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Scotland – Enduring the Settlement
“If Britain does not change of its own volition, Scotland will demand, at a minimum, “home rule
within the UK”, and could force upon the whole country a system of government as close to
federalism as you can have in a nation where one part forms 85% of the population. But what is now
at stake is more serious than even that: the nationalists would consign the very idea of the “United”
Kingdom and of “Great” Britain to the past.”
Gordon Brown, The Guardian, Monday 9 June 2014 20.00 BST
http://www.theguardian.com/commentisfree/2014/jun/09/scottish-referendum-not-britain-v-
scotland
Gordon Brown characterised the debate surrounding Scotland’s referendum as one between
federalism and independence. This was the choice that most people thought they were making,
between a federal UK state with devolution of matters other than Defence and Foreign Affairs to, in
Scotland’s case the Scottish Parliament. If that was what we voted for, is that what we got?
When we talk about federalism we use the term as meaning fiscal federalism, the control over, most
importantly, taxation with the Scottish Parliament able to alter this to suit the changed
circumstances we find ourselves in over time. Is this what the nation has seen delivered?
A detailed study of the proposals set out in the UK Government’s Command Paper “Scotland in the
United Kingdom – an enduring settlement” follows below looking at what has and has not been
transferred and the limitations placed upon those things which have been transferred:
https://www.gov.uk/government/publications/scotland-in-the-united-kingdom-an-enduring-
settlement
Lord Smith of Kelvin was faced with a short timescale to reach his conclusions. Essentially he had in
front of him a fork in the road. He could head one way and plot out a Devo-Max parliament with full
powers over taxes and spending, the scenario that Gordon Brown was presenting as his alternative
to independence. Such a choice provided an opportunity to reach a settlement which could endure.
That was not the road chosen.
Smith’s chosen route of travel charts a very limited change in the Scottish Parliament’s powers over
taxation. We are given much wider control over the Parliament’s powers to spend. It is a diminutive
version of devolution which I’m happy to Christen “Devo-Dim”. No-one can look at the powers
transferred and conclude that these will endow the Scottish Parliament with the resource it needs to
create a powerhouse economy in an enterprising nation. We can’t even set up an Enterprise Zone.
The choice made has negated our chance of an “Enduring Settlement”.
Power over Taxation Power over Spending
Power over Economy Other
Powers Retained
Policy Area Proposal Power Transferred Power Reserved
Corporation Tax No transfer of Power None All areas Reserved
Value Added Tax No transfer of Power None All areas Reserved. Cannot adjust rates. Police/Fire expenses VAT not recoverable.
Inheritance Tax No transfer of Power None All areas Reserved
Capital Gains Tax No transfer of Power None All areas Reserved
National Insurance No transfer of Power None All areas Reserved
Excise Duty Rates No transfer of Power None All areas Reserved
Defence No transfer of Power None All areas Reserved
Foreign Affairs No transfer of Power None All areas Reserved
Macroeconomic Policy No transfer of Power None All areas Reserved
Interest Rate setting No transfer of Power None All areas Reserved
The Constitution No transfer of Power None All areas Reserved
Immigration & Asylum No transfer of Power None All areas Reserved
Broadcasting No transfer of Power None, right to consult re BBC Charter MoU to govern operations of BBC
All areas Reserved
Competition Policy - CMA No transfer of Power Will have right to consultation and to request Enquiries and full CMA Phase II Investigations
Some Changes
Regulation of Energy - OFGEM No transfer of Power Will have right to consultation and to request Enquiries and full CMA Phase II Investigations
Some Changes
Regulation of Telecoms - OFCOM No transfer of Power Will have right to consultation & to appoint 1 OFCOM Board Member
UK Secretary of State can veto Board Appointment
Crown Estate No transfer of Power over main assets
T/f of Power over Land & Property in Scotland (Inc. Shoreline)
Defence, Security, Oil & Gas and Energy Reserved
Offshore Oil & Gas Licensing No transfer of Power None All areas Reserved
Offshore Oil & Gas Taxation No transfer of Power None All areas Reserved
Pensions No transfer of Power None All areas Reserved
Policy Area Proposal Power Transferred Power Reserved
Borrowing Limits No transfer of Power None All areas Reserved
Power for bodies to reclaim VAT No transfer of Power None All areas Reserved
Scottish Budget No transfer of Power None, Must remain balanced. All areas Reserved
Right to Levy new taxes No transfer of Power None All areas Reserved
Tax Rate on Savings No transfer of Power None All areas Reserved
Tax Rate on Dividends No transfer of Power None All areas Reserved
Tax Reliefs & Allowances No transfer of Power None All areas Reserved
Pensions No transfer of Power None All areas Reserved
Universal Credit Scotland to do Admin of UC here. Right to be Consulted. Right to vary frequency of payments – not rate. Right to pay Landlords directly.
Some changes
Migrant Benefits No transfer of Power None All areas Reserved
Maritime & Coastguard Agency No transfer of Power None. MoU to govern operations of MCA
All areas Reserved
Oil & Gas Decommissioning No transfer of Liabilities None Westminster got Tax receipts & must carry the costs.
Equality Act 2010 No transfer of Power None All areas Reserved
Special Immigration Appeals Cttee No transfer of Power None All areas Reserved
Proscribed Organisns. Appeals Cttee No transfer of Power None All areas Reserved
Pathogens Access Appeals Cttee No transfer of Power None All areas Reserved
Investigatory Powers Tribunal No transfer of Power None All areas Reserved
Power to create Enterprise Zones No transfer of Power None All areas Reserved
Renewable energy incentives ROCs, FITs, RHIs
No transfer of Power None, will have right to be consulted
All areas Reserved
Powers Devolved
Policy Area Proposal Power Transferred Power Reserved
Votes for 16-17 Year Olds T/f Power to Scottish Parliament Parl & Council Elections in Scotland Reserved for UK & EU Elections
Set Stamp Duty rates in Scotland T/f Power to Scottish Parliament Yes None
Set Land Tax rates in Scotland T/f Power to Scottish Parliament Yes None
Set Landfill Tax rates in Scotland T/f Power to Scottish Parliament Yes None
Set Income Tax Rate in Scotland T/f Power to Scottish Parliament Power to set Basic Rate +/-3p in £ Power to set Higher Rate +/-3p in £ -cannot vary +/- rate for each band
Power to set zero rate band Power to set Personal Allowance Barnett Formula adjusted for change
Borrowing from National Loan Fund Grant Power to Scottish Parliament Yes Limit set by UK Parliament £300m Borrowing subject to UK agreement
Establish a Cash Reserve Grant Power to Scottish Parliament Yes Limit set by UK Parliament £125m Borrowing subject to UK agreement
Scottish Block Grant Up if Scots Income Tax receipts rise faster than the UK’s. Down if Scots Income Tax recpts rise more slowly.
Proposed. Potentially catastrophic if oil prices fall. Should be counter cyclical if oil price falls - but isn’t.
Potential to collapse the Scottish Economy when oil prices fall and expand the economy when they rise.
Air Passenger Duty T/f Power to Scottish Parliament Yes Barnett Formula adjusted for change
Aggregates Levy can be altered T/f Power to Scottish Parliament Yes Barnett Formula adjusted for change
Benefits Spending (Except Pensions) T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Bedroom Tax T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
New Benefits Power to create new Benefits Yes None, not subject to benefits cap
Housing Benefits T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Crisis Loans T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Policy Area Proposal Power Transferred Power Reserved
Community Care Grants T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Attendance Allowance T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Carer’s Allowance T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Disability Living Allowance (DLA) T/f Power to Scottish Parliament Yes Barnett Formula adjusted for change
Personal Independence Payt (PIP) T/f Power to Scottish Parliament Yes Barnett Formula adjusted for change
Industrial Injuries Disabilities Allow T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Severe Disablement Allowance T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Cold Weather Payment T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Funeral Grant T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Maternity Grant T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Winter Fuel Payment T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Discretionary Housing Payment T/f Power to Scottish Parliament Yes Sec of State for Work & Pensions to agree changes in Scotland
Cost of Renewables decommissioning
T/f Power to Scottish Parliament Yes Barnett Formula not adjusted for change & potentially huge cost
Payday Loans Shops T/f Power to Scottish Parliament Yes None
Fixed Odds Betting Shops T/f Power to Scottish Parliament Yes None
Social Security Tribunal T/f Power to Scottish Parliament Yes None
Criminal Injuries Tribunal T/f Power to Scottish Parliament Yes None
Information Rights Tribunal T/f Power to Scottish Parliament Yes None
Policy Area Proposal Power Transferred Power Reserved
Onshore oil & gas Licensing T/f Power to Scottish Parliament Yes Can’t levy a royalty on production.
Appoint Rail Operator T/f Power to Scottish Parliament Yes None, can be a public sector firm
Power over Road Speed Limits T/f Power to Scottish Parliament Yes None
British Transport Police T/f Power to Scottish Parliament Yes None, but who gets VAT on spend?
Energy Efficiency T/f Power to Scottish Parliament Yes How to Pay for it - Reserved
Fuel Poverty T/f Power to Scottish Parliament Yes How to Pay for it - Reserved
Further Observations Under Chapter 2: Fiscal framework on Page 33 we are told that: “The Scottish Government will not therefore be isolated from all risks, so will need tools to manage appropriate risks. If Scotland experiences an economic shock when the rest of the UK does not, the funding model would not provide the Scottish Government with additional to offset its lower tax receipts or higher spending pressures” We are also told: “Borrowing could be undertaken to respond to a shock, but a clear plan will be needed to repay the debt incurred in order to ensure a sustainable fiscal position” Remember, we were told above that if Scotland’s share of income taxes for the whole UK falls we will see a cut in our share of the Barnett Formula grant. This is hardly a hypothetical position, it is precisely where we are now. If oil prices fall jobs in Scotland would be lost. The UK as a whole would benefit from a fall in oil & gas prices, these would boost company profits and wages in the rest of the UK. In Scotland, our share of income tax receipts would fall. In the event of a crisis in Scotland, the UK’s “Enduring Settlement” could well make things worse. A cut to Barnett formula funding for Scotland would follow our fall in income tax receipts. Nor would we be able to borrow more without permission, nor would we be able to alter any other taxes in response to the crisis. Conclusion It is delusional given the diminutive nature of the powers over the economy transferred under this settlement to suggest that this formula will be one which endures. The fault is not Lord Smith’s. He was there to act as a cipher for the political parties round the table. He did his job. What was put together essentially reflects the views of the Con-Dem-Lab coalition for a “No” vote. Having won they were unwilling to enhance the powers of the Scottish Parliament in any material way. Faced with the threat from the three amigos to walk away if their view didn’t prevail the SNP and the Greens got the best deal they could in the circumstances. That it isn’t what the public expected or wanted is clear from the SNP’s membership quadrupling since the referendum. We are left with a Parliament which has lots of control over spending but little say on how taxes are set and the money raised to pay for it. Few things can be changed without a consequence for the Barnett Formula negating them. Yet again, power devolved is power retained. We’ve often heard the argument made that the pro-Unionist parties fear a “Neverendum” more than anything. Clearly this can’t be the case. If it was they’d have given the people of Scotland what they asked for and expected, proper Fiscal Federalism with powers over “tax” as well as over “spend”. Devo-Max this settlement ain’t. If the polls are to be believed the Con-Dem-Lab coalition might be regretting their lack of magnanimity in victory on May 8th. Derek W Louden Abbian House Tower Street Tain Ross-shire IV19 1DY Tel: 01862 892734 Mob: 07876 774412 Email: [email protected]
