Full fiscal autonomy for Scotland

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"Devo-Plus" redirects here. It is not to be confused with Devo Plus.
Not to be confused with Calman Plus, Home Rule, or Asymmetric federalism.
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Full fiscal autonomy (sometimes referred to as devolution max,[1] devo-max,[2] fiscal federalism,[3] independence lite,[4] or independence-minus,[5]) is a particular form of far-reaching devolution proposed for Scotland. The term has come to describe a constitutional arrangement in which instead of receiving a block grant from the UK Exchequer as at present, the Scottish Parliament would receive all taxation levied in Scotland; it would be responsible for most spending in Scotland, but would make payments to the UK government to cover Scotland's share of the cost of providing certain UK-wide services, including, at a minimum, defence and the conduct of foreign relations. Scottish fiscal autonomy, stopping short of full political independence, is usually promoted by advocates of a federal or confederal constitution for the United Kingdom.

It was once proposed that a greater percentage of those who support further moves towards Scottish independence support a move to greater fiscal autonomy while a greater percentage of those who wish to retain the Union between Scotland and the rest of the UK would be opposed. However, as the debate unfolds a move towards fiscal autonomy could be considered as a compromise by advocates of both sides. As early as July 2001, former Conservative Party chancellor Kenneth Clarke, said he believed fiscal autonomy would be "disastrous for the Scottish economy".[6] On the other hand, Robert Crawford, the former head of Scottish Enterprise, said in February 2004 that the Scottish economy "could be improved" by fiscal autonomy.[7]

David Cameron, the present leader of the Conservative Party and Prime Minister, stated in 2005 that he would not stand in the way of handing full taxation powers to the Scottish Parliament if the idea was supported by the Scottish Conservative Party.[8]

The 2011 Scottish Social Attitudes Survey core finding was that while 32% of respondents supported Scottish independence,[9] 43% supported greater autonomy within the UK. 29% of respondents supported devo-max, while only 21% supported the status quo.[10]

Since the 2011 election of a SNP majority government[edit]

The election of a majority Scottish National Party Government in May 2011, committed to holding an independence referendum, also brought the possibility that Fiscal Autonomy could be an extra option in the vote.[11] Some senior Labour Party figures have also suggested that they would support devo max, including Malcolm Chisholm MSP,[12] Mark Lazarowicz MP,[13] and former First Minister Henry McLeish.[1] The "devo-max" option was not included in the 2014 independence referendum, however, as the Edinburgh Agreement stipulated that the referendum had to be a clear binary choice between independence or the existing devolution arrangements.[14]

A public opinion poll carried out at the end of October 2011 for the BBC Politics Show indicated that devo-max was the most popular option with Scottish voters: 33% backed devo-max, 28% supported independence and 29% backed no further constitutional change.[15] A public opinion poll carried out in March 2013 for the SNP, however, indicated that 52% of respondents believed the Scottish Government should be responsible for all tax and spending decisions in Scotland. 53% of respondents also believed that the Scottish Government would be best suited to decide welfare and pensions policy for Scotland.[16]

Technical Feasibility[edit]

Full fiscal autonomy is a political theory about which neither proponents nor opponents or independent discussants such as the Calman Commission or the Institute for Fiscal Studies have examined for its practical, technical or empirical statistical feasibility and accuracy. The IFS analysis accepts official figures for regional tax estimates, but without considering the practical issues involved of assessing Scotland's tax empirically. No one, including HMRC, knows how much tax is actually raised or paid in Scotland or what Scotland's tax-base really is? Estimates of Scotland's taxation are almost entirely abstractions calculated officially by assuming tax paid is proportionate to Scotland's share of UK population, with the estimates flexed by five algorithms of which the only significant one adjusts the estimates for Scotland's higher percentage of elderly and lower percentage of children. Economists agree that the preponderance of Scotland's sales taxes, such as mainly VAT, and corporation tax are paid in the rest of the UK, mainly in England. In 2013, HMRC asked large corporations to voluntarily calculate and report the share of their taxes pertaining to Scotland. How many companies choose to do so is unknown and the results of this request, if any, cannot be known before 2017 at the earliest and may only provide a small sample snapshot. It is burdensome and a very complex exercise, especially without official guidance, asked of companies to attempt to distinguish Scottish Tax from general UK Tax because it presupposes that income and expenditure can be split by the geographic border. Similarly, individuals and households paying income tax could in theory divide their tax liabilities geographically. Broad estimates are that probably not even half of the theoretical estimate of Scottish Taxation is geographically or physically "levied" in Scotland. The use of the word "levied" is a misnomer in this debate. HMRC offices and HMRC data on taxation levied and when paid cannot calculate empirically for Scotland separate from the rest of the UK.

The technical implications are that any political agreement on more fiscal autonomy or full fiscal autonomy for Scotland would for many years be theoretical only, with abstract calculations for any tax rate adjustments voted for by the Scottish Parliament, and would have to resort to maintaining the Barnett Formula as recommended by ex-Chancellor Gordon Brown, and would have to continue with a House of Commons right to vote a large block transfer grant from The UK Treasury to Scotland, as a backstop to ensure Scotland maintains a viable revenue stream. Even then, according to the IFS there would be a loss to Scotland of about £7.6bn compared to maintaining the present system. The political case for full fiscal autonomy has been characterised by ex-SNP leader Alex Salmond as protection against falling oil revenues and austerity policies voted by the UK Parliament. But, the practical reality of separating Scottish taxes from within UK general taxation is likely to require companies operating in Scotland to create fully-fledged Scottish subsidiary companies. The opportunities offered to companies thereby to game the tax border between Scotland and the rest of the UK are likely to mean significant revenue loss to exchequers on both sides of this 'tax jurisdictional border' with the far greater loss experienced in Scotland. The logical consequence compared to the present system risks creating more, not less, fiscal dependency by Scotland on the UK Parliament and HM Treasury than currently. Or, if otherwise, severe and involuntary austerity in Scotland from falling tax revenue will be the inevitable outcome, as the unionist parties are claiming in the 2015 general election campaign. The SNP angrily dispute this negative view of what is possible or realistic risks of the SNP's full fiscal autonomy policy demand.

The present system allocates Scotland a fully proportionate share of UK tax revenues without delay, the delay between end of tax year and tax quarter and when taxes are actually paid, normally necessitating borrowing. Scotland's major departmental budgets allocations are 20% above the per capita spending levels of the rest of the UK on average, but so too are other regions of UK and some regions within England. Central Government in London invoices for roughly 10% of all departmental spending for central government services support. Only some of this may be saved by public sector financial 'home rule' in Scotland? The argument about Scotland funding its share of the National Debt, Foreign Policy and Defense costs is misconstrued since there would be only a theoretical accounting for this and no actual cash payments from Scotland. What is also missing from the fiscal autonomy debate is the cost borne by the UK Treasury in financing the UK trade and balance of payments deficits. Scotland does not have to finance its external account with the rest of the world and with the rest of the UK, which is far larger. If Scotland had voted for full sovereign independence economists would have had little difficulty in estimating such a severe balance of payments deficit owed by Scotland to England that this alone could have nullified most of the present exchequer block grant under the Barnett Formula. The SNP White Paper of December 2013 that makes its economic case for independence makes no mention of balance of trade and balance of payments or of the implications of an open border with the rest of the UK allowing free movement of private capital, and no mention of the risks of capital flight or companies moving their headquarters in order not to have to alter their UK status.

See also[edit]

References[edit]

  1. ^ a b McLeish reiterates support for devo-max www.holyrood.com, accessed 23 October 2011
  2. ^ "Embrace devo-max, Labour told". The Scotsman. 26 October 2011. Retrieved 15 November 2011. 
  3. ^ MacDonald, Ronald; Hallwood, Paul (Jul 2004). "The Economic Case for Fiscal Federalism in Scotland". Working papers. Stamford: University of Connecticut, Department of Economics. p. 95. Retrieved 18 November 2011. 
  4. ^ Maddox, David (16 December 2011). "Scotland Bill: Devo-max would be Alex Salmond’s poll tax and result in a policy mess, says finance expert". The Scotsman (Edinburgh: Johnston Publishing Ltd.). Retrieved 29 December 2011. 
  5. ^ Freedland, Jonathan (28 December 2011). "Alex Salmond's spell could swing it for Scottish independence". The Guardian (London: Guardian News and Media Limited). Retrieved 29 December 2011. 
  6. ^ Clarke warns on Scots freedom
  7. ^ Crawford backs fiscal autonomy
  8. ^ "Cameron says Scotland can have fiscal autonomy if Tories want it". The Scotsman (Johnston Publishing). 21 December 2005. Retrieved 14 April 2014. 
  9. ^ Dinwoodie, Robbie (5 December 2011). "Independence support climbs to six-year high". The Herald (Glasgow). Retrieved 12 December 2011. 
  10. ^ Carrell, Severin (5 December 2011). "Scots back independence – but at a price, survey finds". The Guardian (London). Retrieved 12 December 2011. 
  11. ^ Scotland independence vote could contain 'financial autonomy' option www.guardian.co.uk, 8 May 2011
  12. ^ Malcolm Chisholm: Labour must support Devo-Max and abandon Calman newsnetscotland.com, accessed 23 October 2011
  13. ^ Salmond gives backing to ‘devo max’ ballot choice www.scotsman.com, 23 October 2011
  14. ^ Black, Andrew (15 October 2012). "Scottish independence: Cameron and Salmond strike referendum deal". BBC News. BBC. Retrieved 14 April 2014. 
  15. ^ "BBC survey indicates support for Scottish 'devo-max'". BBC News. 6 November 2011. Retrieved 21 May 2013. 
  16. ^ "Poll: Majority want all decisions made in Scotland". 23 March 2013. Retrieved 21 May 2013. 

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