The Smith Commission: VAT


Value Added Tax (VAT) is a form of tax on the value added to a product, material or service. VAT is therefore paid at each stage of production, but the cost burden falls on the consumer, as VAT is added on to the final purchase price. VAT is a flat tax because everyone pays the same rate no matter their wealth or income. The UK government currently charges 20 per cent VAT.

VAT cannot be devolved on a regional basis under EU law. The Smith Commission report proposed that the first 10 per cent of VAT raised goes to the Scottish government’s budget. The new VAT receipts will be accompanied by “a corresponding adjustment to the block grant received from the UK government”, therefore it is unlikely it will lead to any increase in overall funding for the Scottish government.

Richard Murphy, UK tax expert who was critical of the Smith Commission report, stated that he thought the devolving of 10 per cent of VAT receipts was “pointless”.

Picture courtesy of PT Money