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Finding a fairer way to solve the devolution puzzle – Express

Ben Thomson, Chairman of Reform Scotland 
Express, 3/12/08

It is the last piece in thw devolution jigsaw – how to make the Scottish Parliament responsible as well as answerable for the money it spends.

There are few people in Scotland – unionists as well as nationalists – who do not now accept that giving Holyrood greater control is the right thing to do.  It is a logical next step in the settled process to decentralise more powers from Westminster.

Yesterday\’s interim report of the Calman Commission – the body set up by Labour, the Conservatives and the Liberal Democrats to examine how devolution might be improved – quite rightly identifies this as one of the key issues that needs to be addressed.

We believe this debate is now best served by providing some clear solutions to the fiscal problems that the Calman Commission and the SNP Government\’s National Conversation are pondering.

But if this is to be achieved we must focus our attention not soley on Scotland, but on England as well.

Indeed the \’English Question\’ has as much resonance in Edinburgh as it does in London.  And if the devolution process is to continue successfully, it is a question that must be addressed.

Scotland cannot act unilaterally.  Instead, the UK Government must put in place a new financial settlement for the whole of the UK.

Independent think tank Reform Scotland recently published a paper, Fiscal Power, calling for the Scottish Government to take responsibility for setting and raising taxes to match the money it spends.

Our paper does not attempt to answer the question of what responsibility each level of government should take, for instance whether defence should be a UK or a Scottish matter.  This is a more constitutional debate for people in Scotland to decide in due course.

Instead, we started for the status quo and the present split of functions between Westminster and Holyrood.

The weakness of the current arrangements is the lack of fiscal accountyability. The Barnett Formula has few friends left and its days are almost certainly numbered.  The question is, what should replace it?

Reform Scotland\’s view is straightforward.  We need to incraese the financial accountability of the currentdevolution settlement by linking the level of taxation powers to the level of spending powers already devolved.

Total government spending in Scotland is just under £50billion.  The Scottish Government controls 60 per cent of this – around £30billion – and the UK Government 40 per cent, about £20billion.  Yet the Scottish Government has hardly any responsibility for raising teh revenue to pay for its share.

Under our proposals, with the Barnett Formula abolished, both the UK and Scottish governments would raise the money they spend in Scotland.  This requires an agreed starting point that gives both tiers of government control over taxes which raise enough to cover their spending.

This could be dine if Westminster retained full control of National Insurance, along with some smaller taxes such as TV licenses, passport fees and the National Lottery tax.  Control over income tax and North Sea oil in Scotland would be split, with 60 per cent raised and controlled by Holyrood and 40 per cent by Westminster, while VAT would continue to be set at teh UK level with 60 per cent of the revenue assigned to Holyrood and 40 per cent to Westminster. This 60:40 split is logical because it matches the respective spending responsibilities of the two parliaments.  Control of all other taxes and their revenue would be devolved to Holyrood.

Crucially, both levels of government would be free to change any element of the taxes under their control, ensuring proper accountability.

In Scotland, our proposals would also create a clear link between economic performance and the cash recieved by the Scottish Government.  There would be a real incentive to introduce policies which encouraged growth and provided value for money. Further, it would give the Scottish Government the fiscal tools to increase growth by cutting teh tax burden.

But we are still left with the question of England.

We have the anomaly of a parliament in Scotland, assemblies in Northern Ireland and Wals and yet no body to represent the interests of England.

The lack of a body to represent England has unbalanced the constitution.  It is nearly impossible to disentangle spending on functions reserved to the UK Government from those which are devolved.  Westminster doubles as both a UK and English Parliament.

To make our model work we need greater clarity about which taxes are UK levies and what they fund.  A body to represent England would make this easier because the funding for devolved areas would be given to that body.  How it was funding, as with the assemblies in Northern Ireland and Wales, would be a matter for the people of those areas.

The exact nature of the English body would be a matter for people in England. However, the more clearly it differentiates what is a UK matter from what is a matter devolved to England the better.

This would address issues raised by the West Lothian Question, such as Scottish MPs having a say over English health matters when they have no say over devolved Scottish health issues.

The upshot would be a new UK-wide constitutional settlement that provided a far better deal all round.