republic’s.

In Autumn Statement 2016, the UK Government confirmed that corporation tax would be devolved subject to the Northern Ireland executive “demonstrating it has placed its finances on a sustainable footing”.  However, Northern Ireland has been without a functioning Assembly and Executive since January 2017 due to the DUP and Sinn Fein failing to reach agreement. It is difficult to see how corporation tax could be devolved without a functioning Assembly which can approve a rate.

Solid but uneven progress

In conclusion, although there has been solid but uneven progress towards devolution in Scotland and Wales, that of Northern Ireland remains uncertain due to the absence of an Executive.  Next week we will publish a short piece considering how devolution has impacted on the UK’s funding arrangements for Scotland, Wales and Northern Ireland.

Picture credit: 

Scottish Parliament Building by Hamish IrvineAttribution-NonCommercial 2.0 Generic (CC BY-NC 2.0)

Robert Young / Stormont, Licensed by CC AttributionNonCommercial 2.0 Generic (CC BY-NC 2.0) / image cropped

Davide Simonetti / Houses of Parliament 02; Licensed by CC Attribution-NonCommercial 2.0 Generic (CC BY-NC 2.0) / image cropped

Gary Eldridge / The Senedd. Licensed by CC AttributionNonCommercial 2.0 Generic (CC BY-NC 2.0) / image cropped