Devolution Plus should be Third Option in referendum, says Reform Scotland

Holyrood will be effective in tackling poverty only when it is given much greater responsibility for spending Scotland’s £20 billion welfare budget, a leading think tank told MSPs today.

Shifting control of major elements of social protection from London to Edinburgh is a key part of Reform Scotland’s proposal for Devolution Plus – its recommendation for the ‘third option’ in the forthcoming independence referendum.

In evidence to Holyrood’s Scotland Bill Committee, the independent think tank says the fundamental defect of the current devolution settlement is its lack of financial responsibility. 

It points out that although the Scottish Parliament has control of about 60% of total public spending, it has responsibility for less than 7% of funding. 

Holyrood, it says, should have control over enough tax and borrowing powers to meet its spending commitments, removing the need for a block grant.

Devolution Plus would leave Westminster responsible primarily for VAT and National Insurance, with most other taxes devolved to Holyrood.

Reform Scotland suggests control of major welfare benefits needs to be transferred to the Scottish Parliament, with Westminster maintaining responsibility for State pensions and sickness/maternity pay. 

Of the £19.9 billion spent on social protection in Scotland in 2009/10, £15 billion was spent by Westminster, £4.7 billion by local authorities and only £113 million by the Scottish Government. Under Reform Scotland’s proposals, £7.2 billion of the £15 billion would be devolved to Holyrood. Westminster would be left with responsibility for £7.8 billion, £5.75 billion of which is spent on state pensions.

‘The reasoning behind this is to achieve a more coherent and effective approach to alleviating poverty,’ said Reform Scotland chairman Ben Thomson who is expected to give oral evidence to the Scotland Bill Committee at Holyrood later this month.

‘Many areas associated with this goal are already devolved to the Scottish Parliament, such as housing and social inclusion, yet the Scottish Government can make no concerted attempt to address poverty without the necessary tools and that requires welfare provision to be devolved.’

Reform Scotland claims the split in programmes between Westminster and Holyrood makes policy on relieving poverty ‘unfocussed and inefficient’ and reduces the Scottish Government’s efforts to mere ‘tinkering’.

In its evidence to the Scotland Bill Committee, Reform Scotland says it is vital the referendum – to be held before May 2016 – offers genuine choice, not just independence or the status quo. Its ‘third option’ suggestion is predicated on more extensive devolution within the United Kingdom.

Underpinning Devolution Plus is the fundamental principle that every layer of government – whether it be Westminster, Holyrood or local authorities – should be responsible for raising most of the money they spend.

‘In the case of the Scottish Government, our view is that Holyrood should raise all the money that it has responsibility for spending,’ said Mr Thomson.

‘This is based on the principle that better government comes from politicians being financially accountable for their decisions and that the centralised allocation of budgets provides the wrong incentives for promoting efficient public sector spending. It would also give politicians in Scotland the necessary financial levers and incentives to create a tax environment conducive to growing the Scottish economy.’

Reform Scotland calls for both income tax and corporation tax to be devolved in their entirety to avoid confusion and duplication, adding: ‘These taxes can also be altered to achieve economic levers for growth within a region and create a healthy environment of fiscal competition in which Scotland can retain and win new business.’

Mr Thomson said: ‘There is, at present, a very real imbalance between Scotland’s responsibility for setting and collecting income and the expenditure it is responsible for.  Therefore, we have recommended a structure that will shift the responsibility for raising revenue to create a much more even balance between Holyrood and Westminster which incentivises both governments to act more responsibly within their respective areas of power.  In addition we have recommended a significant shift in responsibility for elements of welfare from Westminster to Holyrood. 

‘In this way, Reform Scotland believes that the proposals outlined within our evidence would help the Scottish Parliament become more fiscally responsible as well as providing some meaningful tools to address social problems affecting Scotland.’