Scottish independence: Labour needs answer to £30bn question

OFTEN referred to as Labour’s favourite think tank, the Institute for Public Policy Research has a habit of coming out with ideas which take the party into new political territory.

This week, the think tank publishes a new report proposing that MSPs get far more control over the taxes we pay.

The IPPR’s director, Guy Lodge, warns that there are “real risks” that without such a concrete plan in place, many voters could be tempted to opt for independence in 2014 as the only way to secure more Scottish control over the ­nation’s future. A policy and political challenge is therefore being laid before Scottish ­Labour this week; is leader ­Johann Lamont likely to grasp the thistle?

Behind the scenes, Lamont is chairing a Devolution Commission at present which will make its first interim report on Scottish Labour’s plans at its conference this spring. For some on that commission – such as senior backbench MSP Duncan McNeil – the party must go further in backing a stronger Scottish Parliament to ensure it raises far more of the cash it spends.

He has backed a proposal from the “Devo-Plus” group, favoured by the Lib Dems, which would give MSPs power to raise most of the £30 billion they are in charge of spending every year. However, his enthusiasm is not shared quite so avidly by many others within the party. Lamont herself has so far struck a cautious tone, telling the party’s conference last year that she did not intend to get involved in what she has dismissively described as a “test of political virility” over more powers, in which “calling for corporation tax to be devolved somehow makes you harder, or more Scottish”.

The IPPR report, written by leading devolution expert Professor Alan Trench, may strike the kind of middle ground that might resolve the tension within Labour between ­devolving more power while ensuring that a strong central power – Westminster – can ­redistribute money as it sees fit. It aims to boost powers in Scotland, Wales and Northern Ireland without “damaging public services or undermining the Union”.

It does not propose devolving corporation tax or North Sea oil revenues but it does back the idea of giving MSPs complete control over income tax. It also suggests that MSPs should be “assigned” a large chunk of VAT revenues, and the windfall “sin” taxes, such as alcohol and tobacco revenue, which are collected in Scotland.

The income tax plan is likely to find a favourable wind within the Labour camp. Alistair Darling, the former chancellor now at the head of the Better Together campaign, has already signalled it as the most obvious tax to devolve fully.

As the biggest personal tax in the Exchequer’s basket, devolving it entirely would give MSPs power over some £10 billion of revenue. But the commission is understood to be more sceptical of the idea of assigning tax revenues like VAT to MSPs. As the actual power to change rates would remain at Westminster, sceptics believe such a plan would simply expose Scotland’s ­budget to the risk of volatile income without giving MSPs any power over how to alter it.

Lamont will signal “open-mindedness” on all these ­issues when she presents her speech to her party conference in April. But, deliberately, she is to keep the final plan under wraps until the spring of 2014. That points to the tactical ­battle Labour is fighting.

Shadow Scottish secretary Margaret Curran declares: “The priority debate right now is whether or not we separate from the UK.” In other words, party chiefs do not want the spotlight over the next few months being removed from the SNP and questions over ­independence. Added to this, other sources note, is the instinctive unwillingness within the party to do anything that could be construed as a concession to Salmond.

But Lodge warns today of the dangers of such a wait-and-see plan, saying it could allow voters to conclude it is independence or bust. It is a line of argument the SNP will crank up over the coming months. The “Yes” camp will also argue that if the electorate votes “No,” a stronger Scottish Parliament may never come about, on the grounds that UK parties like Labour, with its strong Westminster contingent – aware they no longer have to placate Scotland – will simply lose interest.

Perhaps as a result, Lamont is facing pressure internally to ensure she soon shows a more positive attitude towards a ­reformed Scottish Parliament with boosted powers.

Lamont insists that, come the referendum next year, there will be a “concrete” offer from Labour on the next stage of devolution (with both the Tories and the Lib Dems also preparing their own plans too). The question is whether it will be enough to satisfy ­voters who, as Lodge says ­today, have liked what they’ve seen of devolution – and now want more of it.