Iain Macwhirter charts the latest twist in the debate around Scottish independence
Each week a new destiny is revealed for Scotland: independence light, devolution max, devolution plus, skinny devolution lite with a shot of max… You could be forgiven for thinking that the politicians are a few clauses short of a full constitution. But bear with me because there could just be a happy ending here.
Last week senior figures in all three unionist parties in Scotland, Conservatives, Liberal Democrats and Labour, came together behind a new constitutional settlement called devolution plus. This is essentially the formula devised by the Reform Scotland think tank, which seeks to ensure that the Scottish parliament raises the vast bulk of the money it spends. In other words, that it pays its way. In a sense this is Calman reloaded, an extension of the plan devised in 2009 by the commission set up by the unionist parties after the SNP victory in the 2007 election campaign.
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Calman was widely criticised for his plan to split income tax between London and Edinburgh. This was a difficult proposal to explain, let alone to implement, and many economists believe it would be deflationary. But the worst thing about Calman, and the Scotland bill that implements it, was that it failed to live up to the principles set out so cogently in the main body of the report – that a parliament should be responsible for raising its revenue in a way that it is accountable, equitable and transparent. Devolution plus puts the Calman principles into practice in a way that is fair and that people can understand.
Under devolution plus, Scotland gets income tax, corporation tax, various other taxes and a geographical share of oil revenue. The UK keeps national insurance and VAT – reasonable because these taxes need to be more or less consistent across a monetary and customs union, which is what the new Scotland would be. This may not be “full fiscal freedom”, as the SNP have described it, or even devolution max, where Scotland raises all tax and sends a contribution south for common services like defence. But it’s very close to it. If this scheme were implemented, Holyrood would have the vast majority of the powers it requires to pursue an independent economic policy, to the extent that this is possible within a monetary union where a UK central bank sets interest rates.
It would be tough, though. No more could a Scottish government spend freely knowing that the Barnett Formula will pay for it all. A Scottish government running devolution plus would have to make hard choices between cherished social programmes and the need to keep taxes low to attract inward investment. Oil revenue would present a temptation to buy votes which a populist government might find hard to resist. The Scottish National Party, might well split between low-tax Celtic neo-liberals, and the high spending social democrats.
But with a fair wind Scotland could end up rather like Quebec, where economic policy is almost entirely run from Montreal, even though it remains a province of the Canadian federation. Quebec has many very attractive social policies too, including universal child care for $7 a day, which it manages to finance even though it lacks revenue from natural resources. There is still a Quebec nationalist party, the Parti Quebecois, but it’s ambitions focus principally on questions of defence and foreign policy.
Devolution plus could offer the best of both worlds – independence within the United Kingdom. It could even give Scotland more control over its affairs than formal independence. How so? Because there would still be a Scottish presence – albeit reduced – in Westminster, allowing Scotland’s voice to be heard on the many nominally English issues that would have a bearing on Scotland. Not just defence and foreign affairs, but immigration, maritime law, the national grid, the NHS, interest rates and English employment law. Indeed, if the Coalition had any imagination, they would use the forthcoming reform of the House of Lords to turn it into an elected Senate with a federal representation from the constituent nations of NUK – the New United Kingdom.
But we are getting ahead of ourselves. Devolution plus is still just a proposal, albeit from an influential cross party grouping. And for some perverse reason, they don’t want to give Scotland a chance to vote for it. However, given that both David Cameron and the former Labour chancellor, Alistair Darling, have said recently that they envisage more powers for Scotland than in the current Scotland Bill, devolution plus must surely be what they have in mind. If it isn’t what they have in mind, they’d better say so very clearly now, if they don’t want to be accused of constitutional jiggery pokery. Labour and the Liberal Democrats have their Scottish conferences this weekend: their leaders must make their positions clear. The current Scotland Bill will have to be put out of its misery for a start.
If Scots had a vote tomorrow, devolution plus is almost certainly what they would vote for – by similar margins to the 1997 devolution referendum. Scots want to run their own affairs, but don’t particularly want to break up the UK. So, why has Alex Salmond been keen to embrace devolution plus, and offer a place for it on the referendum ballot paper? Surely it means that the SNP will lose the referendum? Well, because he realises that this represents a massive step towards independence. Unionism has become federalism – and the referendum is still two years away. But it’s not just a stepping stone.
The First Minister realises that this scheme, if it is implemented sincerely, would effectively bring to an end Scotland’s economic dependency, and could vastly improve the country’s prospects, not least because of oil revenue. That this is now being promoted as the new “status quo” is an astonishing testament to how Alex Salmond has changed the landscape of Scottish, and British politics since the SNP landslide in May. And England would welcome the arrangement because it would end the Barnett Formula. Indeed, this might just be one of those rare moments in politics when everyone’s a winner.
A state cannot allow unbridled tax competition within its borders. Devolution of corporation tax and higher rates of income tax can proceed only on the basis of agreement about the scope for changes in rates. Imagine the effect on the north of England – a poorer area in general than Scotland – if the Scots decided to slash corporation tax. If we all tried to turn ourselves into tax havens, little or no corporation tax would be collected. Even an independent Scotland would have to maintain something close to current rates of corporation tax if it wished to join/remain in the EU. The Europeans are already fed up with the Irish for maintaining neighbour-unfriendly rates of corporation tax now they are no longer among the poorer European states. If the Scots wish to finance devolved expenditure by the assignment of tax revenues rather than a block grant, there is no reason why they should not have their way but the notion that they can do as they like with the rates of those assigned taxes is misguided.
A minor point: those economists who claim that the sharing of the income tax base recommended by Calman is ‘deflationary’ are either sloppy or, more likely, talking a particular political book. There is no need to give currency to a mistaken analysis.
I listened to the talk that Mr. Holtham mad on Radio Wales Sunday Supplement this morning. The talk included the points mentioned above in favour of devolution for Scotland, and the benefits to Wales if Scotland vote ‘Yes’. The talk was very structured and convincing. Mr Holtham should speak more on the media. He is concise, doesn’t rant, and speaks intellectually.
“those economists who claim that the sharing of the income tax base recommended by Calman is ‘deflationary’ are either sloppy or…….”
Could you enlarge on that a bit?…..not that I’m questioning it, just not understanding what it refers to.