Study finds no benefit in fiscal autonomy as McCrone calls time on Barnett

A FORMER government advisor has called for the system of sharing out public money across Britain to be renegotiated because it is causing such tension between England and Scotland.

The Barnett formula has given Scotland a higher level of public spending per head than England or Wales, leading to resentment south of the Border.

Writing in The Scotsman today, former chief economic adviser to the Scottish Office, Professor Gavin McCrone, says the gap cannot continue beyond a change of Westminster government and has called for the calculation to be replaced by a fairer system.

In 2001 Prof McCrone tackled the teaching crisis, negotiating a 2.15 billion deal for teachers incorporating a 23.5 per cent pay rise, a cut in the amount of time they had to spend in the classroom and more opportunities to improve their salaries

Prof McCrone says Scotland is constantly in deficit, even including oil revenues. Therefore an independent Scotland would have to raise taxes or cut public spending.

In a second blow to fiscal autonomy, a report from the Scottish Council for Development and Industry (SCDI), warned there is no "compelling" evidence that Scotland's economy would improve if Holyrood was able to raise the money it spends. However, the SNP said the argument was flawed and Scotland could more than pay its own way.

Prof McCrone pointed out that under the current arrangements, public expenditure per head in Scotland is 16 per cent higher than the rest of the UK, leading to resentment in England.

He said to bring Scotland down to the level of the UK levels would be "painful and would not reflect relative need". Instead he said an independent body should reassess the Barnett according to need.

He wrote: "If the present situation is becoming a source of friction both in England and Scotland, it is essential to replace it with a system that can be defended and is seen to be fair."

Given the high public spending in Scotland, Mr McCrone also concluded that the country would be in deficit without the subsidy from the UK.

"Were Scotland to become self-financing, this deficit would have to be dealt with. It would be perfectly possible to do so, but corrective measures, whether increased taxes or a cut in public expenditure, would be painful."

An SNP spokesperson said: "Not only is the whole GERS [government expenditure and revenue in Scotland] exercise inaccurate, the authors have again admitted that it is deeply flawed and that it says nothing about how Scotland would fare with the benefits of independence.

"The fact is that Scotland more than pays her way. The real debate is how we get our economy growing and for that we need the powers of independence."

Meanwhile, the SCDI report found it impossible to conclude whether fiscal autonomy would be better for Scotland and called for more research on the costs and benefits of all options.

The report, commissioned from Edinburgh University professors Drew Scott and Charlie Jeffrey, set out to examine the debate around Scotland's fiscal powers. It concluded that Scotland's growth rate is steady but sluggish, with an average in recent years of 2.1 per cent compared to the UK's 2.8 per cent.

The report also noted various alternative arguments for changing the current fiscal position, under which Scotland receives a block grant from Westminster and spends this as it chooses. The report said: "Insufficient evidence is available to justify any particular model being preferred over the alternatives - including the status quo.

"There is no compelling evidence to suggest that devolving tax authority - or other economy-influencing powers - to a regional tier of government will result in improved economic performance by that region.

"However, the clamour of criticism that has now overtaken the current arrangements point to an urgent need for serious empirical research being done on the precise costs and benefits of reform."

Jim Mather, SNP enterprise spokesman, welcomed the report.