It’s become an easy default position for the First Minister to urge a second referendum and “more powers”. Behind these are two breezy but dangerous assumptions.
The first is that the assumption of “more powers” by itself necessarily means more resources for Holyrood.
Not so, as the Fraser of Allander Institute made brutally clear this week. It warned that some public services in Scotland could be facing budget cuts of almost a fifth over the next four years, ranging up to £1.6 billion or 4 per cent of the Holyrood budget by 2020-21.
The second, and arguably more dangerous assumption, is that the machinery of government is up to speed for the additional supervision, governance and monitoring required of the extra powers devolved.
These extra responsibilities are expanding rapidly. As Professor Nicola McEwen pointed out, Scotland’s devolved administration now has one of the highest levels of fiscal autonomy in the world. Some 40 per cent of devolved expenditure will soon be funded by tax revenues collected in Scotland – rising to 50 per cent once half of VAT revenues are assigned.
Scotland’s economic performance – and its relative performance compared to the UK – will therefore have a much greater bearing on the spending plans of Holyrood.
Ensuring that these extra tax revenues are forecast accurately, that spending is achieving expected results and that the whole system of governance and supervision is up to the extra responsibilities, is now a pressing priority.
A conference this week on Minding Scotland’s Money held at the University of Strathclyde and addressed by, amongst others, Caroline Gardner, Scotland’s Auditor General, Professor David Bell, and Paul Johnson of the Institute for Fiscal Studies, left little doubt of the scale of the challenges facing the administration.
Central to these will be the Joint Exchequer Committee between Holyrood and Westminster, the procedures of the new Scottish Fiscal Commission (SFC) tasked with providing forecasts for Scotland’s economy, and the work of the parliament’s finance committee.
Relations between Holyrood and the Treasury could prove problematic unless information is shared and inter-governmental machinery – the Joint Exchequer Committee – is scaled up. If your head was not already spinning with all the extra machinery of governance, analysis and scrutiny about to be wheeled on, now add to all this Brexit consequentials and the extra level of complexity this will inevitably bring. The more that these extra responsibilities are added, the less likely, said McEwen, that the 2016 settlement will last.
Will oversight of farming, for example, pass to Holyrood? What about the divvying up of Scotland’s share of EU contribution savings? “If you thought the Barnett Formula was excessively complicated,” warned Caroline Gardner, “you ain’t seen nothing yet.”
Speaking on Holyrood’s budget process, Sir Paul Grice said the role of the parliament was to provide authority and legitimacy to spending and financial decisions. But he added a formidable list of weaknesses in the current system, prominent among these being the need for more time for budget scrutiny and for critical appraisal of the outcomes of spending decisions rather than inputs as is the case at present. And “authority and legitimacy”? Professor Bell reminded us of the acrobatic somersault performed by Holyrood’s finance committee earlier this year, when it called for extra forecasting powers for the SFC and just two weeks later voted against this proposal. It was a stunning trapeze display worthy of the description of Holyrood’s Flying Flamingos.
John Swinney, to his credit, later overrode the committee and accepted the amendments originally proposed. But it left searching questions. Can adequate scrutiny of Scotland’s finances really be entrusted to a Holyrood committee dominated by the same party as the administration?
How much resource will be needed to ensure an authoritative independent check on expenditure and revenue forecasts by the SFC? As matters stand it is not charged with monitoring compliance with the administration’s fiscal rules or the calculations behind them.
The SFC’s role has been likened to that of the Office for Budget Responsibility. But the IMF’s Paul Johnson pointed out that the OBR has to square up against a Treasury which has the equivalent of 125 full-time equivalent staff.
This matters, because a major challenge, both for the SFC and the administration itself, is how to address public scepticism and distrust over economic forecasting. There are big gaps in the administration’s economy monitoring and timeliness remains a concern. Meanwhile, what credence, for example, could attach to the recent pronouncement by the First Minister that Brexit would cost the Scottish economy between £1.7bn and £11.2bn out to 2030? The estimate is so wide as to resemble a massively magnified dart board where you couldn’t fail to score Triple 20.
But the loudest message of all was the linkage that will now pertain between the devolved fiscal powers and Scotland’s economic performance.
FoA director Graeme Roy showed how even a modest shortfall in growth rates could cost the administration more than £1 billion over ten years.
Is government becoming too complex? Such is the emerging matrix of committees, agendas and additional bodies, that who, asked Professor John Curtice, really understands the fiscal framework? And how could wider public engagement be achieved in such a labyrinth?
After listening to all the extra bodies and procedures, little wonder there was a ripple of applause when audience member Dr Catherine Smith-Mason, a retired banker, called for a halt to “the tendency always to go for big-change optimal solutions rather than just doing what is strictly necessary”.
Towards the end, as the conference was showing signs of wearying after five hours, Professor Michael Keating made reference to a tome entitled Death by Consultation. He could have added Paralysis by Analysis, or Fumigation by Forecasts.
But for now, which Holyrood pulse does not quicken over the prospect of all those juicy tax powers and the revenues – income tax of £11.2bbn, Air Passenger Dury of £280 million, assigned VAT of £5.6bn, the Aggregates Levy, the Landfill tax…
What’s not to like? But what might be the effect on economic growth? And as David Bell questioned, how much more tax can be taken from the top 10 per cent of taxpayers when they are already accounting for 50 per cent of income tax revenues?
The Auditor General opened her presentation with a quotation from Oliver Wendell Holmes: “Taxes are the price we pay for a civilised society.” It went down well with this audience. But out of concern for balance – and for taxpayers – I slipped her a handwritten billet-doux at the end – a quotation from Franklin Pierce Adams: “Count the day won, when turning on its axis, the Earth imposes no additional taxes”.
Beware of biting off more than we can chew.