English votes for English taxes? The EVEL proposals’ implications for tax and spending

Jim-Gallagher

Responding to Daniel Gover and Michael Kenny’s analysis of last week’s English votes for English laws proposals, Jim Gallagher argues that the really challenging issue that EVEL raises relates to taxes and public spending.

The analysis by Daniel Gover and Michael Kenny of the government’s proposals for English votes is helpful in setting out what these plans might mean for legislation. I agree with much of their analysis. These are plans at the aggressive, though perhaps not the most aggressive, end of the spectrum. But the really challenging issue they raise is not about laws, but about taxes and public spending.

Not the Barnett formula

This isn’t about the Barnett formula. The idea that Scottish MPs should vote on purely English legislation because it will affect Scottish spending through the Barnett formula is simply wrong. The government has made this even clearer than it already was by explicitly exempting the legislation which determines spending from the new process in its proposals. A lot of nonsense is being talked about this. Even though they might have spending consequences, Acts of Parliament do not of themselves affect budgets. Spending plans will still be voted on in legislative processes in which all MPs – Scottish, Welsh and Northern Irish, as well as English – will have a vote. So the discovery by the SNP that they are now entitled to vote on English measures suggests they haven’t read the government’s plans.

English Votes for English taxes

But there are much more substantial risks in these plans, and they have not been properly discussed. The day after referendum, David Cameron announced, to the discomfort of many of his allies in the referendum campaign, that there would now have to be not just English votes on English Laws, but English votes for English taxes. You can readily see the argument: if taxes do not affect Scotland, why should Scottish MPs vote on them? Representation, without taxation.

But this has potentially quite profound consequences for how the UK is governed. As Gover and Kenny note, the challenge of English Votes for English Laws is that it might require an English Parliament and government; and that way lies quite probably the end of the United Kingdom. It was fears like this that made the Labour Party dubious of the complete devolution of income tax to Scotland: what would happen to UK income tax as a result? The Smith Commission brushed these fears aside, and asserted the rights of all UK MPs to vote on UK budgets would be unaffected.

The government solution is to apply their ‘dual majority’ plan not just any law affecting England (or, as the case may be, England, Wales and Northern Ireland) but also to any tax. In practice the one that matters is income tax, or strictly speaking the rates and the bands of income tax. It would also apply to stamp duty on property and to other minor taxes (it seems to have escaped the notice of everyone involved that this has been the situation for business rates for the last 16 years, with no apparent problem). As a result, there will be a budget resolution, followed by a vote in the committee stage of the Finance Bill, at which both a UK and an English (plus Welsh and Northern Irish) majority will be required to set the rates and the bands of income tax applying outside Scotland.

The problems which follow

Two problems follow. First, what happens if these two majorities don’t agree? The government’s published plans are unclear on this. They seem to envisage dual consent, but it looks as though an rUK majority would be able to impose its favoured tax rate. They would presumably be able to say to the government that if the tax rate they proposed was not accepted, there would be no tax rate at all, and it is the government which would have to deal with the consequences of that. That puts rUK MPs in a much more powerful position on taxation, than English MPs on ordinarily legislation. It is seldom that ordinary legislation holds government to ransom.

And that leads to the second problem. We are used to the idea in Britain that, at least parliamentary terms, tax decisions and spending decisions are taken separately. Nowadays they are announced in budgets and spending reviews, but Parliament approves them in Finance Bills and in Appropriations. But in this case if a subset of the House of Commons can make a tax decision that will reduce revenue (or even one that would increase revenue) those MPs also have to take ownership of the spending consequences. As a matter of simple justice, a tax cut in rUK only shouldn’t lead to spending reductions in Scotland (although devolved income tax in Scotland has exactly that consequence.) The government seem to envisage that the spending consequence of such an event would just be dealt with in the normal UK spending processes. That is not quite good enough. It has to be clear that rUK tax changes affect only rUK spending, i.e not devolved spending, not all-UK spending like defence, or UK borrowing, and those making the decision need to know what that those effects will be.

As a technical level, this is already going to be dealt with in part by amendments to the Barnett formula: changes in UK tax income for taxes which are devolved in Scotland will not lead to spending changes via the Barnett formula. Certainly they should not, and the government seems to understand this, though the simplest way to achieve it via formula may not be the route they choose.

But this is more than a technical question: because it begins to create the shape of an English budget, with the spectre of the executive responsible running that budget chosen by all UK MPs, but controlled by English MPs only. It really would have been better if the government have thought this through rather more thoroughly before publishing their plans.

About the Author

Jim Gallagher is Gwilym Gibbon research fellow at Nuffield College, Oxford, and visiting professor of government at Glasgow University. 

 

2 thoughts on “English votes for English taxes? The EVEL proposals’ implications for tax and spending

  1. Pingback: The Scotland Bill so far: Major constitutional legislation proceeding at the speed of an express train | The Constitution Unit Blog

  2. Pingback: The Scotland Bill so far: Major constitutional legislation proceeding ... - News4Security

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s