TAX NEWS - JUNE 2010

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Scottish Tax: Banking giants reject Scottish tax power grab

Scotland's major high street banks have rejected calls for broad tax-raising powers to be transferred to Holyrood, arguing this would create an "unworkable" administrative quagmire.
The British Bankers' Association (BBA), whose members include Royal Bank of Scotland and Bank of Scotland, said the costs and burdens of a separate tax system north of the Border outweighed any perceived benefits.

Financial institutions would have to devote more manpower and resources to administering the changes, the BBA said, despite Scotland's nationalised banks laying off thousands of staff to balance their books.

The Scottish Retail Consortium (SRC), which represents major supermarkets and high street clothes chains, also spoke out against different tax regimes emerging either side of the Border.

The intervention by the organisations, which represent two of Scotland's few multi-billion pound industries, is a major blow to campaigners calling for a wholesale transfer of tax powers.

In another, probably decisive setback, the coalition Government issued a statement saying there was "no serious alternative" to implementing the recommendations of the Calman Commission.

The commission proposed giving Holyrood limited powers to set and collect its own income tax and Michael Moore, the new Scottish Secretary, has ruled out anything more radical.

Sir Tom Hunter, the leading entrepreneur, this week became the latest high-profile businessman to call for most Scottish taxes to be set by Holyrood instead of Westminster.

Another group of businessmen last week launched a "Campaign for Fiscal Responsibility' that could see Scottish ministers also handed control over Corporation and Tax, National Insurance contributions.

Alex Salmond, the First Minister, intends to push for more powers when he meets David Cameron on Tuesday at a meeting in London.

But Brian Capon, assistant director of the BBA, said Scotland's banking giants oppose more radical changes, in particular allowing Holyrood to set Corporation Tax rates.

"It's going to be very difficult to split operations if you have offices across both countries. Anything like that were you have to split out data does create more complexities," he said.

"That would be quite a problem, and would probably be unworkable. It's a logistical challenge for a large company - a logistical nightmare."

He said more backroom administrators would have to be employed to ensure that employees and profits north and south of the Border were taxed at the correct rates.

Richard Dodd, spokesman for the Scottish Retail Consortium, added: "What matters to retailers is there are not big differences in the tax regimes they face in different parts of the UK because that drives up costs."

The Prime Minister will meet the leaders of the three devolved administrations at a meeting of the Joint Ministerial Committee in Whitehall on Tuesday afternoon.

Mr Salmond has claimed a huge financial black hole has been punched in the Calman proposals by the coalition Government's plans to raise the personal allowance for income tax to £10,000.

But a Scotland Office spokesman said: "The Secretary of State has made it clear that the UK Government is committed to legislating on Calman and work is already under way towards a Scotland Bill.

"There is simply no serious alternative to Calman when it comes to constitutional change for Scotland.

"The (commission's) final report was based solely on evidence which makes its findings far more robust than some of the assertions we have seen recently."

The Calman plans envisage the Scottish Parliament being given control over half of income tax, but the Campaign for Fiscal Responsibility believes this is not enough.

More than 100 businessmen have so far signed up to the campaign, which is spearheaded by Jim McColl, chairman of Clyde Blowers, and Ben Thomson, an investment banker and confidante of Mr Salmond.

However, Mr McColl has been forced to defend his own financial arrangements after it emerged he is resident in Monaco for tax purposes.

"I'm not a tax exile and I object to being described as one," he told the Daily Telegraph.

"I do pay directly and indirectly to the Exchequer £70 million to £75 million a year."

But Pauline McNeill, Scottish Labour constitution spokesman, said: "This leaves me incredulous. How can Jim McColl have any credibility in the debate about Scotland's future when he is based in Monaco for tax purposes?"

Iain McMillan, CBI Scotland's director, said those arguing for radical tax powers had yet to provide evidence for their arguments or proposals for overcoming the logistical hurdles.

Mr McMillan, who sat on the Calman Commission, said the body had found no examples anywhere else in the world of a sub-nation state enjoying fiscal autonomy.
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