Wales in spotlight puts Scotland on edge

Apart from when the countries meet on the rugby or football pitch, Wales is pretty much ignored in Scotland. But what has been just announced in Cardiff is important for Scottish politics, both for nationalists and unionists, though perhaps not in the way that either side, going by their public pronouncements, seem to think, for it marks a major philosophical U-turn by UK Conservative leaders.

Responding to Silk   This is the third of a series of articles  on the UK Government’s response last week to the Silk Commission’s recommendations on tax and borrowing powers for the National Assembly On Monday: Owen Smith says to accept income tax powers without first re-examining the Barnett formula would lock in under-funding for Wales.

Last week, David Cameron and Nick Clegg said that the UK government will devolve tax-raising powers to the Welsh Assembly. Assembly members will get the power to set stamp duty, land tax and landfill tax and, if they decide to hold a referendum, Welsh people will be able to vote on whether the AMs should also set the rate for a portion of income tax.

With the promise that borrowing powers will also be devolved, Wales will be able to get close to the same fiscal powers that are now being devolved to the Scottish Parliament through the Scotland Act.

Carwyn Jones, the Labour First Minister, was thrilled. “We are now being treated like equals in the UK,” he said.

The comment is interesting. From my experience of Welsh politics, I know that politicians there across the spectrum strongly resent the way Wales is ignored in London, not just by ministers and Whitehall, but also by the media. But they also quietly resent the attention that Scotland gets which, given that Scots think they are disregarded by London, is a different and revealing perspective.

Scottish responses to the announcement were fairly predictable. Alistair Carmichael, the Liberal Democrat Scottish Secretary, was keen to point out that it gives the lie to the nationalist argument that if Scotland votes No next year, then we can forget about any further devolution of power and perhaps even expect those nasty Westminster types to exact some sort of revenge for giving them so much grief.

But, Mr Carmichael argued, Westminster has now performed two acts of devolution. The first was via the Scotland Act (though it might be noted this was done under the pressure created by the election of an SNP Holyrood administration) and now the second will be a forthcoming Wales Act.

Significantly, this second power shift is occurring when there is no particular nationalist pressure – Plaid Cymru does have 11 of the Assembly’s 60 AMs, but it is behind the Conservatives’ 14 AMs. The pressure, instead, came from a united front of all the parties and a wide slice of Welsh civic organisations.

The SNP response was to pick on one of Mr Jones’ other remarks – that he wanted to see an adjustment to the Barnett formula. It determines annual changes to the Treasury block grant which makes up the bulk of spending by both the Scottish and Welsh administrations.

Mr Jones thinks the formula is unfair to Wales. Studies by independent organisations commissioned by his government reckon that Wales is currently missing out on about £300 million.

Stuart McMillan, an SNP MSP, contended that “the comments from Carwyn Jones are the latest from the anti-independence parties attacking the Barnett formula [so] it is clear that only a Yes vote will protect Scotland’s finances”.

It is true that north of England Labour MPs and southern English Tories don’t much care for Barnett. Reform does look likely and it seems probable that Scotland won’t be a winner. But on political grounds, a punitive raid, docking hundreds of millions from the Scottish budget, looks implausible.

What we seem to be seeing now is a big political shift in direction by the Tories. Long associated with being the party of centralised (in London) government, they are now climbing on board the decentralisation bandwagon. Having been vehemently opposed to legislative and fiscal devolution, Mr Cameron is not now just endorsing it, but also giving it a push.

Mr Cameron, I am told by one of his advisors, “gets it” – that his party’s long eclipse in Scotland and Wales may well have a lot to do with its opposition to devolution, which is seen in many voters’ minds as being equated with hostility to both countries.

The Tories’ rather better recovery in Wales than in Scotland could well be attributable to their relatively swift conversion to supporting more Welsh devolution, a Damascene conversion to which Ruth Davidson and the Scottish Tories have been latecomers.

Of course, Scots will need a lot more hard evidence before they become convinced that the Tories are genuine devolutionists. But if they are – and Boris Johnson’s support for the London assembly to have more fiscal powers plus decentralisation of power to English cities and councils are further straws in the same wind – then that changes a lot.

It means that the Conservatives could become much more electable in Scotland. And if that is indeed one of the prizes that Mr Cameron seeks, why then would he risk jeopardising that gain by reforming Barnett in such a way that it singles out Scotland for spending cuts?

Sure, it is a challenge he will have to face, but first the SNP has to face its own test. By raising the Barnett question, nationalists have to demonstrate that Scotland’s public spending would indeed be better placed under independence. This isn’t a good place for nationalists to be. Recent analyses by the Institute of Fiscal Studies and the Centre for Public Policy and Regions have presented evidence which argued that oil revenues can only fill the gap, if Scotland was shorn of the Barnett transfer by independence, by a cut in defence spending from what Scotland notionally contributes now (£3.4 billion) to £2.5 billion.

This could certainly be done, but it creates two problems. One, it would allow the unionists to contend that the SNP is admitting spending cuts would be necessary with independence and, two, it focuses yet more attention on the importance of oil revenues which, everyone knows, are volatile and in long-term decline.

So unionists have every reason to be happy with last week’s events in Cardiff. But they, especially the Conservatives, have no reason to be smug. They have yet to produce the plans for further devolution which opinion polls suggest is what Scotland really wants. Those plans would have to be passed by Westminster and, it now seems clear, will have to include some reform to Barnett. And doing that in such a way that it satisfies English and Welsh politicians without inflaming Scottish opinion is still a pretty formidable challenge.