Between the lines: Why the Calman Report leaves business cold

Published on Monday 15 June 2009 21:42

CALMAN, leaking and dribbling to the last, is finally out. It has greatly excited the political classes. For the past week the chatter inside the Holyrood bubble seems to have been of little else. But in the business realm – that real world of getting, spending and investing – its 266 pages have landed with the dullest, groan-inducing thud.

The problem with Calman, and the exhaustive discussion over taxing , spending, "assigned revenues" and the like, is that it has been dwarfed by the greatest accumulation of government debt and borrowing ever amassed by the British state outside of war time. And the single greatest issue with which voters and politicians now wrestle is how, where and by how much public expenditure is to be cut.

Calman is a discussion born of another era – one of sustained economic growth and real-term increases in public spending. That world has gone. Thus, on this perspective, it scarcely matters whether the spending axe is to be wielded in Holyrood or Westminster. Is Holyrood up to the task? It is steeped in the culture of spending and shows no recognition that the function of a legislature is to control spending, not to push on regardless for ever more of it.

This is how Calman is seen from a business perspective. It just does not see it as today's Big Issue. And even if it was, there is no great confidence that Holyrood would take the tough decisions that need to be made. What it does fear is that the longer it takes to grasp this nettle – whether in Westminster or Holyrood – then the alternative, of a flight from sterling and ever- rising government debt yields, driving up the cost of borrowing, is all too real.

So one hates to intrude on this private Calman party. But someone has to point out that, in this changed world, the public's interest in whether or not 18 per cent of Scotland's tax revenues should or should not be "assigned", or whether Holyrood should have control of lesser taxes, is way below the radar.

The immediate concerns are jobs, investment, exports and our ability to ride out a recession which, despite recent signs of "green shoots", has still a long way to run and which could, judging by the behaviour of financial markets yesterday, be subject to a nasty setback.

More relevant to the real world would be a discussion wider than extra borrowing powers but on the assignment of Scotland's share of UK debt, what a debt-reduction programme would mean for revenues – direct or assigned – and the implications for taxation in Scotland if we choose not to reduce the current rate of public spending.

On this there is a silence across the political establishment. Because the world within the Bubble is utterly absorbed with the 1,001 ways in which money can be spent, not on how the debt burden can be brought down.

The world has so changed in other respects. Just two years ago the debate around fiscal autonomy was backlit by the seemingly inspiring performance of booming Ireland, roaring Iceland and soaraway Baltic economies. If only we had the fiscal powers to emulate those!

Today the Irish model is broken, Iceland is as good as bust and Latvia is clinging on for dear life to an IMF bail-out. Of course, economic crisis has not impinged on the constitutional independence of these countries.

Such independence is not, and historically never has been, a matter determined by economics. But the recession – and the collapse of Scotland's two banks – has pushed constitutional change down the list of immediate concerns.

Even taken on its own terms and setting aside our current circumstances, it is not at all clear what the ultimate intent of the Calman proposals are.

Is it to enhance the accountability of the Scottish Parliament's spending decisions to Scottish voters? Or is to help boost economic growth, by enabling the parliament to vary taxes to help business?

It has received an early thumbs-down on both. The pro-business Reform Scotland think-tank says Calman does not go far enough as it fails to recommend powers to vary corporation tax – and it is corporation tax, not income tax, that is the critical lever to influence economic growth.

And the CBI Scotland is not impressed. Chairman David Thorburn says there will be no upper limit to the Scottish rate of income tax. Moreover, he adds, employers' PAYE compliance costs will be increased across the UK. "The economy is currently in deep recession and this is not the right time to implement these changes."

The problem with this objection is that it is hard to envisage a time on the CBI clock when it would ever be "right" for such change – even if it involved the discretion to cut corporation tax. The bigger point surely is that Calman is – and was always intended to be – a political construct to find a formula for fiscal autonomy that would spike the SNP guns. For the moment the attention of business is focused on something much more mundane: survival.