Peter Jones: SNP can’t take No for answer

David Cameron and Alex Salmond shake hands before signing the Edinburgh Agreement. Picture: Ian Georgeson

Nicola Sturgeon denies that the Scottish Government’s proposal to increase the powers of the Scottish Parliament is independence by the back door. Actually, the plans are not only exactly that, but they also contravene the letter and spirit of the Edinburgh Agreement. Fortunately, unless the UK government takes complete leave of its senses, they won’t come to pass.

But the collection of tax powers the SNP want devolved, plus the additional responsibilities they want the Scottish Parliament to assume, do serve an important political purpose. They set an unrealisable benchmark and thus will enable the Nationalists to claim that Westminster has betrayed Scotland.

This keeps the fires of independence burning brightly in the hearts of their supporters, allowing the party to contain and channel the passions of its 55,000 new members, instead of imploding under the stresses that a tripled membership could well cause.

You have to admire the audacity of the SNP and the brilliance of the Nationalist strategy. They are behaving as though they won the referendum a month ago. It doesn’t now seem as though they lost their once-in-a-generation chance to achieve the cherished goal of independence by ten clear percentage points.

True, the SNP has been helped by the ineptness of the opposition. Any political party which had put an entire country through two years of the uncertainty the referendum caused, only to fail to achieve the big vision, would normally face calls to resign and for an early election so a new administration could govern on a new mandate.

But there are no such calls. Instead, the losers are setting the terms by which the victors should surrender, and demanding that the victors’ feet should be held to the fire.

Excuse me, but isn’t it the Nationalists’s feet that should be held to the fire of the referendum result, which is that the sovereign will of the Scottish people is for Scotland to remain in a United Kingdom, with the emphasis on it remaining united?

The proposals Ms Sturgeon published on Friday do exactly the opposite. They are inherently self-contradictory, would make stable UK macro-economic management impossible, and would lead to the break-up of the UK, probably in short order.

Of course, Nationalists, especially the new recruits, would be delighted. But that is not what the Edinburgh Agreement, under which the referendum was held, said should happen. It specified that both the UK and Scottish governments would respect the outcome and work constructively to implement whatever was the sovereign will of the Scottish people.

Nevertheless, it is also a political reality that a momentum was created in the campaign which means that Holyrood’s devolved powers should be strengthened. I have no problem with that, provided that the degree of enhanced devolution is consistent with the people’s will.

Ms Sturgeon’s document says that Holyrood is currently responsible for raising 7.5 per cent of taxation in Scotland, which equates to 10 per cent of devolved spending and 6 per cent of all public spending.

It says the 2012 Scotland Act, conferring powers on Holyrood over a share of income, property transaction, and landfill taxes, will mean Holyrood being responsible for raising 16 per cent of taxation in Scotland, equating to 22 per cent of Scottish Government spending and 13 per cent of all government spending in Scotland.

Rather oddly, though it lists additional taxes and spending responsibilities it claims should be devolved, it doesn’t give any similar estimates of the fiscal power this would confer on Holyrood.

But we can do some back-of-the-envelope sums. Allowing for the envisaged transfer of responsibility for the welfare budget from Westminster to Holyrood, I estimate that it implies Holyrood becoming responsible for 66 per cent of all taxes currently levied in Scotland, about 60 per cent of what it would then spend, and about 55 per cent of both UK and Scottish government spending in Scotland.

How would this impact on the UK government’s and Bank of England’s abilities to manage the currency, overall UK borrowing and inflation? Fortunately, the Bank’s governor, Mark Carney, set out a useful rule in his June speech in Edinburgh about managing a currency union. He said: “It is no coincidence that effective currency unions tend to have centralised fiscal authorities whose spending is a sizeable share of GDP – averaging over a quarter of GDP for advanced countries outside the euro area.”

In the current sterling union, the Treasury controls taxation and spending which both equate to about 37 per cent of GDP (further spending equal to 8 per cent of GDP is in the hands of the three devolved bodies). Viewed in isolation, the SNP proposals would not affect this much, reducing Treasury-controlled tax and spending by a couple of percentage points, still comfortably above Governor Carney’s datum point.

But Ms Sturgeon’s paper, in gleeful justification of its take-all demand, points out that the unionist parties have been talking of “home rule” and “federalism”. Add in David Cameron’s “English votes for English laws” demand, and this strongly implies that all the home nations should be acquiring pretty much the same powers as Holyrood.

If that were to happen, I estimate the Treasury’s spending and tax power would be reduced to about  12 per cent of GDP, nowhere near the level Mr Carney reckons is needed for effective macro-economic management.

Moreover, if one part of the union were to experience an economic shock that caused a big unemployment increase (by the way, has anyone noticed the price of North Sea oil has collapsed to $88/barrel and is forecast to stay low for some time, imperiling much-needed investment and therefore jobs?) the UK government would not be able to transfer compensating resources through the welfare system.

The devolved government, experiencing declining tax revenues, would also struggle with a rising welfare bill. It would need to be financed by increased borrowing which, given the UK government’s extremely limited tax capacity and the devolved administration’s tight corner, could only come at a much higher price than is possible now.

In short, the SNP’s proposals, while they might look fine from a blinkered Nationalist perspective, would render the UK unworkable. That may be the intention, but, if so, it tramples all over the will of the people and the Edinburgh Agreement.