Scotland’s powers: the way ahead

Peter Cheney reviews the forthcoming changes to devolution in Scotland and the potential consequences for Northern Ireland’s system of government and finances.

The eventual end to the Barnett formula and a strong precedent for tax-raising powers will be the main results of the Coalition Government’s plans to give Scotland more autonomy. A think tank on Scottish devolution, the Calman Commission, will see its recommendations put into law over the next year.

In future, Northern Ireland would receive grant funding from Westminster only because of its needs, which are yet to be assessed. Extra powers for Holyrood, over taxes and elections, could also lead to calls for Stormont to follow suit.

Scotland has the most established devolved system in the UK and is usually seen as more advanced than Northern Ireland. In particular, the Scottish Parliament can vary the basic income tax rate by 3 per cent, and justice has been devolved since the start.

It is also nearly three times larger than Northern Ireland in population (5.2 million to 1.8 million) and in its set budget (£28.9 million to £11 billion).

Powers

The Northern Ireland Assembly, though, controls some policy areas which Scotland does not.

Some of these differences are down to practical reasons e.g. to ensure the same safety standards on all of Great Britain’s roads. Strategically, the UK Government did not want to lose its North Sea oil revenues. The province is also traditionally seen as a ‘place apart’ which needs its own separate laws and services.

The Scottish independence debate (agendaNi issue 33, p.112-114) is now effectively suspended due to the more pressing financial problems. In response, the pro-union parties – i.e. Labour, the Lib Dems and Tories – had set up a commission led by Sir Kenneth Calman, a former chief medical officer, to look at how devolution could be improved.

This commission started work in April 2008 and reported in June 2009, with an enthusiastic welcome from its backers. It recommended that the Scottish Parliament should have power over:

• Administering its own elections;
• Funding animal health policy;
• Regulating airguns; and
• Setting drink drive limits and speed limits;

In general, though, the Scottish split between devolved and reserved powers was “well-drawn at present”. More radical proposals to devolve energy and drug laws were rejected.

Respect

Calman’s main thrust was better cooperation between the devolved and Westminster levels of government. “Mutual respect” should be the guiding principle.

To this end, he called on the Scottish Secretary to outline the Queen’s Speech to MSPs, which Michael Moore did on 17 June. David Cameron, who paid a visit on 14 May, has also offered to visit Holyrood annually in keeping with his manifesto.

The UK Parliament, the commission said, should also be free to discuss devolved matters and hold a regular “state of Scotland” debate. A joint liaison committee could also be set up.

MSPs (and MLAs) are often asked to vote on legislative consent motions, so that one of the UK Parliament’s Bills can extend to their region. However, the detail of the Bill sometimes changes significantly after that motion is agreed. More detailed communication was needed on these changes.

The Joint Ministerial Committee should include formal meetings between finance ministers from all parts of the UK. The JMC also needed to be more open, publishing its agendas and an annual report. In Europe, Scottish ministers should be included in UK delegations when devolved matters are discussed.

Finance

His main findings on finance were to replace the Barnett formula with a needsbased alternative, and allowing the Scottish Parliament to raise more of its own funds. The overall aim is to improve that Parliament’s financial accountability, rather than spending money raised by others.

Current tax-varying powers could add or subtract up to £1 billion from the Scottish budget; this has never been tested.

In the commission’s view, the UK Government should cut all Scottish income tax rates, and the block grant, by 10 per cent and allow MSPs to set their own rate. The resulting fiscal gap could then be filled or even exceeded, resulting in “over a third” of devolved current spending being funded within Scotland.

Four other taxes would also be subject to the same principle:

• Aggregates levy;
• Air passenger duty.
• Landfill tax; and
• Stamp duty on property transactions.

Grant funding from Westminster would continue, to ensure proper welfare services for all UK citizens e.g. the NHS, social security. However, grant money could only be justified according to need, and a UK-wide assessment of that would be required.

Until this assessment was carried out, the Barnett formula could continue although it would have to be adapted to allow for any devolved taxes.

At present, the Scottish Parliament can borrow money from the Treasury to fill short-term gaps in its cash flow. More borrowing powers are recommended, to fund capital spending projects. Northern Ireland already has greater borrowing powers – up to £200 million per annum.

Some variations in VAT and fuel duty could be considered when the new system has settled down. Devolved taxes would still be collected by HM Revenue and Customs.

Both regions’ budgets are comparable, although Northern Ireland has its own social security fund. The Scottish Government has chosen to defer its share of spending cuts (initially £332 million) to 2011-2012.

Short of independence, the SNP wants full fiscal autonomy with all Scottish revenues raised in Scotland. A remittance would then be sent to the Treasury to pay for UK-wide services. This has been done before in Northern Ireland, as the old Stormont Government paid for ‘imperial services’ (e.g. farm subsidies). However, most taxes were still collected by the UK Government.

Relevance

Strongly backed by the Coalition Government, the Calman report is to be implemented through a new Scotland Bill, which is now being drafted. This is due to be published in the autumn and Parliament returns from its summer recess on 6 September.

Any fiscal changes would automatically affect Scotland’s tax-payers and their families, including around 33,000 people from Northern Ireland who live there. Increased pressure for tax devolution in Northern Ireland can also be expected, although the Treasury is only researching the potential for corporation tax.

Calman’s plans would also give Scotland an edge over Northern Ireland in running its own devolved elections. Both regions go to the polls on 5 May 2011.

All of his ideas on co-operation could, in theory, be copied in Northern Ireland, although they would need the Assembly’s backing.

There are no plans to make the devolution settlements consistent. Indeed, the UK Government admits and accepts that devolution is ‘asymmetrical’ and therefore different in each country. Northern Ireland has not had a similar review of its settlement; Stormont only received its full powers in April 2010 when justice was transferred.

Barnett would continue until a replacement is found. The UK-wide needs assessment would, crucially, then decide whether Northern Ireland is underfunded or over-funded. The province would no longer be guaranteed funding as it was in the past.