Ben Thomson: Powerful argument for fresh approach

It is likely there will be a fight between the two governments before any legislation comes into force

The White Paper on the Scotland Bill, expected at the start of December, is the first piece of major Scottish legislation from Westminster since devolution. At the core of the bill is the transfer of some tax and borrowing powers from Westminster to Holyrood. More than any other legislation at present, the Scotland Bill will have a huge impact on how Scotland develops for future generations.

So far, all the discussion from different political parties, academics, experts and the media has focused on specific solutions to which fiscal powers should be transferred; solutions with names such as Calman, Calman Plus, Fiscal Devolution, Devolution Max or Fiscal Autonomy. Little attention has been paid to the process of how and when these new powers are to be implemented.

The problem is that each solution is not only highly political, but also will have a range of technical difficulties. Given the technical flaws of the Calman proposal and the need for the UK and Scottish Governments ultimately to work together on any funding settlement, it is more than likely that there will be a major political fight between the two governments before any legislation comes into force. Even then, the implementation of a single solution will take years. The estimate already for Calman becoming a working proposal is 2015, a lifetime in the political world. There is a real danger of this becoming a complete political guddle.

There is, however, another, more practical way of addressing this issue which could provide the proverbial "win, win" for both Westminster and Holyrood. The Scotland Bill could be an "enabling bill" which sets out how tax and borrowing powers can be transferred from Westminster to Holyrood and gives the authority to the Secretary of State for Scotland and the Scottish Government to transfer powers as and when there is both political agreement to do so and any technical issues have been resolved. As each tax is transferred there is a corresponding adjustment to the Barnett Formula calculating the block grant.

The scope of the transfers could be wide enough to encompass all of the possible solutions to fiscal transfers so that decisions are then made from a pragmatic standpoint rather than a political one. This would avoid the confrontational single-solution approach.

Unfortunately, it is almost certain that the UK government will reject the enabling bill approach when it publishes its White Paper shortly and simply implement the Calman Commission proposals or something very close to them. This would be a wasted opportunity as I believe that an enabling bill is the best way to proceed. However, even though this is unlikely to be the approach set out in the Scotland Bill, it is still relevant to the ongoing debate about greater fiscal responsibility for the Scottish Parliament. As far as I am concerned, implementing the Calman proposals is by no means the end of the story. I think we need to go much further to deliver genuine fiscal responsibility.

How would an enabling bill work in practice? As soon as an enabling act was adopted, taxes that all parties have already signed up to - such as the aggregates tax and stamp duty - could be passed across to Holyrood and their proportional contribution to the block grant reduced. This would allow all parties to demonstrate that progress was being made.

Other non-controversial government revenue, such as the Scottish element of the income from the Crown Estate, could be added. In each case, a justification for the tax as an economic lever would be made for the transfer. In the case of Crown Estate income, it might relate to its key importance to the development of offshore wind, tidal and wave power, an industry that could be vital to Scotland's future prosperity.

Other taxes - such as transferring control over 10p of income tax, as proposed by Calman, or the proposal for transfer of corporation tax and capital gains tax in fiscal devolution - might be introduced over a longer period when technical difficulties had been addressed. An enabling bill can allow such transfers to happen in an orderly fashion when it makes practical sense to do so and both governments agree such a transfer is politically expedient. Many in the business community have recognised the problem with the current financial arrangements and would see a pragmatic way to move to greater fiscal responsibility as a crucial part of the solution to growing the Scottish economy in the long run.

An enabling bill would change the nature of the debate. Each party would then set out in its election manifesto which taxes they would like to see transferred and for what reasons. This takes the argument away from the political one about nationality to one about the economy and how much fiscal power should be devolved.

The different solutions being put forward at present would result in each layer of government being responsible for different levels of taxation. Those favouring a UK centralist approach would argue that the Barnett Formula should remain untouched, while those arguing for fiscal autonomy would want all the powers to be at Holyrood.

The answer probably lies somewhere in the middle. Calman moves little from the status quo, and results in around 6 billion being raised at a Holyrood level, compared to the more than 30bn that is spent. It also has the problem that any changes that Westminster makes to tax thresholds will result in the need to adjust the Barnett Formula and that will be seen as a black art with little transparency.

What Reform Scotland has promoted is that both Westminster and Holyrood should raise what they spend, thereby giving both layers of government the incentive to tax and spend wisely. Further, we would like to see local councils given the ability to raise far more of the money spent at the local government level. This would result in Westminster raising just over 20bn, Holyrood raising at least the 20bn for which it is solely responsible and local government raising a much greater proportion of the 13bn spent at that level.

Enabling bills are not always popular with politicians who like Parliament to have scrutiny of the detail. However, if there was ever a case for it, it is in the forthcoming Scotland Bill. Trying to agree a single solution now, especially with an election less than six months away, is a recipe for disaster, particularly when the enabling bill is a solution that allows all parties to emerge with a bill both the Scottish and UK governments could sign up to today.

It is such a pity that political parties seem to have boxed themselves into corners and that the most likely result is that we end up with a bill based on the Calman proposals that few people really want, has too many technical difficulties and will take forever to implement.

• Ben Thomson is an investment banker and chairman of think-tank Reform Scotland. He will be speaking at The Scotsman conference The Taxing Question: What Fiscal Powers Does Scotland Need? in Edinburgh on Tuesday, 14 December. For more details, log on to: www.scotsmanconferences.com/viewconference.aspx?id=8