New powers could put Scotland ‘in cycle of decline’

Economists Jim and Margaret Cuthbert compiled the report. Picture: Ian Rutherford
Economists Jim and Margaret Cuthbert compiled the report. Picture: Ian Rutherford
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SCOTLAND could become locked into a perpetual “cycle of economic decline” under the Smith Commission proposals for new Holyrood powers, a think tank has warned.

The current deal on further devolution means Scotland would not have the power to grow the economy, according to economists Jim and Margaret Cuthbert.

Holyrood should gain control over more taxes, economic levers and the ability to exploit its own natural resources within a federal UK, they say in a report for the Jimmy Reid Foundation.

The proposals would see MSPs at Holyrood gain full control over income tax rates and bands, but today’s report warns the base of taxpayers is different between Scotland and the UK.

“This means income tax is an unsuitable choice as the primary vehicle for giving the Scottish Parliament greater fiscal responsibility,” the think tank warns.

“There is no adequate solution to what we have called the ‘gearing problem’, namely, the problem that arises when changes in rUK in a tax which is devolved to Scotland are allowed to impact on reserved services like defence, which are for the UK as a whole.

“The Scottish Government is being given responsibility for living within its tax resources, without being given adequate powers to grow the economy, and hence its tax base.”

It adds: “A Scottish government operating under the proposed reforms will find itself severely constrained in its freedom of action, with the danger of Scotland finding itself locked into a self-perpetuating cycle of economic decline.”

The think tank also backs First Minister Nicola Sturgeon’s call for the powers coming to Scotland to be substantially enhanced.

The First Minister set this out in a meeting with Prime Minister David Cameron earlier this month with a warning that the SNP’s sweeping gains in the general election in Scotland meant that it is no longer “business as usual.”

The key areas where the current deal must be enhanced if Scotland is to have a chance of making the Smith Commission powers work are more taxation, as well as more economic powers and the ability to exploit and benefit from its major natural resources such as North Sea oil and gas.

The report also warns that “fundamental constitutional change” is needed.