Tartan Tax

Term dubbed by the former Conservative Scottish Secretary Michael Forsyth to describe the Scottish Parliament's tax-varying powers which were approved by a majority of voters in Scotland in a referendum in 1997. The Scottish Constitutional Convention, which drew up the blueprint for a Scottish Parliament in 1995, argued that to achieve the objective of a faster rate of growth in Scotland, a Scottish Parliament should have independent tax-varying powers, and proposed that it should be able to vary the basic rate of income tax by a maximum of 3 pence in the £ for income taxpayers in Scotland. Liability to this tax power was restricted to those who were principally resident in Scotland – around 2.4 million Scottish income tax payers.

In 1996 the Labour Party adopted the idea of having two questions in Scotland's devolution referendum – one on a Scottish Parliament, and the other on that parliament's tax-raising powers. Shortly after Labour won the general election in May 1997 the Referendums Bill for Scotland and Ireland was published. The Conservatives, who campaigned vigorously against Scottish devolution, opposed the ‘Tartan Tax’ and argued that higher rates of taxation would result if Scotland were given its own Parliament. There were considerable worries inside the pro-devolution campaign – and sporadically inside government – that Scots would reject tax-varying powers in the separate referendum question on that issue. However, 63.5% of those who voted in the 1997 referendum wanted the parliament to have tax-raising powers. Every Scottish council area voted ‘yes’ to the principle of devolution, and almost every council area voted ‘yes’ to tax powers, with the exception of Orkney and Dumphries and Galloway which voted marginally against tax.

Of Scotland's approximately 2.4 million income tax payers, more than 25% would not be affected by tax-varying powers because they were lower-rate tax payers. Of the rest, it was estimated that nearly two-thirds would pay £145 more on average if tax were to be increased by the full 3 pence. The maximum payable was said to be £660, affecting only 7% of Scottish tax payers. If Edinburgh opted to increase income tax, it would keep the additional revenue. Equally, if Edinburgh opted to cut income tax it would have to forego the equivalent in cash from the Treasury and make cuts in its budget.