Ben Thomson: Calman's proposals a compromise that offers no incentives

There is a real danger that in a couple of years' time we will look back on the Calman Commission's proposals for extending Scottish devolution in the same way that we now view the Edinburgh Trams project.

My fear is that Calman will be another initiative that no-one will quite remember who was responsible for pushing forward, that never got public support, and that most of us thought was a mistake but went ahead anyway as an ill-fated political compromise.

The Secretary of State for Scotland Michael Moore has suggested that Calman is 'the only show in town'. Writing in Scotland on Sunday recently, he made it plain that he and the Coalition Government intend to proceed with Calman's proposals and encapsulate them in a new Scotland Bill. This is despite clear opposition from the Scottish Government, many leading economics experts, as well as from business and community leaders.

And, of course, there clearly are alternatives to Calman which are already on the table.

Earlier this summer, I helped set up the Campaign For Fiscal Responsibility (CFFR] because many of us felt the new government in Westminster was serious about devolving proper fiscal responsibility to Scotland.

After all, decentralising power is a Conservative philosophy. In addition, the Steel Report, produced by the Liberal Democrats, sets out clearly the path for devolving taxes to Scotland to meet most of its public expenditure.

Therefore both the new coalition partners should on paper at least support properly devolving tax powers. But this is not what Calman offers on tax.

Calman extends the 3p varying power of income tax to 10p. The current 3p has never been used for a good reason. Not only is it technically difficult and costly to operate but also more importantly, it does not give politician the tools to grow the economy and the incentives to drive much needed public sector reform in Scotland.

If Scotland had controls over a range of taxes such as corporation tax it could create an economic environment that attracts more business to Scotland. Linking tax to spending also gives politicians the incentive to justify costs and make sure the money is spent effectively.

The amount and flexibility of the existing powers are simply not enough to make politicians fiscally responsible and neither will Calman's proposals.

In total using all the 10p varying powers, Holyrood would only control 20 per cent of public sector expenditure in Scotland and most of the Scottish Government income would still come from the block grant.

The block grant element would continue to lead to tensions between Westminster and Holyrood as the natural incentive for Scottish politicians would be to fight any reduction in it. Even the Welsh Government in the recently published Holtham Report recognises the need for greater tax powers to be devolved than Calman is prepared to offer, if politicians are to be made more accountable.

It is obvious that we need to change the Barnet Formula for determining the Scottish budget and I applaud all four main parties in Scotland for recognising this and are seeking a better option. So why can't we use this opportunity with a change of UK government to have a real debate on the best option for Scotland rather than steamroller through Calman as an unsatisfactory political compromise?

Last month, I wrote to the Secretary of State suggesting that at least one of the members of the Campaign for Fiscal Responsibility should be put on the review panel he is setting up to get a more diverse view on the alternatives. I hope he considers it.

Meanwhile, it sounds as if another Edinburgh tram is coming.

l Ben Thomson is an investment banker and spokesman for Campaign For Fiscal Responsibility.