Scotland is set to be much more fiscally powerful. Politicians should be shouting it from the rooftops, says Peter Jones
Landmarks in Scotland’s, and Britain’s, constitutional history come thick and fast these days. Yesterday the Act adding the latest batch of powers to the Scottish parliament was approved by the House of Commons. But will it be a lasting and enduring settlement, or just another staging post on the road to independence?
If the answer depended solely in a judgment on how the rival nationalist and unionist parties have handled the politics of this process, you would have to concede the SNP has been rather more adroit and therefore more likely to capitalise on whatever political opportunity presents itself.
For example, on any objective viewing, Holyrood’s tax powers have been massively enhanced. Since the parliament’s lack of responsibility for raising most of what it spends was generally agreed across the political spectrum, these new powers represent a big step forwards.
From controlling taxes which contributed only 9 per cent of the Scottish government’s budget, to 21 per cent of the budget after April 2016 when the now-interim and now almost un-noticed Scotland Act 2012 comes into force, and now to 36 per cent when this latest tranche comes into effect, this has to amount to a major change.
Add in the additional 12 per cent of tax revenues from the assigned share of VAT revenues (which the Scottish government cannot directly control but can influence via management of the economy), and around half of the parliament’s budget will come no longer as a hand-out from the UK Treasury, but from Scottish taxpayers.
The claims made by Prime Minister David Cameron and Scottish secretary David Mundell that this will make Holyrood one of the most power-devolved parliaments in the world therefore have real substance. As a House of Commons Library briefing document says, the Act “will make Scotland one of the most fiscally decentralised sub-central governments in the world, just behind the Canadian provinces and Swiss cantons”.
Even without these international comparisons, it is an indisputable fact that for the first time since 1707 (apart from the brief-lived financial autonomy of the Northern Ireland assembly in the 1920s), the UK Treasury now has a rival fiscal authority capable of challenging and changing within Scotland the tax and spend strategy it sets for Britain.
And yet throughout the process, the SNP have kicked up such a fuss about alleged vetoes and shortcomings that I suspect most voters have the impression that Scotland has been short-changed and that the Act is more smoke and mirrors than anything of real substance.
This barrage of criticism has been so successful that the one big slip made by the SNP – the admission by social justice secretary Alex Neil that he was wrong, that Holyrood would indeed have the power to reverse George Osborne’s tax credits cuts – was quickly obscured by renewed nationalist shouting about Westminster vetoes over Scotland’s new welfare powers.
Conservative ministers were forced onto backfoot defensive mode, sounding, in the interviews I heard, as though they had something to hide. They could have gone on to the front foot – welfare is now becoming a responsibility shared between London and Edinburgh and therefore it makes complete sense for there to be requirements for both governments to consult each other over proposed changes.
This is, after all, an exercise in devolution and making the union work better for Scotland (which is what people voted for in the referendum), not about independence. If anything, it should make Westminster ministers more attentive to Scottish needs and concerns for the Act requires the UK Secretary of State to consult Scottish ministers over proposed changes Westminster may make to areas of welfare payments where Scottish ministers have responsibility.
As far as I read the legislation, if the requirement to consult was the veto claimed by the SNP, then the Scottish Government would have an equal and balancing veto power over UK ministers’ proposals. That is quite clearly nonsensical, and why UK ministers have not been vehemently and constantly pointing that out is beyond me.
The passage of this legislation, which does fulfil the Smith Commission recommendations (which the SNP administration endorsed), should have put the unionist parties on a much stronger footing than they now have.
That should be even more the case now that the nationalist claims for an independent Scotland being a more prosperous country than as part of the UK have been exposed for the specious nonsense they always were because of the fall in the oil price and tax revenues.
Commenting on an analysis by David Bell, professor of economics at Stirling University, of the Scottish economy and public finances a year after the referendum, entrepreneur Sir Tom Hunter said: “Nobody is blaming the Scottish government for the drop, but 65,000 jobs have been lost and our budget [if there had been a Yes vote] would be circa £7 billion short. Clearly we would have faced either higher borrowings or increased austerity unless, of course, tax-raising powers were deployed to offset the income loss.”
Actually, the choices would have been a lot narrower than Sir Tom implies. Practical borrowing power would have been limited by EU requirements and by the markets. Greater austerity would have been unavoidable because the practical ability to raise taxes would have been limited by the freedoms of both individuals and companies to move south of the Border, or indeed, to somewhere else, such as Ireland.
How these effects might manifest themselves can now be tested thanks to the Scotland Act. Regardless of how strong or weak the new tax powers might actually be, they will have to be used.
Unionist politicians have been loudly challenging the SNP to set out their plans, a tactic which bolsters popular impressions that the nationalists are the only folk around with the ability to do things.
Labour’s Kezia Dugdale has at least set out some tax plans; now it is time for the other unionist parties to seize the initiative from the nationalists and do the same. One half of the case for Scotland being better off in the union has been shown (but bears endless repetition); now is the time to show how use of the new Scotland Act powers can demonstrate the other half of the argument.