Loss of tax powers sparks debate

The Scottish government is to stage an emergency debate at Holyrood, as the row over Scotland's loss of its tax-varying powers escalated.

The deal, which allowed Scotland to raise or lower income tax by 3p in the pound, was allowed to lapse in 2007 and cannot be used until 2013-14.

Rival parties have demanded to know why MSPs were not informed of the move at the time, and have demanded an apology.

Business at Holyrood will be changed to make room for the debate on Wednesday.

The Scottish government told UK ministers in August it was not going to pay Her Majesty's Revenue and Customs (HMRC) £7m to work on the IT system which would allow the Scottish variable rate (SVR) - commonly known as the tartan tax - to be used after May's election.

The initial cost for establishing a separate revenue system was £12m, which was paid in 1999, and an annual maintenance bill of £50,000 was paid by the Holyrood administrations until 2007.

After the SNP came into government in May 2007, revenue bosses announced they would have to install a new IT platform and that "further discussions would be needed regarding additional multi-million investment requirements to operate the 3p tax power".

Finance Secretary John Swinney expressed his concerns, as he was questioned by the Scottish Parliament's finance committee on Tuesday.

"For me to be faced with a £7m bill for, essentially, making the SVR compatible with a system that my predecessors had already paid £12m for begs a few questions," he said.

When asked by Tory Derek Brownlee why MSPs were not previously informed of the move, the finance secretary responded: "That's perhaps, if Mr Brownlee will forgive me, a question that I might address helpfully in the debate in parliament tomorrow."

The public voted for the Scottish Parliament to have tax-varying powers in a specific question which was part of the 1997 referendum on devolution, but the tartan tax has never been used by any administration.

In his budget statement at Holyrood last week, Mr Swinney specifically ruled out use of the power to raise revenue, leading to opposition claims that he misled parliament.

Labour finance spokesman Andy Kerr said of the finance secretary: "The facts are that he misled parliament in successive budgets by keeping this decision a secret.

"His refusal to provide straight answers to straight questions or offer any regret is beginning to make his position look very difficult."

Scottish Liberal Democrat leader Tavish Scott, added: "I expect a full apology from the government, both for abandoning the tax varying power and the subsequent cover-up.

"This apology should be to the people of Scotland who voted for this tax varying power in the 1997 referendum."

Mr Brownlee said: "John Swinney needs to explain when these powers were effectively lost, who gave them away, who knew about it, and when he became involved."

Mr Swinney has rejected claims that the costs of devolution should be met from the Scottish budget, highlighting a Treasury document which stated that the UK government should pay.

And he said he needed answers on the costs for further tax-raising powers, as proposed in the Calman recommendations for the future of devolution, which are due to be set out in a Scotland Bill.

In response, Scottish secretary Michael Moore said the forthcoming bill had nothing to do with the decision which removed Holyrood powers on the variable rate.