Will Scotland Get Full VAT Control Following Brexit?

7 September 2016, 16:08

Even though Scotland voted to remain a part of the United Kingdom two years ago, the landmark referendum led to some changes in the way powers are granted. The Scotland Act saw a number of powers devolved to Holyrood following the vote, and now a think-tank has suggested VAT control should go the same way. It suggested this should happen once the UK officially becomes independent of the EU, following the European Referendum vote earlier this summer.

At the moment, Scotland has control of a small amount of VAT revenues. Nothing further could be done at the moment, because EU law prevents it from happening. But since EU law would no longer be in force once the UK leaves the EU, there would be a clear opportunity for VAT to be fully-devolved to Holyrood, if the step was agreed.

What would this mean if it happened? Well, Holyrood would receive a much greater portion of revenue to work with than it has at the moment. Income tax has been fully-devolved to Holyrood, meaning all those who pay income tax in Scotland will essentially pay it to the Scottish government. If the UK government agreed to devolve VAT following its departure from the EU, this would bring in a large amount of additional income to Scotland.

It’s easy to see why this might be beneficial for Scotland. Oil revenues have dropped sharply in recent times, leaving a huge black hole in the government’s finances. There are only a few things that can be done to try and plug the hole. Let’s not forget the whole case for Scottish independence was based on the rising price of oil – something that was warned to be foolhardy at the time. Now we can see it would have been disastrous if Scotland had separated from the UK.

If Holyrood did end up with full control over VAT in Scotland, it would have far more revenue coming in – and much more control than it has at the moment. It could be just what Scotland needs to beef up its finances following the separation from the EU. Whether this would affect its position with regard to the idea of wanting to go back into the EU as an independent country or not remains to be seen.

Of course, while Holyrood might see this idea as encouraging, it doesn’t mean the UK government will take the same route. Indeed, a statement made clear the UK government has no intention of changing anything at the moment, or of giving more powers to Scotland than it already has. It has met the terms of the Scotland Act in full, and it looks unlikely that anything will change in the near future. This holds true no matter how much Scotland might want things to be different. We shall watch and wait to see what happens next in the journey towards Brexit.