TONY Blair was “sceptical” about giving the Scottish Parliament income tax powers when it was created, previously secret Cabinet Office files have revealed. 

Blair, who once infamously compared the Parliament's power to that of a parish council, said he thought it should stick to local taxes instead of varying income tax.

The New Labour Prime Minister raised his concerns with then Scottish Secretary Donald Dewar in June 1997 as they thrashed out a prospectus for devolution.

A file note written by Blair’s private secretary after the pair met to discuss the issue said: “The Prime Minister went through the reasons why he was sceptical about giving the Scottish Parliament the power to vary rates of income tax.

“Income tax was of great symbolic importance and if the same money could be raised through local taxation... this seemed to be more consistent with the principles of devolution.

“He was also concerned by the proposal to only vary the standard rate of income tax.”


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Dewar said he had asked the Treasury for “an authoritative view”, but saw “a number of problems” from using just local taxation, including an over-reliance on business rates, leading to a “major row with business interests”.

Raising extra money from council tax also require huge increases - a 35 per cent hike to raise the same amount as a 3% rise in income tax.

On July 9, Blair’s Scottish political adviser Pat McFadden reported to his boss that the Scottish Office and Treasury had agreed on income tax, but by July 16 details remained vague, despite the devolution White Paper due to come out on July 24.

He said: “It has been kicked around for weeks by the Scottish Office and the Treasury who have, so far, not been ankle to reach agreement.

“It will be a power to vary income tax. I was uneasy at Donald/Gordon [Brown]’s suggestion of a Scottish basic rate. It sounds, politically, like a greater split between the tax system in Scotland and elsewhere than we might wish.

“If we cook up some form of holding words there is a real danger they will not be robust enough to survive a referendum campaign.”

A day later, the Government agreed to empower the Scottish Parliament to vary the basic rate of UK-set income tax up or down by 3p, rather than have a similarly variable Scottish basic rate.

Lord Chancellor Derry Irvine thought the plan was atrocious.

He wrote: “I am very unhappy because any new tax in exercise of the power will fall on the narrowest, not the broadest, backs" as the top rate of income tax was unaffected.

He described the policy as "a very sad state of affairs", adding: "I suppose it could be said that the inequity that would follow from exercising the power might operate as a deterrent to its exercise.”

His prophecy proved correct. 

Dubbed the ‘tartan tax”, the Scottish Variable Rate was never used, and Holyrood did not start varying income tax until 2017 under a different mechanism.