‘Fiscal Powers 2nd Edition’ updates Reform Scotland’s ‘Fiscal Powers’ paper that was produced in November 2008 to take account of the significant changes that have taken place in the political, economic and legal context in which the debate on further financial powers for the Scottish Parliament is taking place. In particular, the paper compares Reform Scotland’s proposals with those of the Calman Commission and looks at how the recession has affected the case for greater fiscal powers.
The paper concludes that Reform Scotland’s proposals in ‘Fiscal Powers’ would deliver genuine financial accountability, unlike the Calman Commission proposals which would give the Scottish Government and Parliament responsibility for raising only 31 per cent of its own budget, and that the recession has strengthened the case for increased financial powers. This is because it would give the Scottish Government the ability to set policies appropriate to the current economic situation in Scotland and provide a real incentive to adopt policies that stimulate growth and ensure our public services deliver value for money.
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.
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.
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. 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.