Scotland says No – Complexity fear as Cameron signals wider devolution of tax powers

The government will press ahead with devolving powers over tax and welfare to all parts of the UK, raising the prospect of greater complexity for pensions, protection benefits and other financial products.

In a statement issued this morning prime minister David Cameron said the government would deliver on its commitment to Scottish voters, given in the run-up to the referendum, to devolve more powers to Holyrood.

But he also confirmed that greater powers would also be devolved to England, Wales and Northern Ireland, raising the possibility of four different income tax rates across the UK.

Lord Smith of Kelvin, who oversaw Glasgow’s Commonwealth Games, has been appointed to take forward the devolution commitments, with powers over tax, spending and welfare all to be agreed by November and draft legislation published by January.

William Haig has been appointed to oversee plans for tax-setting powers in England, Wales and Northern Ireland, which, says the prime minister, must proceed at the same pace as further devolution of powers to Scotland.

A statement from the prime minister this morning said: “To those in Scotland sceptical of the constitutional promises made, let me say this we have delivered on devolution under this government, and we will do so again in the next Parliament.

“The 3 pro-union parties have made commitments, clear commitments, on further powers for the Scottish Parliament. We will ensure that they are honoured in full.

“And I can announce today that Just as the people of Scotland will have more power over their affairs, so it follows that the people of England, Wales and Northern Ireland must have a bigger say over theirs. The rights of these voters need to be respected, preserved and enhanced as well.

“It is absolutely right that a new and fair settlement for Scotland should be accompanied by a new and fair settlement that applies to all parts of our United Kingdom. In Wales, there are proposals to give the Welsh government and Assembly more powers. And I want Wales to be at the heart of the debate on how to make our United Kingdom work for all our nations. In Northern Ireland, we must work to ensure that the devolved institutions function effectively.

“I have long believed that a crucial part missing from this national discussion is England. We have heard the voice of Scotland – and now the millions of voices of England must also be heard. The question of English votes for English laws – the so-called West Lothian question – requires a decisive answer.

“So, just as Scotland will vote separately in the Scottish Parliament on their issues of tax, spending and welfare, so too England, as well as Wales and Northern Ireland, should be able to vote on these issues and all this must take place in tandem with, and at the same pace as, the settlement for Scotland.

“We will set up a Cabinet Committee right away and proposals will also be ready to the same timetable.”

Withers partner Chris Groves says: “The main concern has been the impact of the cross border provisions. These would have kicked in if Scotland was declared an EU or EEA country. The main mischief of the cross border provisions is that a pension scheme with members in two or more EEA member states is required to be fully funded at all times. Funding is also at the heart of the focus on asset backed contribution arrangements. Schemes with ABCs which currently use a Scottish limited partnership structure will be relieved that these will not have to be unwrapped.

“But uncertainty remains. All of the main Westminster parties offered a pledge to devolve further powers to Scotland in the run up to the referendum in the event of a no vote. It is unclear what these powers could compromise at present. But Scotland already has a limited form of devolved taxation, making the spectre of a divergence of tax systems a real possibility – causing a headache for pension scheme administration.”

Buck Consultants at Xerox head of pensions policy Kevin Legrand says: “The crucial changes will be in respect of the new powers over the setting of tax rates, and possibly the devolution of greater spending control to Holyrood. Workplace pensions are closely tied to the tax system and any changes to that on both sides of the border will result in a growing divergence between the regimes on each side of the border. 

 “This will become a consideration when planning the future shape of pension offerings, and as costs increase, it may in some cases lead to reduced quality of schemes for many members.”