Redesigning Devolution: International Lessons for the UK

International conference, 28 September 2012 - summary

On Friday 28 September, a multi-national group of government officials, politicians and academics gathered at the Institute for Government to discuss the state of devolution in the UK and the federal systems of Canada, Spain and Belgium. The conference – co-sponsored by the UK offices of the Quebec, Catalonia and Flanders governments – addressed the themes of fiscal decentralisation, policy cooperation and social citizenship, reflecting the central challenges that all multi-level political systems have to tackle.

Peter Riddell, Institute for Government Director, introduced the conference and chaired the first session.

Session 1: Fiscal decentralisation

Albert Carreras

Albert Carreras, Secretary for Economy and Finance in the Government of Catalonia spoke first. He described how the central government raises the vast majority (c.90%) of tax revenue for 15 of the 17 states (or autonomous communities) of Spain, with much of the revenue then transferred to the states by fixed formulae (for instance, 50% of income tax and VAT is assigned to the states).The exceptions are the Basque Country and Navarre which, for historic reasons, have close to complete fiscal autonomy – making them more able to adapt to circumstances.

For the other regions, the fiscal imbalance has shifted further in recent years as the property crash has undermined state-level revenues, while new taxes created in response to EU pressures have accrued to national government. Tax competition (notably over inheritance tax) has also undermined states’ fiscal revenue. Meanwhile, as a rich state, Catalonia subsidises other parts of the country via equalisation mechanisms. All this has contributed to the current dissatisfaction in Catalonia, where there is a perception that the national government is trying to shift responsibility for the country’s problems onto the regions.

Professor Noel Lloyd

Professor Noel Lloyd, a member of the cross-party Commission on Devolution in Wales, described how this body is exploring the case for the devolution of fiscal powers to Wales. The Welsh Government has next to no independent revenue-raising capacity at present: the only devolved taxes (council tax and business rates) are applied at the local government level. This prevents the devolved administration from using fiscal levers to change behaviour, stimulate growth and so on.

The Commission will publish its report shortly, guided by the principles of empowerment, accountability and equity. The Commission will consider factors including the effects of different tax rates on either side of the Anglo-Welsh border, the costs of developing a Welsh tax and borrowing system, and the impact of changes at the EU level and in Scotland.

Professor Noel Lloyd's speech to the conference

Professor Alain Noël

Professor Alain Noël of the Université de Montréal, set out 10 lessons of fiscal federalism. Among these was that economic theory can take you only so far: there is no single right answer to the theoretical question of how best to allocate fiscal powers. Professor Noël also emphasised that in a federal system, where there is a sovereign division of power between national and subnational governments, it is important for both levels to have their own resource bases. Constitutional design should reflect this fact, but much happens outside of the constitution. Notably, in times of crisis there is often a transfer of power to central government – though in Canada, Quebec has been quite successful at resisting this. Professor Noël also argued that federalism is good for accountabilty and also for the economy, since politicians at the provincial level must work within hard budget constraints. But federal systems must also create mechanisms for equalisation between regions, which becomes a bigger challenge the more you decentralise.

Jeremy Purvis

Jeremy Purvis, leader of Scotland’s Devolution Plus group, set out his case for a further devolution of fiscal powers, which he suggested would help overcome ’moral hazard‘ problems created by the centralised nature of the UK’s fiscal settlement. Mr Purvis noted that the wide spectrum of constitutional options stretching from (in theory) a return to direct rule from Westminster all the way to full independence. The SNP, he argued, fell on the border of the ‘Indy Lite’ and ‘Devo Max’ options – and are advocating something similar to the Basque model. The Devolution Plus group, by contrast, are advocating a middle-ground settlement encompassing three categories of tax: fully-devolved ’Scottish taxes’ (including local taxes and stamp duty), ’shared taxes’ (including income and corporation tax), and ’UK taxes’ that remain reserved (notably VAT and National Insurance).

Session 2: Policy Cooperation

Alan Trench, formerly of the UCL Constitution Unit and author of the Devolution Matters blog, chaired the panel.

Luc van den Brande

Luc van den Brande, former Minister-President of Flanders, described Belgium’s complex multi-level federal system of inter-governmental relations, emphasising the strongly europeanised nature of the country’s governance. Mr van den Brande noted that under the Belgian constitution, there is no hierarchy between the powers of national and subnational (regional and community) governments. He also pointed out that there are no longer any Belgium-wide parties, and argued that the country sits on the the border of the Anglo-Saxon and Roman worlds. All this makes cooperation and coalition-building one of the core traditions and central challenges of Belgian governance. A complex array of ‘concertation’ machinery has been established to facilitate this.

Professor Montserrat Guibernau

Professor Montserrat Guibernau of Queen Mary, University of London, discussed the relationship between the Catalan and Spanish governments. She argued that following Spain’s transition to democracy, the relationship was largely based on cooperation – with Catalan nationalists committed to the Spanish democratic process and to membership of the EU. However the election of the Popular Party at the national level in 2000 brought about a change in relations, as the new Aznar government adopted a more centralising and right-wing agenda. Professor Guibernau argued that the recent rise of secessionism in Catalonia is attributable to this change, as well as to developments such as the constitutional clash over Catalonia’s 2006 Statute of Autonomy and current disputes over the fiscal situation. Support for independence has now increased to over 50% as of June 2012, and the Catalan President Artur Mas recently called an election, following which a referendum on secession may be held (even though this may be ruled illegal). Professor Guibernau concluded that cooperation between central and regional government rests on dialogue and trust, which are largely absent at present.

Liz Cameron

Liz Cameron, Chief Executive of the Scottish Chambers of Commerce, focused on the impact on business of relations between the UK and Scottish levels of government. The perception that businesses are unengaged or indifferent to constitutional reform is wrong, but business does need convincing that there is a causal link between the constitutional structure and economic performance. Devolution has been relatively good for Scottish businesses: decisions are taken close to the point of application, businesses are able to access ministers and challenge decision-making more easily. However, Ms Cameron emphasised the current complexity, from a business perspective, of the split in policy responsibilities between UK and Scottish governments in areas such as skills policy, which can lead to unstructured policy approaches. She also noted that while the referendum on independence for Scotland was approaching fast, there remained uncertainty over significant matters such as currency arrangements, which will be subject to negotiations with Westminster. Until such proposals are clear it is difficult for business to take a position.

Session 3: Social Citizenship

Sir John Elvidge, former Scottish Government Permanent Secretary, chaired the final session, where three academic experts addressed the concept of citizenship in multi-national democracies.

Professor Alain-G Gagnon

Professor Alain-G Gagnon argued that social citizenship was fundamentally about 'constructing a national myth'. Noting that the concept of citizenship was originally rooted in juridical notions of legal citizenship rights, he argued that it was necessary to move beyond this to the construction of cultural and social rights as a way to build communities. He described the long history of clashes between the Ottawa and Quebec governments (dating back to the 1920’s) as the national government has developed social policies that impinge on provincial autonomy. In response, Quebec has withdrawn from certain fiscal and social policy frameworks that apply elsewhere in Canada, as a way to build its own social policy model.

Professor Daniel Wincott

Professor Daniel Wincott examined how social citizenship in the United Kingdom had changed since devolution. Discussing the division of powers between Westminster and Holyrood, he noted that Westminster’s retention of control of the welfare and benefits system provided an important force for the equal treatment of all citizens. But the block grant system, which funds the devolved administrations, has not been used to secure a common bundle of services for all citizens in the way that it might have been. Indeed, the division of powers and the block grant system were not designed with any redistributive purpose in mind, but simply reflected pre-devolution practice (when the Scottish Office ran many public services). Consequently, and also due to the Blair and Brown governments’ reluctance to highlight their redistributive policies, the unionist parties have failed to communicate the purpose of the Union in the post-devolution context. With public attitudes to welfare spending seeming to grow more sceptical, there is a drift towards an ’ever looser Union’ that will continue irrespective of the independence referendum result.

Peter Bursens

Peter Bursens described the emergence of a ‘multi-level welfare state’ in Belgium. Regional political elites supported the devolution of federal welfare policies, which is seen as a policy area less liable to EU control: previous constitutional changes devolved policy areas such as agriculture and the environment, which turned out to be an ’empty box’, due to heavy EU involvement in these areas. There is also a deliberate attempt in Flanders at least to create a regional identity using welfare policy as a nation-building tool – for example by branding particular benefits as ‘Flemish benefits’ rather than ‘Belgian benefits’. But there is no consensus around devolving welfare policy, so the federal government will retain an important role. What regional governments and also the EU are likely to do instead is to create ’flanking benefits’ operating in parallel to benefits set at the national level. However, this approach may not be without obstacles: a Flemish initiative to create a new care insurance scheme was challenged by the French community of Belgium in the European Court of Justice.

Sir John Elvidge

Sir John Elvidge drew a number of conclusions from the day’s discussions. First, that devolution is not about a technocratic pursuit of a perfect system. Second, that all constitutional systems evolve on the back of historical accident, identity and values. Third, that identity issues predominate over purely economic concerns. Finally, he wondered whether many voters were interested in the constitutional debate, or whether it was all an elite-level project.