Smith Commission: Labour and Tories close to deal

THE outline of a more-powers deal between Labour and the Tories that would see Holyrood take full control over income tax as well as key welfare responsibilities is beginning to emerge, Scotland on Sunday can reveal.

Lord Smith of Kelvin is respected across the political spectrum for helping to deliver the most successful Games ever. Picture: Cameron Spencer/Getty
Lord Smith of Kelvin is respected across the political spectrum for helping to deliver the most successful Games ever. Picture: Cameron Spencer/Getty

As the dust settles on the referendum and Scotland’s main political parties prepare to negotiate on delivering a stronger Scottish Parliament, the bones of a new constitutional settlement are beginning to taking shape.

A blueprint that combines the income tax plans of the Conservatives with Labour’s proposals on welfare is now up for discussion as Lord Smith of Kelvin prepares to chair discussions between Scotland’s political parties.

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Although relieved that a No vote prevailed on 18 September, senior figures within Labour are alarmed by the inroads made by the SNP in their traditional heartlands.

After Better Together’s last-ditch promises of a speedy and secure transfer of powers to Holyrood, there is recognition within Labour that it must go further than the limited transfer of tax varying powers it outlined when it published its Devolution Commission in March.

Sources close to the talks say Labour is now contemplating ditching its original plan on income tax, which proposed giving Scotland control of 15 pence out of the 20 pence basic rate, and limited Holyrood’s control over taxing the highest earners.

But Labour is likely to resist calls from the SNP for a more “federal” settlement, as promised during the campaign by former Labour Prime Minister Gordon Brown.

In an interview with Scotland on Sunday, the Conservative leader, Ruth Davidson, has demanded that Westminster transfer power over raising the whole of income tax in Scotland as a minimum requirement in the devolution of powers promised by the pro-UK party leaders.

The tax-free personal allowance would continue to be set by Westminster for the whole of the UK, but after that, Holyrood would be fully responsible for setting rates and bands, and would receive the entire proceeds.

Davidson has warned that if the pro-UK parties fail to get the settlement for Scotland right there will be another “divisive referendum” in less than 10 years.

Indicating that full control of income tax bands and rates is her party’s red line issue, Davidson said this was her “top priority”.

“That is good for a centre right party in the future. We Conservatives are the only party so far who have said what we would be prepared to do with income tax powers. We would endeavour to lower taxation, so we have nailed our colours to the mast,” Davidson said.

“Apart from that, I think it is the right thing to do. I think it is extraordinary that tens of billions of pounds are distributed by people in government in Scotland who are not in charge of where that money comes from.”

According to senior Conservative sources, the quid pro quo in the talks, which are expected to begin shortly, would be that the Tories accept Labour’s welfare plans in full.

Just as Labour produced its own Devolution Commission, the Conservatives produced their own constitutional proposals under Lord Strathclyde.

The Strathclyde Commission’s plan to devolve income tax went further than Labour, with no caveats other that letting Westminster set the tax-free personal allowance. The Tory plan also called for a share of VAT raised in Scotland to be assigned to Holyrood.

On welfare, in common with Labour, Strathclyde recommended that housing benefit and Attendance Allowance should be devolved.

Labour additionally proposed that the Department of Work and Pensions Work Programme, helping the unemployed gain skills, should be devolved to local authorities – a suggestion that is likely to be taken on board by the other parties.

A few months ago, the idea that Labour would move towards the Conservative income tax plan would have met with a hostile response from many of its Scottish Labour MPs.

The Devolution Commission’s limited plans were seen as a sop to MPs who were concerned that moving more powers to Holyrood would lessen their influence at Westminster.

There was also concern in some Labour quarters that large-scale devolution of income tax would undermine the party’s notion of solidarity by diminishing the British state’s capacity to redistribute wealth across the UK. But the referendum result has shifted some views.

“I personally do not have a problem with full devolution of income tax,” one Labour MP told Scotland on Sunday. “The issue with the Smith Commission is that now people have voted to retain the UK, nothing can be done to threaten the integrity of the United Kingdom.”

With the Lib Dem leader Willie Rennie also calling on Labour to adopt a “more substantial” package of powers, the direction that Labour needs to travel appears already to be mapped out. In a column in The Scotsman yesterday, former Labour minister Brian Wilson wrote that Strathclyde offered the best minimum basis for a deal.

Rennie’s remarks made yesterday were consistent with the Lib Dem enhanced devolution plan, overseen by Sir Menzies Campbell, which proposed that Holyrood would become responsible for raising almost all income tax plus capital gains tax, inheritance tax and air passenger duty.

With Lord Smith having to forge an agreement to a tight timetable, time is of the essence. Political parties hand in their submissions by 10 October, with civic Scotland making its own contributions by the end of October.

The UK government will then set out a command paper at the end of October, allowing a White Paper to be published by the end of November, around St Andrew’s Day, setting out the proposed powers.

A draft new Scotland Act would be published on Burns Night next year, ready for the House of Commons to vote on. The legislation would be passed after the May 2015 general election.

Any slippage would allow the SNP to claim that Scottish voters, who voted No on the basis of more powers coming, had been betrayed.

Although genial and approachable, Smith is recognised as a tough individual who is one of Scotland’s leading business figures. He is a former BBC governor and chairs both SSE and the UK Green Investment Bank.

As the chairman of the Glasgow 2014 organising committee, he is respected across the political spectrum for his achievement in delivering the most successful Commonwealth Games ever. But he is said to be aware of the difficulty of the task he faces.

Adding to the dynamic of negotiations will be how the SNP reacts and engages with the Smith Commission.

The SNP may be shattered by referendum defeat, but it is also buoyed by the remarkable influx of new members since the No vote. With membership standing at over 66,000, the SNP is viewing the Smith Commission as an opportunity for radical change.

Having appointed a serious player in John Swinney, the Finance Secretary, as the senior member of its negotiating team, the SNP has signalled that it will engage constructively.

The SNP, however, does not begin its negotiating from the positions and commissions outlined and published by pro-Union parties earlier this year. The SNP prefers to refer to a key speech made by Gordon Brown when he made his late and dramatic intervention in the referendum campaign.

It was a Monday night in the Loanhead Miners’ Welfare and Social Club that the former Labour prime minister made a speech that many believe helped secure Scotland’s place in the United Kingdom. Brown’s plea for the UK was not just based on barnstorming passion. It was also based on a pledge that promised Scottish “home rule” within the UK after a No vote.

To many his promise, which was later backed by pro-Union party leaders, of a speedier and safer constitutional change was a turning point in an unbearably tense referendum campaign.

It was a pledge to bring about draft legislation by the turn of the year and which led to the creation of the Smith Commission.

“The status quo is no longer an option,” thundered Brown as he rammed home the message that a No vote would mean a substantially stronger Scottish Parliament.

“The choice is now between irreversible separation, or voting for a stronger Scottish Parliament. We are talking about a big change in the constitution. It’s like home rule in the UK. We would be moving quite close to something near to federalism in a country where 85 per cent of the population is from one nation. Change is in the air and change is coming.”

His message of vote No for change was hammered home for the rest of the campaign in interviews and from the television studios. The most notable expression of the idea that a No vote would deliver a stronger Holyrood came from David Cameron, Nick Clegg and Ed Miliband when they came north to sign their infamous “Vow” to deliver “faster, safer and better” change for Scotland.

It was Brown’s mention of “home rule” and “federalism” almost in the same breath, which gives hope to Swinney and fellow SNP negotiator Linda Fabiani that they can extract the maximum advantage from the talks.

“There were some questions over how much we would engage with Lord Smith’s Commission. We have made clear that by appointing our own two people including John [Swinney], who is one of our most senior ministers, we have made clear that we are taking it very seriously indeed. We are going to be active and co-operative participants in the Smith Commission,” a senior SNP source told Scotland on Sunday.

While conceding that his party’s vision of independence was defeated at the ballot box, the SNP source claimed that Brown’s language had committed the pro-Union parties to a form of devolution that was far more radical than the options previously put on the table by Labour, the Conservatives and the Lib Dems.

“They have pledged themselves to a huge transfer of powers – their rhetoric, their language of devo-max, Home Rule says this is a very substantial thing,” the source said. “We are not saying everyone voted No because they thought they were going to get more powers. Some people voted No because they just wanted to vote No. But a significant number of people would and did vote No because they were persuaded by the so-called ‘Vow’.”

The SNP’s determination to interpret Brown’s usage of the phrase Home Rule as a promise to transfer all aspects of policy minus defence and foreign affairs has swiftly established a key dividing line between Labour and the Nationalists.

Whether this divide can ever be bridged is a moot point, given the pro-Union parties commitment to coming to a deal based around their own proposals rather than language used on the stump.

Labour can also take comfort in the fact that Brown’s remarks were not just about home rule. His remarks came with many caveats, in which the former prime minister made much of the sharing of UK pensions, sharing social security, sharing defence and sharing economic policy.

“First of all you should distinguish between the rhetoric and the reality here. People use quite florid language when they are describing their proposals. But you have to look at their proposals,” one Labour source said.

“Look at each of the Tories’, Labour and Lib Dem commissions and that is the basis on which each of the parties will be coming to the table. Obviously you can call that what you want – you can call that Devo Super Plus, if you like. But those commissions are the basis.

“When this proposition was set out during the campaign it was a proposition to take the three similar but differing proposals which are all set out in these reports and to turn them into, if at all possible, and turn them into one proposition.

“I quite understand why the SNP might come along and say we would quite like to devolve all sorts of things. If they want to re-run the referendum campaign through the Smith Commission that would just be a tedious business for all of us. The challenge is to be more grown up than that.

“The challenge of the other parties is to find a compromise that meets expectations that works.

“Although there are differences, they are all on the same territory. They are on the territory of increased tax devolution and increased but not complete welfare devolution.”