Scottish Secretary Michael Moore informed party leaders yesterday that whoever forms the next Holyrood government after next May’s election will not be able to call on the so-called tartan tax for two years.
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The arrangements -- a key part of the deal that brought Scotland devolution -- would have allowed ministers to raise or lower income tax by up to 3p in the pound.
Only this week, Green MSP Patrick Harvie challenged Finance Secretary John Swinney to use the powers to raise taxes as a way of softening the blow from swingeing public spending cuts.
Last night the Scottish Government defended its decision, saying it had not been prepared to pay any more money to Her Majesty’s Revenue and Customs to keep in place costly arrangements to use the tax power when none of the main parties was committed to invoking it.
However, opposition parties accused the Scottish Government of incompetence and of sabotaging the devolution settlement set out in 1997.
They accused the SNP of killing off the power voted for by Scots.
Scots Liberal Democrat leader Tavish Scott said: “The party that constantly demands more powers and a referendum has killed off the only tax power expressly voted for by Scottish people.
“The Scottish Government’s decision doesn’t just affect the SNP, but binds the hands of the next government.
“The Scottish Government has tried to sweep this under the carpet.”
Labour’s Andy Kerr said: “The SNP are guilty of sabotaging devolution. Labour has no plans to increase income tax in Scotland, but the power was made available to the Scottish Parliament as part of the devolution settlement.
“The refusal of ministers to commit resources so that HMRC can collect the tax is unbelievably short-sighted.”
Tory Derek Brownlee added: “Scottish Conservatives are resolutely opposed to any increase in Scotland’s income tax. However, the people of Scotland voted overwhelmingly in a referendum for the Scottish Parliament to have tax-varying powers.”
He said it was “nothing short of astonishing” that the Government had allowed the powers to lapse without telling the people of Scotland.
Mr Harvie said: “We must now find out which minister is responsible for this abject incompetence, and he or she may well have to consider his or her position.”
The Scottish Government told UK ministers in August that it was not going to pay for HMRC to work on the PAYE systems to allow the power to be used after next May’s election.
Any incoming administration will now not be able to use the tax power until 2013/14.
It is thought the Scottish Secretary’s letter to other parties was prompted by Mr Swinney’s comments during his draft Budget statement on Wednesday, when he said the SNP Government would not be calling on the tax-varying power.
In his letter yesterday, Mr Moore said: “The Scottish Government informed us in August they were not going to pay for Her Majesty’s Revenue and Customs to work on the PAYE systems to enable the Scottish Variable Rate (SVR) to be available after the 2011 election.
“It is now clear that because the system has not been maintained at the previous 10-month readiness, HMRC would require two years’ notice to invoke the SVR. I am conscious the various political parties will be considering their policy programmes for next year’s Holyrood election.
“I felt it was imperative to inform them that this tax power, which formed part of the original devolution settlement, is not available to whoever forms the next Scottish Government.”
A Scottish Government spokesman said: “The agreement with HMRC regarding the Scottish Variable Rate covered the period July 1, 2003 to July 31, 2007 -- at which point HMRC themselves announced they would be installing a new IT platform and that further discussions would be needed regarding additional multi-million investment requirements to operate the 3p tax power -- beyond the £12 million and £50,000 annual cost paid by the previous administration for a tax power that has never been used.
“This administration does not advocate increasing income tax for people in Scotland, and spending yet more millions on a limited tax power which none of the major parties wanted to use could not possibly be justified at a time when it was clear that public spending would be constrained.”
However, Mr Harvie said: “We have long regretted the amount of time SNP ministers spend complaining about the powers this Parliament doesn’t have while neglecting to use the powers they do already have. To find out now they have let those existing powers lapse is nothing short of jaw-dropping.”