WITH MPs and MSPs at odds over tax plans for Holyrood, Tom Peterkin asks if the party of home rule has lost its way over devolution
FOR those bored with endless discussion about the minutiae of independence, there is good news and bad news. The good news is that a change of subject is nigh, and that Scottish political debate is about to focus on something else.
The bad news is that the “something else” is just as detailed a discussion about the minutiae of more devolution.
With the referendum creeping ever closer, it is the future of devolution, not independence, which is on everybody’s lips. The previously opaque, yet vital topic of what powers Holyrood might capture if Scotland votes No is being thrust to the forefront of the debate.
It is discussed passionately in think-tanks, such as the Institute for Public Policy Research (IPPR), in commissions set up by Scotland’s political parties, and at gatherings of intellectuals in the elegant surroundings of the Royal Society of Edinburgh. Even diplomatic cables sent abroad from embassies and consulates in London and Edinburgh weigh up the relative merits of devo-max, devo-plus or devo-more. Meanwhile, the most important people of all – the Scottish voters – seek answers on what form of devolution will be on offer if they tick the No box.
As the electorate tries to get a grip on the subject, views on which taxes and benefits could and should be devolved are becoming common conversational currency among political types on Twitter. But nowhere has the issue been debated more fervently or more controversially than within the Labour Party itself.
With a growing clamour from voters demanding to know what will be on the table in the event of a No vote, eyes are turning towards Labour and its Devolution Commission – set up in September 2012 to examine the next step on Scotland’s constitutional journey.
Liberal Democrats and Conservatives are also working on their own blueprints for constitutional change within the United Kingdom, but it is Labour – as the main opposition party – that is expected to provide a lead in developing a logical and effective constitutional model around which supporters of the Union can coalesce.
But over the past 16 months or so, distilling the broad range of opinions that are held across Labour’s ranks into a coherent vision for an enhanced Holyrood has proved extremely challenging, to say the least. Damaging fault lines have opened up.
It is perhaps an over-simplification to caricature this developing split as MPs versus MSPs – there are exceptions on both sides. But a chasm is forming between some Scottish Labour MPs, who fear their power and influence will be diminished with the transfer of taxation, and many Scottish Labour MSPs, who believe that devolution of significant economic levers would be both good for Scotland and essential to a convincing case for voting No.
The flames of division have been further fanned by the survival instinct of some Labour MPs, who believe that the quid pro quo for strengthening Holyrood will be a diminution of the number of Westminster seats north of the Border.
After months of festering behind closed doors, this internal division erupted publicly last week with an outbreak of hostilities, which did little to reassure any voters hoping that the Devolution Commission, set up by Scottish Labour leader Johann Lamont, will produce the goods.
Outbursts by Labour’s former finance spokesman Ken Macintosh MSP and the chairman of the Scottish Affairs Select Committee Ian Davidson MP marked out the ideological differences.
Faced with a commission which will publish in a few weeks’ time and is expected to recommend a radical transfer of powers, including far more control of income tax, Macintosh and Davidson voiced their concerns.
Such an income tax scheme would be “independence by default” claimed Macintosh, the MSP for Eastwood who is a close colleague of Jim Murphy MP, the shadow international development minister, who also has reservations about further devolution of tax-raising powers.
Davidson, the Glasgow South West MP, claimed the proposed move would damage the Barnett Formula, the funding mechanism which sees Scotland receive a favourable block grant from the Treasury.
“It is clear that any transfer of income-tax powers would result in a re-examination of the Barnett Formula, which is enormously advantageous to Scotland,” said Davidson, who claimed many of his Westminster colleagues held a similar view.
Such is the enmity among some Labour MPs, there was talk last week that some intend to boycott next month’s Scottish Labour conference in Perth in protest at the proposal.
Such rebelliousness alarms those who believe that it is only by creating a blueprint for an imaginative new constitutional settlement that involves the transfer of real powers that the No side can produce a positive argument for staying within the UK.
Whether this can be done has now become a key question with the referendum little more than seven months away.
The implications of that question are particularly keen given that the Better Together campaign appears to be going through a wobbly patch – under attack for relentless negativity and having to combat the first significant bounce to the Yes side in the polls, as demonstrated by the Scotland on Sunday/ICM survey two weeks ago that had Yes at 37 per cent and No at 44 per cent. This was the best Yes showing in an independently-commissioned poll since the beginning of the campaign.
“I think it is worrying that just at the time that the polls are hinting at a strengthening of the Yes vote that Labour appears to be in retreat from an offer of tangible and substantial powers for the Scottish Parliament,” says Guy Lodge, associate director for politics and power at the IPPR, one of the UK’s leading think-tanks.
“The offer of income tax is important because there has to be a substantial offer from the Unionist parties if the Scottish electorate is to have confidence that the parties are willing to beef up the powers at Holyrood.
“To me the polling suggests that although the No vote is in front, the people who are inclined to vote No want something to feel good about. They want something positive to register what a No vote means. That has to be more powers to give the Scottish Parliament the levers, which it currently lacks, to really make progress on jobs, growth and living standards.”
Lodge added: “The majority of Scots want to see the Scottish Parliament’s powers strengthened. We think there is a strong case for empowering further the Scottish Parliament and income tax has to be at the heart of that.”
For Labour devolutionists, handing over further control of income tax is by far the most attractive option for giving Holyrood more teeth, as the centrepiece of a range of new responsibilities.
Though the likes of Macintosh and Davidson have raised questionmarks over Labour’s commitment to giving Holyrood additional powers, it has been widely assumed that devolving income tax would lie at the heart of Labour’s plans.
Late last year the Devolution Commission published an interim report, which recommended just such a move, increasing the powers proposed by the Calman Commission in 2009 and written into law in the Scotland Act 2012.
As a result of that legislation, Holyrood is already bracing itself for extended control over the basic rate of income tax from 2016.
But Labour’s plans floated in its Commission’s interim report would hand over full responsibility, including power to vary income tax bands and thresholds.
Labour’s long-held and sincere belief in a social union across England, Wales, Scotland and Northern Ireland, makes it unlikely there will be any tampering with pensions or unemployment benefit, both of which the party believes are best organised on a UK-wide basis.
The new constitutional arrangement envisaged by the interim report would see Scotland take charge of raising around 40 per cent of its spending.
Supporters of the move argue that it would answer critics of the constitutional status quo, who complain that, presently, the Scottish Parliament is not accountable for the money it spends.
It also has the advantage of being relatively straightforward to devolve. Transferring VAT to Holyrood would be against European Union rules, while devolution of corporation tax is potentially difficult for the North of England if different rates were to be set north and south of the Border.
According to Lodge, having differing income tax rates between Scotland and the rest of the UK would be much more manageable, as people are less likely to cross the Border for tax reasons than business capital would be.
Complaints that giving Holyrood more tax-raising powers would amount to independence by default are spurious, Lodge argues. As are claims that handing power over income tax to Holyrood would hamper Labour’s ambition to redistribute wealth across the UK.
“That this would lead to independence by default is a bizarre claim,” argues Lodge. “You would still be paying VAT, corporation tax, National Insurance, alcohol and tobacco taxes to the UK government. You can redistribute through the benefits system and through the block grant.”
On the question of welfare, the signs are that Labour wants to devolve housing benefit – a politically smart move that could permanently consign the bedroom tax (or spare room subsidy) to the dustbin in Scotland.
At the moment, however, it is the devolution of income tax that is causing the most angst within Labour.
With the trade unions and most MSPs on board for a new package of powers, there is a feeling among the Labour devolutionists that MP malcontents cannot hold the party back and damage its prospects, not just for the independence referendum but for the UK general election next year and the next Holyrood elections in 2016.
With poll after poll suggesting that the majority of Scots want to see a strengthened form of devolution short of outright independence, they believe that a radical solution is required to keep in step with public opinion.
There is also the consideration that if the Devolution Commission fails on that front, Labour could find itself in the invidious position of producing a constitutional model less radical than the Tories, who are examining the same issues under Lord Strathclyde’s commission.
With the Lib Dems already on the record with their own radical proposals for a federal Britain, compiled by former leader Sir Menzies Campbell, there is a danger that Labour gets left behind. Campbell has been asked by Scottish Lib Dem leader Willie Rennie to examine what common ground can be found between the three pro-UK parties before 18 September.
As one insider put it, there is a danger that Labour, the party that turned the ignition key to start the devolution bus, could find itself shoved off it.
If that were to happen, it would be a major blow to hopes on the No side of going into the referendum with a winning formula on the table.