Reform Scotland believes that the Scottish Parliament’s almost total reliance on the block grant limits its accountability. Equally, it provides no incentive for politicians in Scotland to come up with innovative ideas to boost economic growth or improve public services because, however poorly the economy performs, the money still rolls in via the block grant. If the economy did grow faster the benefits would accrue to the Chancellor at Westminster and not the Scottish Government. To address this problem ‘Fiscal Powers’ aims to construct a workable scheme in which the Scottish Parliament would be more financially accountable within the framework of the UK.
The report concludes that effective government is best achieved where the responsibility and accountability for spending taxes is matched by the ability to set and raise them. It therefore recommends both Westminster and Holyrood should have the flexibility to set a range of taxes in order to cover their spending, with an agreed starting point which enabled them to cover their existing share of spending in Scotland, currently about £20 billion and £30 billion respectively.
Specifically, we argue that the UK Government retains control over all National Insurance contributions; 40 per cent of Income Tax revenues from Scotland; 40 per cent of Scotland’s geographical share of North Sea oil revenues; together with additional income from other taxes including TV licences, passport fees and the National Lottery tax.
The Scottish Government would set the rates for all other taxes, except for VAT which would be set at a UK level with 40 per cent of the revenue from Scotland going to Westminster and the remainder assigned to the Scottish Parliament. Crucially, this new financial relationship must be flexible enough to meet any future contingencies or take account of any further devolution of power. For this reason, both the Scottish and UK Governments would be able to change existing taxes or levy new ones they needed to meet their spending commitments.
However, within the context of the United Kingdom, Scotland cannot achieve greater financial accountability by acting unilaterally. This requires us to address the position in England because it is the lack of a body to represent English interests that is the Achilles’ heel of the current devolution settlement. Such a body would enable a clear and transparent system, which sets out the responsibilities of the different levels of government, to be put in place. We believe this is the best way to achieve greater financial accountability in both Scotland and the United Kingdom.