Scotland Bill: Devo-max would be Alex Salmond’s poll tax and result in a policy mess, says finance expert

AN EXPERT in public finance has dismissed plans by Alex Salmond to include a question on full fiscal autonomy in a multi-option independence referendum as “inappropriate and irrational”, and claimed it would lead to major spending cuts.

Professor Arthur Midwinter, who for eight years advised Holyrood’s finance committee, has compared the option – often described as devo-max or independence lite – to the notorious poll tax and questioned whether they could realistically be put to Scottish voters.

His analysis appears to have called into question a major part of the SNP’s strategy, with many believing that the option was to be included because Mr Salmond believes he is more likely to get a Yes vote with it than for full independence.

Many of the SNP’s business backers – such as Jim McColl, of Clyde Blowers, and Reform Scotland chairman and former merchant banker Ben Thomson – have made it clear that full fiscal autonomy (FFA) is their preferred option.

Full fiscal autonomy is the option where Scotland would raise most of its own taxes and then pay the Treasury in London for shared services, such as defence and foreign affairs.

But in his article for Public Money & Management magazine, Prof Midwinter, who also outlines his case in today’s Scotsman, has attacked the “poverty of policy analysis” behind the proposal.

He says that the case study that the SNP often quote – the Basque country in Spain – is not an example of FFA because fiscal powers are “co-ordinated by the central state”.

He goes on to argue that the structure of financing in the UK would not allow for FFA.

“Whilst there are differing funding models, central states control most taxes, whilst the most common decentralised taxes are income at the regional tier, and property in local government,” Prof Midwinter, who also worked for former Labour leader, Wndy Alexander, said. “This fiscal division would be fractured by FFA, with inevitable conflict over fiscal policy, the fiscal aggregates and Scotland’s structural fiscal deficit.

And he added: “Without oil and gas revenues – some £10.5 billion in the Scottish Government’s latest estimate – it would be very difficult to deliver a competitive tax regime without major public spending cuts.

He said that its introduction would lead to “implementation problems”, because the idea of FFA was “theoretically driven, rather than evidence-based. Like the community charge or poll tax experiment, FFA would result in a policy mess.”

He said: “This is why FFA should not be a serious option in the referendum. Whilst the Scottish Government claimed that the commission was prevented from examining FFA by its remit, in fact it explicitly rejected it as a feasible option under devolution.”

Prof Midwinter concluded: “FFA is a theoretical model, so no rational judgment as to its economic impact in practice can be made, whilst it would be a recipe for political conflict with the UK government, and the other devolved nations if used to gain competitive tax advantage contrary to the principles of the Economic Union.

“It would, therefore, be wholly inappropriate to include it as a fallback option, should the referendum fail to endorse independence, as FFA cannot be delivered by the Scottish Government in isolation.”

He insists that the “real choice” is continued devolution or independence, saying “there is no middle way”.

But Nationalists have dismissed Prof Midwinter’s claim, pointing out that he had worked for Wendy Alexander when she was Scottish Labour leader.

A spokesman for Mr Salmond said: “The Scottish Government detailed both the independence and a ‘devo-max’ option in the Your Scotland Your Voice white paper published back in November 2009 – and the same poll this week which put SNP support at 51 per cent also showed that 68 per cent of Scots want the Scottish Parliament to have responsibility for ‘all tax-raising powers’.

“The SNP government has always said that we are willing to have a ‘devo-max’ option in the referendum, and the question for Labour and the Lib Dems is whether they wish it to be included.

“The only alternative for Labour and the Lib Dems is joining with the Tories in rejecting any additional powers for Scotland in the referendum – a disastrous position in Scottish politics.

“In either event, the SNP government are confident of winning the case for independence in the referendum.”

Mr Salmond’s spokesman added: “The people of Scotland are light years ahead of the Westminster parties and the inadequate provisions of the Scotland Bill.

“They want real economic and financial powers for the Scottish Parliament, so that we can strengthen recovery and boost employment.”

But opposition parties said Prof Midwinter’s views underlined why a single question needed to be put to voters on staying in or leaving the UK.

Labour shadow Scottish Secretary Margaret Curran said: “There is now growing pressure on Alex Salmond to ask one simple question about whether or not Scotland separates from the rest of the UK. That is the choice facing people, and that should be the choice on the ballot paper.

“The SNP have been unable to clarify how a two- or three- question referendum would work in practice, and we need clarity in the outcome of any poll on separatism and an end to the uncertainty on Scotland’s future.

“The SNP have a mandate to ask Scots whether they want separation, but they have no mandate to mislead people.”

• Read Arthur Midwinter’s column from today’s Scotsman here