Commons committee doubts Scottish VAT assignment is realistic or possible

The recommendation was contained in the findings of the committee’s inquiry into The financing of the Scottish government, published last week (16 July).

MPs noted that the policy of VAT assignment, where a proportion of VAT revenues raised in Scotland are assigned directly to the Scottish Budget, has been “due to be implemented for several years” but that “concerns that the difficulties in implementation mean [it] may never actually be made.”

While Scottish Secretary Ian Murray assured the committee that the Scottish and UK governments “were working closely to implement the policy”, organisations including the Fraser of Allander Institute and Institute for Fiscal Studies had told MPs the policy was “not sensible” and a “farce”.

In November 2023, the Chartered Institute of Taxation told the Scottish Parliament’s Finance and Public Administration Committee (FPAC) that it had “grave reservations” over how the policy would work in practice, leading the committee to conclude that the policy may not be in the country’s best interests.

The Scottish Affairs Committee has concluded that it is “highly unlikely…that the assignment of VAT revenues will ever come into force” and has called on the UK government “to explain why it thinks the policy is still possible, despite robust views to the contrary”. It has asked for an update by summer 2026 on the progress made on the implementation of the policy.

The committee also concluded that the Barnett Formula used to calculate the Scottish government’s funding is “imperfect [but] nonetheless fit for purpose.” During its deliberations, the committee reports that it heard “no evidence of a workable alternative” and described the Scottish Government’s policy of full fiscal autonomy as unconvincing.