Kenny Farquharson: Financial puzzle we can’t ignore

Kenny Farquharson says there are unanswered questions from the Smith Commission that Scotland has to confront
There is confusion over what would happen if passengers were exempted from Air Passenger Duty. Picture: Neil HannaThere is confusion over what would happen if passengers were exempted from Air Passenger Duty. Picture: Neil Hanna
There is confusion over what would happen if passengers were exempted from Air Passenger Duty. Picture: Neil Hanna

EVERY home has one. In my house, it’s an old box-file that sits on a worktop in the kitchen. In yours, it may be a shoebox stuffed full of paperwork, or an overflowing bottom drawer.

I’m talking about the place you put financial stuff you just can’t bring yourself to deal with right now, thank you very much.

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Letters about the shortfall in your endowment mortgage. Notices about tariff changes on your lekky bills. Tax stuff. Communal repairs.

Lord Smith unveils his commissions report. Picture: Alex HewittLord Smith unveils his commissions report. Picture: Alex Hewitt
Lord Smith unveils his commissions report. Picture: Alex Hewitt

If you’re like me, they get stuffed in the box in the vain hope you’ll eventually muster enough willpower to sit down one rainy afternoon and plough through the whole damn lot and finally put your financial affairs in order.

In the meantime, the box-file just sits there, glowering reproachfully.

Well, there’s a box like that in Scottish politics. It’s where we put the anoraky things we know are important but we just can’t get our heads round at the moment.

In our defence, there’s all this other interesting stuff going on. Election attacks and counterpunches. Wheeling and dealing over hung parliaments. Manifesto promises to chew over.

And all the while, the big, tricky, dowdy, financial stuff that requires deep concentration just sits there, tutting at our shallowness.

Well it’s time to open the box. In particular, it’s time to understand what the hell is going on with a clause in the Smith Agreement that at the time nobody seemed to fully understand and has since gone largely unexamined, and could yet turn into one of the biggest issues in Scottish politics.

I’m talking about the “no detriment” clause, which some say could completely change the relationship between Scotland and the rest of the UK.

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There’s much confusion about what it actually means. And there are suspicions about how David Cameron’s Tory-led government has interpreted it in the draft legislation currently before the Westminster parliament.

The principle, as set out in the Smith Agreement, is pretty simple on the face of it.

It says there should be “no detriment as a result of the decision to devolve further power”. Any transfer of power to Holyrood should “cause neither the UK government nor the Scottish Government to gain or lose financially simply as a consequence of devolving a specific power”.

Fair enough, you might think. A sensible precaution.

But things begin to get murky when Smith extends this idea to cover UK government or Scottish Government policy decisions “post-devolution”.

In other words, the “no detriment” principle doesn’t just apply to the process of transferring power from Westminster to Holyrood, it also applies to how that power is exercised once it is in Holyrood’s hands.

In Smith’s words: “Where either the UK or the Scottish governments makes policy decisions that affect the tax receipts or expenditure of the other, the decision-making government will either reimburse the other if there is an additional cost, or receive a transfer from the other if there is a saving.”

Pass the tin-opener, mother, what we have here is a can of worms.

What happens, for example, if MSPs use their new powers to scrap Air Passenger Duty, giving Scottish airports an advantage over their competitors in Newcastle, Manchester and Liverpool? Does Scotland then have to compensate the Treasury for the lost revenue from those English airports?

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That would be mad. But it is a reasonable interpretation of wording that has been described by Andrew Tyrie, Conservative chairman of the Treasury select committee, as “so vague as to be vacuous”.

Alex Salmond discusses “no detriment” in the epilogue of his recently published referendum diaries. Now, let’s be clear, this book is mostly an unpleasant slick of snake oil and sentimentality. But on “no detriment”, the former first minister asks some sensible questions.

He suggests “no detriment” could be used as a mechanism for imposing new strictures on Holyrood’s spending plans.

In particular, he points to the UK government’s Command Paper, published in January, which sets out draft legislative clauses for this new phase of devolution.

One key section reads: “An outcome which requires the citizens of one part of the UK to make a greater contribution to fiscal consolidation as a result of the actions of devolved government would be contrary to the ‘no detriment’ principles set out in the Smith Commission Agreement. Therefore the fiscal framework must require Scotland to contribute proportionally to fiscal consolidation at the pace set out by the UK government across devolved and reserved areas.”

If I may translate, “fiscal consolidation” means cuts in public spending.

Mr Salmond concludes: “No detriment is taken to mean that any devolution of any policy area will be caught in a financial straitjacket that is so tight as to make it redundant.”

The sage of Strichen is not the only politician to be concerned.

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The Scottish affairs committee of the House of Commons, which is chaired by Labour MP Ian Davidson, last month published a report on Smith. It concluded: “The potential for grievance over the operation of the no detriment principle is enormous.”

We need clarity on this, and soon. “No detriment” must not become a curb on Holyrood’s autonomy. Nor a way of depriving Scotland of the fruits of a bolder economic policy. Nor a new front in the battle of Britain’s constitution.