Income tax 'should not differ from rest of UK until more powers devolved'

Income tax in Scotland should not diverge from the rest of the UK until broader tax powers are devolved, according to a think tank.

Reform Scotland said the new income tax powers due to be transferred to Holyrood from next year under the Scotland Bill were not sufficient to allow for coherent tax reform.

A report highlighted that after the latest Smith Commission round of devolution, 71% of all tax revenue raised by the Scottish Parliament will be from the single source of income tax.

Holyrood will control less than 30% of the total tax income raised in Scotland, while the benefits to be devolved amount to less than 15% of the total welfare expenditure north of the border.

The think tank has recommended that the Scottish Government peg the level of income tax to that in the rest of the UK until the Scottish Parliament has a wider range of taxes under its control.

Chairman Alan McFarlane said: "The reality is that the new tax and welfare powers proposed by the Smith Commission and now being enacted at Westminster are not likely to allow for real reform.

"The devolution of income tax is a blunt instrument which does not offer the opportunity to create a better environment for economic growth.

"Until the Scottish Parliament has control over a sufficiently varied basket of taxes, we would call on the Scottish Government to peg income tax in Scotland to the UK rate.

"Similarly, we believe a further devolution of welfare powers is required to enable any meaningful welfare reform."

The think tank has also called for one Scottish department to be responsible for the new tax and welfare powers and for reform of the "unnecessarily complex" administration of carer's allowance.