More tax powers 'don't mean more wealth'

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A LEADING economist last night backed calls for a Scottish Parliament with more tax powers but warned it would not automatically lead to a richer nation.

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In a submission to MSPs, Professor Lars Feld of Freiburg University - one of the leading experts on financial devolution in Europe - said devolving tax and spending decisions to Holy-rood would make public servants more efficient and improve economic performance.

But he warned it "would not lead to economic growth" as outside factors - such as the quality of the working population - would be far more important.

The professor's intervention yesterday sparked a fierce war of words between the SNP and Labour in what is likely to be just the first pre-election skirmish on the impact of independence and greater financial powers.

Last week, an official Scottish Government document quoted a paper from two other economists - Andrew Hughes Hallett and Drew Scott - which drew on Prof Feld's work, saying it had shown that increasing the amount of tax and spending powers of Scottish ministers would have the effect of automatically boosting growth.

The paper estimated that just a 1 per cent increase in "fiscal devolution" could see a 1.3 per cent increase in GDP over the next five years. Labour last night used Prof Feld's paper to claim there were no such guarantees.

In his own submission to the finance committee, which is examining proposals to devolve more taxes to Holyrood, Prof Feld said that passing tax powers to Scotland would improve political accountability and "enhance economic performance".

But he continued: "Fiscal decentralisation does not lead to higher economic growth because economic growth is much more driven by factors other than taxes and spending, eg increases in technological progress and improved human capital."

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Labour finance spokesman David Whitton said last night: "Prof Feld is absolutely clear. He says that 'fiscal decentralisation does not lead to higher economic growth'.

"His submission is hugely significant because his research was cited by profs Hughes Hallett and Scott in their paper, which formed the basis of the SNP Government's case for fiscal autonomy. Alex Salmond and John Swinney have been caught out playing fast and loose with the facts."

However, profs Hughes Hallett and Scott released a statement last night saying Prof Feld's paper supported their own work.

They said: "In our paper we state that fiscal decentralisation might be expected to '…raise GDP' (ie to enhance economic performance). It is therefore clear that we and Prof Feld are in agreement." They also said they stood by their figures on how fiscal devolution would boost GDP, insisting they were based on the impact of devolving both spending and tax powers.They were responding to a claim by Labour that the SNP had "doctored" their work in a bid to prove that fiscal autonomy works.

A Scottish Government spokesman said last night: "Prof Feld in his paper clearly says that decentralisation of taxes and spending enhances economic performance - which is exactly why Scotland needs financial responsibility, so that we boost growth."