Lord Smith: devo powers talks are making good progress

Chairman Lord Smith said the discussions so far had been "intensive" but added there was a "real determination to reach agreement".

He spoke out at the start of a special session at Holyrood where members of the commission heard from some of the campaigners, business groups and others who have sent in submissions outlining their views on further devolution.

Lord Smith said the commission - which contains representatives from each of the five political parties in the Scottish Parliament - had received over 400 submissions from "a wide range of organisations" as well as more than 17,000 submissions from the general public.

He said: "To me it was inconceivable that the commission could be anything other than inclusive, following as it does the extraordinary levels of engagement in the referendum.

"Everyone of the political parties represented here today shares my commitment to that."

He said he had been "determined that the voice of the public and Scotland's civic institutions would be heard" in the debate about what new powers should come to Holyrood.

With the commission having already held a number of meetings, Lord Smith said: "The nominees are making good progress and the talks, while intensive, are being conducted in a good spirit with a real determination to reach agreement."

But he stressed no decisions had yet been made, saying: "I can assure you all - nothing has been finally signed off - not least because it is in the nature of this process that nothing is agreed until everything is agreed."

He said today's meeting - where the commission split into two groups in order to hear from a wider range of groups - was an "opportunity for the political nominees to probe the thinking of some of these civic institutions".

The Smith Commission has been established to draw up a ''substantial and cohesive package of powers'' in a bid to bring about a ''durable but responsive democratic constitutional settlement which maintains Scotland's place in the UK".

It comes in the wake of the vow made by David Cameron, Ed Miliband and Nick Clegg prior to the referendum that substantial new powers - including some responsibility for tax and welfare - would be transferred to Scotland if the country voted to remain part of the UK.

Under the timetable already agreed for reform, an agreement on recommendations for what new powers should be transferred north has to be reached by the end of November, with draft legislation produced by the end of January 2015.

This will then be implemented by whatever party wins next year's general election.

Union, business and financial services representatives have arrived at "a consistency of view" that corporation tax should not be devolved, according to Smith Commission session chair Professor Lesley Sawers.

The ability of devolved corporation tax to create sustainable employment is in doubt and it could expose Scotland to extreme competitive dangers from across Europe, according to the Scottish Trades Union Congress (STUC).

The Confederation of British Industry (CBI) said different rates of corporation tax would create cost and complexity, and see a shifting of profit and loss between different parts of the UK.

Scottish Financial Enterprise (SFE) said devolved corporation tax would be "tricky and costly" for companies, which would have to create separate tax assessments north and south of the border.

Prof Sawers said: "There is quite a consistency of view with regard to corporation tax.

"I think it would be quite helpful to explore why your membership have arrived at the view that corporation tax should not be devolved."

She singled out Dave Moxham from the STUC, Katja Hall from the CBI, and Owen Kelly from SFE.

Mr Moxham said: "We doubt its effectiveness as a policy lever to create sustainable employment in Scotland.

"Therefore, for the explicit purpose for which people have suggested its devolution, we're not sure that it works.

"Secondly, we favour harmonisation not just across the UK but across the whole of Europe with respect to corporation taxes, because we think that there are competitive dangers.

"Some of the competitive dangers out there might be more extreme than the explicit case of Scotland versus the rest of the UK.

"Generally, we think this is one area where harmonisation as widely and globally as possible is something to be supported."

Ms Hall said: "We think that keeping corporation tax reserved is important.

"It's a fundamental part of the internal market within the UK for probably three key reasons.

"Different rates of corporation tax would increase cost and complexity for companies operating in different parts of the UK.

"They would effectively have to set up different tax arrangements and operate an international tax regime within one country.

"Secondly, there is an issue of what you would do with tax receipts, so you would see a shifting of profits and losses to different parts of the UK.

"What would that do to overall tax receipts to the UK, and how is that compatible with meeting some of our fiscal challenges?

"Thirdly, I guess there is an issue on how we monitor economic activity, and we did a survey of medium-sized firms and already around half of them, I think, say that the complexity of the tax system is a barrier to them being able to operate effectively.

"So, I think, overall, we should be looking to reduce the complexity of the tax system, not increase it.

"We are in a situation where the UK as a whole has an attractive rate of corporation tax - we will have the lowest in the G7 from next year.

"I think that's been a good message in terms of attracting inward investment and creating jobs here in the UK, but it should be an attractive corporation tax for the UK as a whole."

Mr Kelly said: "If one is going to do this, then I guess you would require companies to make separate assessments of their activities for their tax purposes in Scotland and the rest of the UK, and financial services, that's going to be really quite tricky and costly for individual companies.

"But also, I think if one were seriously looking at this it would be important to consider what the implications would be for double taxation treaties internationally, I think that could be another layer of complexity."

Witnesses were split on whether air passenger duty (APD) should be devolved.

Ms Hall said: "There is a range of views within the CBI on whether it should be devolved or not, not only in Scotland but also in Northern Ireland for example.

"Our starting point is APD is quite a distortive tax as it is, and we think there is a strong case for reforming it at a UK-wide basis.

"On the issue of devolving it or not, the thing we need to look at is what would be the impact on other parts of the UK, and certainly with regard to devolving it to Scotland there is some evidence to show that it would have a negative impact on the economy in the North East."

Mr Moxham said the STUC is "minded to support devolution" of APD, while Mike Robinson from Stop Climate Change Scotland said devolution would provide an opportunity for Scotland to implement policies to cut emissions.

Nigel Miller, from the National Farmers Union Scotland, said tax "is an extraordinarily powerful incentive and therefore having tax varying powers over a whole range of issues in Scotland would be of value - and I think this is one of them".

Ian Mackay, of the Institute of Directors, said it was "low-hanging fruit" and was an example of a tax which has local impact and could therefore be used to make localised improvements.

Marc Crothall of the Scottish Tourism Alliance said the devolution of the tax would be welcomed by the industry.

"Tourism as an industry in Scotland is probably disproportionate in terms of its value and its contribution to jobs (in comparison) to the south, therefore getting people into Scotland is essential," he said.

Commenting more broadly on taxation, the representatives - whose interests cover various industries and third sector areas - agreed that the devolution of new powers should not lead to greater complexity.

Mr Mackay said: "We really don't want to see any more complexity in taxation. We want to see something that is making it easier and smoother because the private sector in Scotland is still too small, and I think that is a job for both governments."

Fraser Kelly, of Social Enterprise Scotland, said: "I think there has to be something in the tax infrastructure which actually supports social enterprise as a business model of choice."

The organisations also called for improved communication between the Scottish and UK governments, with some advocating a statutory requirement for relevant Scottish organisations to be consulted on reserved matters.

Margaret Lynch, of Citizens Advice Scotland, said: "My expectation of the Smith Commission is to identify areas where legislation is required, where more powers are required, but frankly also to call out deficiencies in where the current system is not being used in the way it could be, because of perhaps an adversarial approach to politics, which universally doesn't help anyone."

She added: "We think you could go a fair distance just by improving the way the two governments relate to each other, and the way that crucially the civil services relate to each other, and the way they relate to Scottish stakeholder organisations across the board.

"There should be no new policy that government are discussing that hasn't been consulted upon in Scotland. I would go for a statutory requirement to consult with Scottish stakeholders and in Scotland."