11 September 2014

What a difference a debate makes. The narrowing of the independence referendum polls since the Salmond-Darling rematch has spurred the No side into promising an accelerated timetable for further devolution to Scotland. Even if the Yes bounce fades away, it is now a certainty that additional powers are on their way to Edinburgh however Scots vote next Thursday.

In this context, the Institute for Government publishes today a new scenarios analysis paper that looks at the effects and the implementation challenges of 16 distinct scenarios – 10 for Scotland, 4 for Wales and 2 for Northern Ireland – ranging from the status quo in each country, through various proposed systems for further devolution, all the way to Scottish independence.

To make sense of this array of possibilities, we boil our analysis down to two simple questions: under each proposed scenario, how much tax-raising power and how much public expenditure will be under the control of the Scottish Parliament (or the devolved assemblies in Cardiff and Belfast)? Based on this analysis, and wider discussion of the implications of different proposals, we can draw the following conclusions.

First, in all three devolution settlements there is a large discrepancy between extensive spending powers and very weak tax-raising powers. None of the three devolved nations controls more than 10% of tax revenue within their territory at present.

Second, further tax powers are on the cards across the UK. The Scotland Act 2012 has devolved stamp duty and landfill tax, and means that from 2016 there will be a separate Scottish rate of income tax. The Wales Bill contains a similar package (albeit that the income tax powers will be subject to a referendum). And in Northern Ireland, a decision is due on whether to devolve corporation tax in order to compete with the low-tax Republic. But even with all these new taxes devolved, the UK Government will still be responsible for at least 80% of tax raised in each of the three territories.

Third, there is significant difference between the three devolved nations in the range of spending powers devolved. The Northern Ireland Assembly has its own social security system (as well as its own civil service) so is responsible for 80% of public spending in Northern Ireland. In Scotland and Wales the equivalent figures are approximately 60% and 50%. The current debate in Wales is about whether policing and parts of the justice system (which are devolved to both Edinburgh and Belfast) should be placed under the control of the Welsh Assembly, which would increase this figure.

Fourth, in Scotland, most of the debate between Labour, the Conservatives and the Liberal Democrats has been about which further tax powers to devolve. Each of the three parties established a policy commission to make proposals for the next phase of devolution. Labour’s proposals are the most cautious on fiscal powers – fearing a ‘race to the bottom’. The Conservatives are bold on income tax devolution. The Liberal Democrats favour transferring inheritance and capital gains tax too (as part of a new federal settlement). There is also some debate about transferring further policy responsibilities, including some elements of welfare, such as housing benefit. The parties are now committed to finding a joint position that will be legislated for shortly after the next election. It remains to be seen, however, what that compromise will look like.

Fifth, none of the three unionist parties proposals come close to what might be termed a ‘devo max’ option, a term that is often used loosely in debate, but we take this to mean the devolution of the maximal amount of power that can be transferred without rendering the UK unviable as a state (almost everything except foreign, defence and macroeconomic policy). In fact, no-one is currently proposing a true devo max model, although other organisations such as the IPPR, Reform Scotland and the Devo Plus group have all set out more radical visions than the mainstream parties.

Sixth, if Scotland votes No, a big space to watch will be what model of additional devolution the SNP will seek to promote – and how close to a genuine ‘devo max’ they may push for. The other parties would do well to remember that while the nationalist party controls the Scottish Parliament, it holds a veto over any further devolution under the ‘legislative consent convention’. And if the SNP manages to increase its Westminster representation in May 2015, it could conceivably end up holding the balance of power in a hung parliament too.

Seventh, the debate is all about which powers to devolve, but consideration should also be given to the implementation of further constitutional changes, as well as the impact on wider policy objectives. For instance, even the fairly limited tax devolution so far has posed operational challenges relating to the identification of Scottish taxpayers and to the impact on the block grant through which the devolved bodies are funded. And considering welfare, housing benefit may be devolved, but how will that impact upon the implementation of Universal Credit, into which housing benefit is due to be integrated?

These are just some of the issues explored in our paper, which will help to inform the debate about the future of Scotland and the UK.

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