Give Scotland its own Treasury, says think tank – Telegraph

Simon Johnson
Daily Telegraph, 21.11.08

A report by Reform Scotland recommends the Barnett formula be scrapped to make Scottish ministers more financially accountable, and calls for a "re-balancing of the constitution" towards England.

The Scottish Parliament\’s budget is currently about £28billion per year, while Westminster spends another £19billion north of the Border.

However, Scottish ministers receive their spending money in the form of a block grant from London, and have little power to raise taxes themselves.

Economist Graeme Blackett, the report\’s co-author, said: "We recommend that a Scottish Exchequer – and that would require a Scottish Chancellor – is established as part of a new financial settlement.

"The greater fiscal powers of the Scottish Parliament would make this necessary and a Scottish Exchequer would be responsible for collecting revenue from all taxes levied north of the Border on behalf of the UK and Scottish governments."

The Reform Scotland report, published on Thursday, concludes that Holyrood currently has control over taxes that raise only 13 per cent of the money it spends.

It argues this gives them little incentive to increase their tax base or revenue by pursuing policies that encourage economic growth.

To compensate Westminster for its spending in Scotland, the study argues that certain taxes raised north of the Border could be retained by the UK Government.

These include all National Insurance contributions, 40 per cent of Scottish income tax revenues, 40 per cent of Scotland\’s geographical share of North Sea oil revenues, together with TV licence and passport fees and the National Lottery levy.

The Scottish Executive would set all other taxes to fund the Holyrood budget of around £30 billion, with the exception of VAT.

This would be set at UK level, with 40 per cent of the revenue from Scotland again going to Westminster and the remainder assigned to the Scottish Parliament.

Holyrood would also be handed borrowing powers, allowing Scottish ministers more leeway to cut taxes or increase public spending to stimulate the economy during future downturns.

The net result of giving Scottish ministers more financial responsibility would be a lower overall tax burden and a major reduction in public spending as a share of GDP, the report claims.

However, Ben Thomson, Reform Scotland chairman, admitted that it could equally lead to higher taxes and more spending, if that is what Holyrood decided.

But he argued the status quo "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."

The report also argues that the \’Achilles\’ heel\’ of the current devolution set-up is the lack of any body to represent specifically English matters, an omission that it claims is unusual.

But it says the workings of Westminster can be altered without setting up a new English parliament.

The report will be submitted to the Calman Commission review into devolution, backed by all three of the main Unionist parties, and the SNP Scottish Executive\’s National Conversation on the future constitution.

An advisory group to the commission published a report earlier this week advising that higher levels of public spending in Scotland will become "increasingly difficult" to defend.

But it warned that the Scottish Parliament being given more power to raise its own money would lead to less public spending north of the Border.