The Scotland Bill was introduced in the UK parliament in November 2010. In March 2011, the Scotland Bill Committee of the Scottish Parliament published its report on the Bill, which generally supports its provisions. The Bill is the culmination of the review of the constitutional position of Scotland within the UK contained in the Calman Commission Report 'Serving Scotland Better: Scotland and the United Kingdom in the 21st Century'.

Tax Raising Powers

One of the main aims of the Bill will be to increase the amount of revenue which the Scottish Parliament will have to raise itself, rather by grant from the UK government, so as to improve its accountability to the Scottish electorate. Accordingly, the Scottish Parliament will be given power to legislate on tax which includes power to:

  • set a rate of income tax for Scottish taxpayers;
  • set stamp duty, stamp duty land tax and landfill tax; and
  • make provision for new taxes or to devolve other taxes.

There can only be a single rate of Scottish income tax to improve the ease of collection, which will be through the PAYE system. There will be no power to vary the higher rates of income tax. The Scottish Parliament has recommended that the Bill be amended so that Aggregate Tax and Airline Passenger Duty are devolved taxes, and the UK Government appears to be favour these changes.

VAT, National Insurance Contributions and Corporation Tax would continue to be set by the UK Parliament.

The introduction of the new fiscal arrangements will be in phases. Any new taxes or further devolved taxes could be levied from April 2012. Stamp duty, SDLT and landfill tax could be set from April 2015 with the introduction of Scottish income tax in 2016. This would happen in combination with a transitional period for the reduction of the grant which Scotland receives from the UK Government.

The major implementation challenge will be for HMRC who will need to identify Scottish taxpayers. "Scottish taxpayers" will be individuals who are resident in the UK for income tax purposes and who, for any tax year have

  • a close connection with Scotland; or
  • do not have a close connection with another part of the UK and spend more days of the year in Scotland than in any other part of the UK; or
  • been an MP for a constituency in Scotland, an MEP for Scotland or a member of the Scottish Parliament. There are further rules for determining whether a 'close connection' exists with Scotland or another part of the UK and for calculating the number of days spent in parts of the UK.

Borrowing Powers

In addition to tax raising powers the Bill will increase the borrowing powers of the Scottish Government. Currently the Scottish Government has limited short term borrowing powers. The Bill will allow the Scottish Government to borrow to fund capital expenditure for specific projects from April 2013, with HM Treasury consent. After April 2015 consent will no longer be required provided borrowing in any year does not exceed 10% of the annual Scottish capital budget and overall borrowing does not exceed £2.2bn.

Borrowing should be for a maximum 10 year term, or for an increased term of up to 25 years if this can be justified in relation to the expected lifespan of an asset. Borrowing can also be from commercial banks if the Scottish Government's accounting officer is satisfied the borrowing represents good value for money.

The UK Government has proposed cuts to Scottish capital expenditure in its comprehensive spending review. It is likely the SNP Government, if re-elected in May 2011, will want to call on these borrowing powers to allow it to fund infrastructure projects, which it sees as important to economic recovery in Scotland.

Changes to the Legislative Powers of the Scottish Parliament

There are also proposals to alter the legislative competence of the Scottish Parliament. The parliament will have new powers to:

  • regulate air weapons;
  • regulate health professionals;
  • prescribe drink driving limits;
  • determine the national speed limit;
  • increase the maximum penalties which can be applied to offences created in Scotland under subordinate legislation.

The existing powers of the Parliament to legislate in relation to:

  • the winding up of companies in Scotland;the winding up of companies in Scotland;
  • Antarctica

are removed, and revert to the UK Parliament.

The powers reserved to the UK Parliament in relation to winding up will be in relation to corporate insolvency procedure, other than receivership and the winding up of Registered Social Landlords.

As a result, only the UK Parliament will be able to legislate in relation to

  • the process of winding up, including the person having responsibility for the conduct of winding up;
  • the effect of winding up on diligence; and
  • avoidance and adjustment of transactions on winding up.

This will ensure consistency between the Scottish and English insolvency rules, and the change is supported by bodies such as The Institute of Chartered Accountants of Scotland.


The Bill is now in the Committee stage and will be debated by a committee of the whole House. It is expected to complete its passage through the Commons by May 2011. It will then go to the House of Lords and should receive Royal Assent by the summer of 2011.


Greater fiscal autonomy for the Scottish Government may have a significant effect on infrastructure spending, with the increased borrowing powers available to the Government. It is unclear the economic effect of different tax regimes north and south of the border and it will be interesting to see how this affects businesses, particularly those operating in both jurisdictions.

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