Plans for expanding the powers of the Scottish Parliament have developed rapidly since the Scottish referendum. Jim Gallagher takes advantage of the pause afforded by Parliament’s summer recess to take stock of the Scotland Bill’s progress, and consider the stability of increased decentralisation in the longer term.
Parliament’s summer recess is a good time to catch breath and reflect on the breakneck process of the Scotland Bill. This is constitutional legislation, but proceeding at the speed of an express train.
Express delivery of new powers for the Scottish Parliament was promised during the referendum campaign. The pro-union parties promised – in what was to become the Smith commission – to agree plans in very short order; then they made ‘The Vow’ about what those plans would contain (in, of all places, the Daily Record). The timetable demanded draft legislation before the general election, and a bill introduced immediately thereafter. All of this has duly happened.
The Scotland Bill is very similar to the pre-election draft, with changes to address points of criticism. It is faithful to the Smith recommendations: Virtually complete devolution of income tax – Check. Assignment of half of VAT – Check. Declaration of constitutional permanence for the Scottish Parliament, and legislative basis for (what we must still call) the Sewel Convention – Check. Devolving £2.5 billion of benefits – Check. So from any perspective this is major stuff.
Not what the SNP want?
Of course it’s not major enough for the SNP. But then nothing short of independence ever would be. They won virtually every Scottish seat in the general election, on a platform that included full fiscal autonomy for Scotland, with employers national insurance and corporation tax devolved just for openers. Demands for full fiscal autonomy are not going to be met by any UK government. Apart from being fiscally catastrophic for Scotland (see, for example here) it is not consistent with Scotland remaining part of the UK. The SNP leadership does not seem to be serious about that idea, but will press for business taxes devolved so that it could cut them, perhaps selectively, in the hope of promoting economic growth. UK ministers are unlikely to agree to these either, though pressure will increase if corporation tax is ever actually devolved in Northern Ireland.
Meeting SNP aspirations is a test no UK government can set themselves: at least not until the SNP becomes a party of home rule rather than independence. But do the plans deliver what was promised during the referendum campaign, and do they offer a coherent and potentially stable constitutional package?
Significant change nevertheless
Looked at objectively, the scale of change envisaged in this legislation is really quite startling, though taken for granted in current political discourse. Today, the Scottish Parliament controls more than half Scotland’s public spending, but only local taxes, plus landfill tax and stamp duty. It doesn’t even get its income tax powers under the Scotland Act 2012 until next spring. Under these plans it will take ownership of nearly nearly 40% of Scottish tax revenues, in a few years time. The government are right to say this means Scotland has one of the most powerful sub-state legislatures in the world. Does it deliver Smith? Yes, indeed in some respects it devolves more; but there are some detailed but important issues outstanding.
The biggest outstanding issues relate not to the bill itself, but to its consequences. The additional tax powers will mean a reduction to the block grant the Scottish Parliament gets from Westminster. Calculating this will be tricky, though the underlying principles have already been agreed for the Scotland Act 2012. Nevertheless there is scope here for genuine mistake as well as manufactured grievance. The principles have to be that transferring tax powers also transfers economic risk and opportunity to Holyrood, and that each government bears the risk of its own policy decisions. Much nonsense has been talked about the principle of ‘no detriment’ mentioned in Smith. This makes sense only in the context of moving to the new system, and the direct effects of tax policy decisions by one administration on the other. Thereafter, each government’s actions will no doubt that affect the other, but an endless calculus of purported gain and loss is wholly pointless.
A challenging outstanding issue is to his how to deal with the Smith idea of wider borrowing powers for the Scottish Parliament. It does remain anomalous that most of Holyrood’s capital spending is still funded by grant, now it has borrowing powers. It would both widen the Scottish government’s choices and increase the financial discipline on them if all their capital expenditure was funded by borrowing from the markets. Repayment of loans would have to be made a first charge on Scottish tax revenue, and there would have to be some, perhaps prudential, constraint as the borrowing would score against UK totals.
More problematic is the effect on English income tax and on voting at Westminster. Smith said this would be unaffected, but the government’s proposals for English votes risk making England and even the UK ungovernable if the UK government couldn’t decide on its own income. My earlier blog in this series explains this more fully.
In some ways the most radical element of these plans is the extension of the Scottish Parliament’s competence into welfare. Previously this has been seen as not merely a UK responsibility, but one of the defining characteristics of the UK as a welfare union. Distributive welfare was suitable for devolution, but redistributive welfare, in the form of cash payments, was a central responsibility – as it is in virtually all federal countries. But now a bundle of important welfare benefits is to be the direct responsibility of Holyrood – including disability living allowance, and its successor personal independence payment, and there are remarkably wide powers to top up reserved benefits.
The list of benefits to be devolved was negotiated as a political deal: no particular principle runs through it, though most of them meet very specific individual needs, and none is linked to national insurance contributions. Generally speaking they are not economically cyclical.
The top-up powers are more interesting. Smith envisaged the use of discretionary payments to top up UK welfare. The bill goes rather further, with an explicit power for the Scottish Parliament to legislate to top up reserved benefits, as well as powers to set the housing element of universal credit and the frequency of its payment. The detail of these needs careful scrutiny, as this is uncharted territory. Some of the drafting may be unnecessarily constraining, but that needs a blog of its own. The most important issue is such powers can only work if there is genuine cooperation between the two governments. For example the UK might be asked to administer top-ups decided by Holyrood; but the Scottish government cannot expect to demand the politically or administratively impossible of Westminster.
A stable constitutional package?
The coalition government were mocked for describing the proposals before the general election as an enduring settlement, to be met only by an SNP landslide. But it is reasonable to ask whether this set of powers and responsibilities is stable in the sense first that it meets overall Scottish aspirations (if not the ambitions of SNP ministers) and second that it secures the consent of the rest of the UK as well. Despite the sound and fury of SNP politicians, it is the latter condition which may prove harder to meet.
On the former, the offering to Scots in the referendum campaign was that they could have maximal decentralisation while retaining the economic and social security of belonging to the UK. Under these plans, the Scottish Parliament can set a markedly different tax and spend profile to the rest of the UK. They will be able borrow to invest if they think that is the right economic course, and are willing to pay it back. Most significant of all they can, if Scots are willing to pay for it, opt for a more generous welfare package than a right-wing UK government is willing to fund from UK taxation. If the issue is really that Scotland has a different set of preferences from the rest of the UK, it can make those choices. Whether it does, and whether Scottish ministers would ever take decisions that would make them unpopular with taxpayers is quite a different question.
More challenging is whether this degree of flexibility is going to be acceptable elsewhere in the UK. English votes remains on the agenda, and is potentially destabilising. Scots were promised the Barnett formula in the referendum: but resentment about that is, if anything, increasing. Scottish nationalism probably won’t bring about the end of the UK. But English nationalism could.
About the Author
Jim Gallagher is an Associate Member of Nuffield College, Oxford, and visiting Professor of Government at Glasgow University.