Ben Thomson: Give Scots more control of finances

DURING the past two weeks, I have helped launch the independent and non-party political Campaign for Fiscal Responsibility because I believe Scotland should be accountable for raising the money it spends.

Critics have raised a number of important questions: Why, and why now, would we want to change the tax arrangement between Scotland and the rest of the UK? Will Scotland not be worse off? What is the difference between the Calman proposals and genuine fiscal responsibility? Is this not a step towards independence?

Let me answer these questions and explain why I, together with a growing number of people across business, academia, the voluntary sector, trade unions, the legal profession and the media, have signed up to the campaign. They include figures such as Jim McColl, one of Scotland's most successful businessmen, Martin Sime, chief executive of the Scottish Council for Voluntary Organisations, the former STUC general secretary Campbell Christie and Professor Alan Wilson of Strathclyde University Business School.

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The new Liberal Democrat/Conservative coalition government at Westminster is committed to localism and the devolution of power. Further, all the main parties in Scotland agree that Holyrood should have greater financial powers. This provides an opportunity for Scotland to create the right framework for sustainable economic growth, to focus on creating new jobs and improving vital public services.

Otherwise, the next decade will be spent fighting over budget allocations and how to impose cuts. There are no quick fixes, but greater financial responsibility will help us protect what we value. It is also likely to create a better relationship between Scotland and the rest of the UK and, therefore, more likely to strengthen the Union rather than breeding resentment on both sides of the Border.

A recent YouGov survey across the UK showed that 59 per cent of respondents felt that, under the current arrangements based on the Barnett Formula, England subsidised the rest of the UK. A survey in the same month in Scotland showed that only 23 per cent felt England subsidised Scotland, with 48 per cent believing that oil tax revenues belong mostly to Scotland and when this is taken into account Scotland subsidised England. Whatever the truth, neither the English nor the Scots seem happy with the current arrangement.

The aim of the Campaign for Financial Responsibility is straightforward. It is to find a solution that lies somewhere between the status quo and full political independence and which gives us sufficient control over our own finances to further the interests of everyone living in Scotland.

There are a number of feasible options on the table which would devolve control of most taxes to the Scottish Parliament. The systems proposed by the Steel Commission, Reform Scotland and Professors Andrew Hughes Hallett and Drew Scott, while different in some ways, all meet the criterion of providing real fiscal responsibility and making politicians in Scotland accountable.

I don't believe that the current arrangements, based on a block grant, or the proposals of the Calman Commission, deliver genuine financial responsibility. Indeed, the main recommendation of the Calman Commission was simply to increase the current ability to vary the basic rate of income tax in Scotland from 3p to 10p and to apply it to all bands of income tax.

This does not address the main problem with the Barnett budgetary formula – that it creates conflict between the Treasury and Scottish Government and focuses politicians on cuts rather than how to grapple with the problems we have to deal with in Scotland. Under the Calman proposals, the Scottish Parliament would still receive two-thirds of its budget in a block grant from Westminster. This does not go far enough to change the behaviour of politicians.

In addition, the system proposed by Calman would have to be readjusted with every change to income tax such as the income tax threshold increases proposed by the Chancellor. This makes it complicated and opaque. In fact, if the Scottish government wanted to reduce the 10p it has control over, it would need to have a debate with the UK Treasury on the new GDP forecast to calculate its allocated amount. It does not take long to see the rows brewing over different economic forecasts between the Scottish and UK governments.

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Given greater fiscal responsibility, would Scotland be capable of running a balanced public account? Up until last year, the numbers showed that Scotland's deficit of tax raised in Scotland against Scottish spending was no worse than the UK's and there is no reason to suppose this will be any different in the future.

The perceived major disadvantage of a system of fiscal responsibility is that by giving the Scottish Parliament the power to set and collect tax it will create complications. However, this is more than outweighed by the benefits of greater tax competition and, in any case, the tax system in the UK is already so complicated that any change to UK taxes should be used as an opportunity to simplify the current system. Furthermore, entrepreneurs such as Jim McColl, who has business interests across Europe and the US, say operating in different tax regimes does not create the problems that some perceive or claim.

However, all the debate is academic unless politicians and the public embrace proper fiscal responsibility. That is why the Campaign for Fiscal Responsibility is trying to bring people from all parts of Scottish society and different political perspectives together. Our aim is to come up with a single proposal, taking the best bits from the different schemes, around which people can unite. We believe this is the best way to take this debate – and Scotland – forward.

If you agree, sign up to the campaign on our website

• Ben Thomson is an investment banker and Chairman of Reform Scotland, a non-party aligned think-tank and is a founding member of the Campaign for Fiscal Responsibility