Bill Jamieson: Case for more fiscal power not proven

Published on Tuesday 14 December 2010 21:54

Few proposals have progressed with greater confidence in public enthusiasm for change than the Scotland Bill. Who is not for more fiscal powers for Scotland? How can the argument not be considered broadly won bar the final fussing with minutiae?

Yet a cooling zephyr of scepticism may be setting in. Might it be that the advocates of more fiscal powers have not quite the serried ranks of supporters as they claim? There is the risk of a divide between the political class in Scotland and voters - between those inside the "Holyrood Bubble" and those looking in. Barely have we embarked on this legislation than we may be disenfranchising a significant number of them.

I refer to those who fall into none of the established camps laying claim to broad voter consensus, if not on this Bill then at least on its direction of travel: the SNP, the advocates of greater fiscal autonomy than the Bill proposes, and the supporters of the Bill itself. Indeed, what we are now presented with are the three Unionist parties - the Conservatives (Margaret Mitchell excepted), the Lib Dems and Labour - hitched like railway carriages being pulled along by the fiery puffing engine of the SNP. It is the SNP that has set the direction of travel and which has a very clear sense of destination. But tap on the windows of those carriages, and ask where the train is going and there is little certainty at all. In fact, you are likely to be told that the next envisaged stop is not the end of the line at all, but a mere pause on the way. For this is a process, and your ticket is open.

Now, you do not need to be an opponent of independence, or of a more accountable parliament, or of a lower tax energised Scottish economy, to be uneasy about this confusion of destination, or concerned that the legislation may not work in the efficacious manner claimed, or sceptical as to its consequences. I write as one who has long been sympathetic to the calls for more tax varying powers for the Scottish Parliament.

This week's debate at The Scotsman brought out some outstanding contributions from a range of speakers. There was no better summary of the case for the Bill than that set out by Lord Wallace of Tankerness. And many had respect for the acerbic critique of the Scotland Bill in favour of greater fiscal autonomy set out by Professor Hughes Hallett, even if we struggled to keep up with the machine gun bullets as they riddled the target.

But the contributions that I felt had the greater resonance, and the questions from the floor that had a more incisive ring, came from those who questioned the merits claimed for this legislation.To a question from Liz Cameron of the Scottish Chambers of Commerce, 'How specifically would you propose to use the increased powers?' there was no clear answer. Questions on why Corporation Tax was not included met with mantras on harmful tax competition.

From Rhona Irving of the accountants PwC came survey evidence from Scottish business of lukewarm support at best to the very change supposed to encourage business to expand and grow, with many apprehensive that the tax varying direction of travel would be one way only: up. Similar apprehension surrounds borrowing powers. The presentation from Hughes Hallett bristled with reasons for scepticism over the practical effects - from concerns over loss of revenues to Scotland had Calman been in place now (actually, a loss to the Scottish Government, not taxpayers), to warnings over the reliability of forecasts of UK tax revenue and reconciliation adjustments one to two years later creating "endless uncertainty and squabbles with London" over the deductions.

But one contribution in particular was notable for the cool and elegant way in which it rolled a grenade under the case for more fiscal powers: that from the independent commentator Tom Miers.

His case is that Scottish politicians already have powerful tools to lower taxes - income tax, council tax, non-domestic rates. All told, the Scottish Parliament already controls - and can vary - nearly 5 billion or 15 per cent of its revenue. But their use to boost the economy has been outweighed by other, countervailing motives. Any benefit from higher tax revenues as tax cuts stimulate activity "is marginal at best, like a puff of breeze in a storm to the other great forces that generate the balance of political calculation in Scotland".

None of these powers has been used, for the reason that in public policy matters politicians are above incentivised by the vote motive. "The reason why in Scotland the balance of political debate favours higher state spending is because that is where the votes lie. The political culture here favours a high tax and spend model ... The truth is that Scotland has a political problem, not a constitutional one."

He saved his best thrust till last: "For Scottish politicians to ask for more powers is a bit like a man with three empty bedrooms asking for a bigger house".

For the 'max dev' camp, the doubts are no less searching. One dimension that was not explored in the conference, but which is highly relevant given the unfolding fiscal crises across the eurozone, is how far a country can enjoy fiscal autonomy while it shares a currency with another.

Europe is learning the hard way that you cannot have a common currency without a common fiscal policy (taxes). Ireland has had to adopt an austerity budget to obtain a critically needed 85 billion eurozone and IMF aid package.And it is desperately clinging to its 12.5 per cent Corporation Tax rate against intense pressure from Brussels which has never, ever liked "harmful tax competition".

Given the intensity of concern over sovereign debt ratings and fragility of recovery, the scope for discretion may be more limited than the advocates of extra fiscal powers allow - so we are in danger of altering the constitution and acquiring more powers we are unlikely ever to use - save to bail out an over-spent administration. And on that perspective, the present arrangements may be a better guardian of our wellbeing and our liberty than the changes proposed.

Quite how the public will be fired up for the cause of more fiscal powers given the absence of any clear programme for using them is quite unclear. There is thus a respectable case for scepticism, as there is for that classic verdict of Scots law: 'Not Proven'. But in a parliament whose voting system and procedures claim to embrace the widest spectrum of opinion, there is not a single party that will represent it. That cannot be right.