Scotland should raise the money it spends

Scotland should be given powers to raise all the money it spends and have its own ‘Chancellor of the Exchequer’, a leading think tank recommends today. [thurs]

Reform Scotland says an Edinburgh-based Treasury would make the Scottish Parliament more financially accountable and provide a platform for the country to become a major world economy.

The independent, non-party think tank also calls for the outdated Barnett Formula to be scrapped and a ‘re-balancing of the Constitution’ with a body specifically to represent English interests.

‘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,’ it says.

In a report entitled Fiscal Powers, Reform Scotland 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 sets out how certain taxes, including all National Insurance contributions, 40% of income tax revenues from Scotland, 40% of Scotland’s geographical share of North Sea oil revenues, together with TV licence and passport fees and the National Lottery levy, could be retained by Westminster to meet the approximate £20 billion it currently spends north of the Border. The Scottish Government 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% of the revenue from Scotland going to Westminster and the remainder assigned to the Scottish Parliament.

Reform Scotland says that giving Holyrood greater responsibility for revenue-raising, including borrowing powers, will help achieve two goals vital to the country’s future prosperity – a lower overall tax burden and a major reduction in public spending as a share of Gross Domestic Product. [GDP]

For its fifth major research paper since its launch earlier this year, Reform Scotland asked eminent economist Graeme Blackett and leading tax lawyer James Aitken to help construct a workable scheme in which the Scottish Parliament would be more financially accountable within the framework of the UK.

They established that Holyrood currently has control over taxes which raise only 13% of the money spent at a Scottish level. The bulk of the Scottish Parliament’s revenue comes in a block grant from Westminster under the Barnett Formula.

In an earlier paper, ‘Local Power’, Reform Scotland identified lack of fiscal power as ‘the fundamental weakness of the local government finance system because it undermines councils’ autonomy and accountability’.

Today’s report says: ‘The same arguments apply to the Scottish Parliament which, arguably, has control over even less of its own revenue raising than do local councils in Scotland.

Ben Thomson said: ‘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.’

Graeme Blackett 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 report concludes that the fundamental defect of the current devolution settlement is its lack of financial accountability. It says that one remedy for Scotland would be ‘outright independence’. However, ‘Fiscal Powers’ examined the question of how greater financial control could be achieved within the current UK framework.

The report finds: ‘It requires the UK Government to put in place new financial arrangements which are fair to the governments of both Scotland and the UK. 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 clearly the responsibilities of the different levels of government, to be put in place. This is the best way to achieve greater financial accountability in both Scotland and the United Kingdom.’