Tuesday, 16 June 2009

Calman Report

The Calman Commission reported yesterday. The report, although 268 pages long, is quite a good read, with a perceptive analysis of the difficulties of achieving stable devolution to individual nations within the UK such as Scotland, given the way in which the UK has taken shape since the Acts of Union of 1707 and the unequal sizes and economic resources of its constituent parts.

The Calman recommendations

The report will be a disappointment for those hoping for a step on the road to Scottish independence. Gordon Brown has described it as "bold and realistic". Realistic, perhaps; but bold, no. From the unionist perspective I would characterise it is a clever and well conceived sleight of hand.

The report proposes some additional devolution of powers in a few areas: some further road traffic responsibilities such as alcohol limits and traffic speeds are to go to Hollyrood, together with the control of air powered weapons. Some other rather esoteric matters are proposed to go back to Westminster, such as company liquidation and the regulation of health professionals. But the headline change proposed is that national rates of income tax as fixed by the UK Parliament should be 10% lower in Scotland than in the remainder of the UK, with the Scottish government and Parliament having the power to make up that missing 10% (and more) with a Scottish income tax to whatever degree it thinks fit. In addition, it is proposed that the Scottish government should be able to fix its own rates of stamp duty land tax on property transfers, together with its rates of airport passenger tax, aggregates levy and landfill tax.

As a corollary of this, it is proposed that the Scottish government is also to be able to borrow for capital items to be financed out of these new revenue powers.

Why do I describe this as a sleight of hand? I do so because the Scottish Parliament already has the power to vary the rate of income tax applying in Scotland up or down by up to 3%. This power has remained dormant and unused: no Scottish government has wanted to make active choices between cutting public expenditure and taxation on the one hand and increasing taxation and public expenditure on the other hand. Implementation of the Calman proposal would force the SNP in government to show its hand on whether it is a low tax or high tax government, or whether it is to "cop out" of separate national aspiration by following the rates which are set at Westminster for the remainder of the UK. In short, it forces the making of active choices, and it does so without the Scottish government being able to make up the "missing 10%" by imposing a rate of tax which impinges proportionately more heavily on higher rate payers than on lower rate payers. (Adopting Dennis Healey's famous epithet as Chancellor, it cannot adopt a policy of funding public expenditure by taxing higher earners "till the pips squeak".)

In consequence of the diversion of the top 10% of income tax (or whatever lesser or greater amount the Scottish parliament chooses to fix) directly to the Scottish government, the block grant allocation from UK tax sources will be reduced. Some reports by newspapers with mathematically challenged correspondents have reported that one consequence is that less money is to go from taxpayers south of the border northwards. This is most unlikely in the short term, because the Commission also recommend that the Barnett formula should be retained until an acceptable needs-based formula for block grant allocations for the UK as a whole is arrived at. By far the most likely outcome is that the block grant to the Scottish government from the Barnett formula will be reduced by exactly the net amount of the missing 10% of UK income tax raised in Scotland that would have gone to the UK exchequer in the first year in which the new scheme comes into operation. In terms of UK contribution to public expenditure in Scotland, at the outset there is therefore likely to be no change at all, and in theory at least the "Barnett squeeze" which was intended to bring funding to different parts of the UK more into line is likely to become even less effective than it already is.

One matter highlighted in the report, reflecting in a more accessible way the Scottish Government's own 2008 GERS report, is that Scotland has historically received marginally more in public funds from the UK exchequer than it has contributed to it by way of taxation, even hypothecating 90%1 of North Sea oil and gas revenues to Scotland and 10%1 to England. There was a period in the 1980s of both high oil prices and high North Sea production during which Scotland was a net contributor by virtue of its fossil fuel resources, but on average it has been in deficit. This analysis was ostensibly to show why transferring 90% of oil and gas revenues to the Scottish government (with a concomitant reduction in block grant) would not work in practice because of the volatility of oil prices, but no doubt the extensive treatment of this in the report is another nod to the unionist agenda by making it clear to people in Scotland what their choices are. The fiscal deficits are not so severe in terms of Scottish GDP that it would put me off independence if I were a Scot and keen on national self-determination; but in the event of independence significant work would be needed by the Scottish government to avoid difficult times when the oil does run out.


The report tip-toes around the issue of England. On the one hand, it says that the West Lothian Question is not for the Commission. One could question that, as part of its remit was to come up with devolution proposals which would "continue to secure the position of Scotland within the United Kingdom", and that could not be done without paying some regard to their effects on the remainder of the United Kingdom, including England. The more is devolved, the more are the matters affecting England on which the West Lothian Question will bite. Were the Commission to have proposed fiscal autonomy for Scotland for example, it is difficult to see how they could have remained oblivious to the effect of the West Lothian Question on taxation matters in securing the position of Scotland in the United Kingdom2.

On the other hand, whilst those wanting an English Parliament will be just as disappointed by the report as those wanting Scottish independence, it does venture into the position of England in ways that Gordon Brown will be uncomfortable with, by suggesting that England is and has a political identity which is more than just a collection of regions:

"2.13 It is not for us to discuss where or how power might be decentralised or devolved in England – whether, as has been proposed in the past, to regional level, or by giving more power to local institutions. Nor is it for us to discuss how England’s laws should be made. But, however such ideas might be pursued, they will not affect the fact that England, though larger than Scotland, Wales or Northern Ireland, will remain a nation with a single political identity which it has maintained for at least as long as Scotland’s. It is of course possible to divide the UK into “standard regions” for administrative and statistical purposes. Scotland is one of those regions, as are Wales and Northern Ireland. But the standard regions in England do not have the same sort of political identity as Scotland. This fundamental aspect of the Union will always remain, and must not be ignored in its territorial constitution."

Gordon Brown will also be disappointed by the suggestion that his project for a written constitution, put on the back burner since he first proposed it in 2007, should have an English dimension:

"2.14 Because our constitutional arrangements are unique, it does not make sense to take ideas or institutions from other countries and apply them directly here. ... Devolution to Scotland (and Wales and Northern Ireland) created political institutions that exercise many of the powers of central Government for a significant proportion of the UK. That inevitably has meant that the governance of the rest of the UK cannot continue unchanged. [my emphasis]

2.15 It is not sufficient for Scots (or indeed Welsh or Northern Ireland citizens) to dismiss this as simply a problem for the English: the internal arrangements of the Union are a matter for all of us. The UK now has a territorial constitution, and it needs, in our view, to be more fully and clearly set out."

This is quite surprising, given the strong Labour influence in the make up of the Commission, and is concerning for the government in coming so soon after similar comments in the recent report of the Select Committee on the Ministry of Justice entitled "Devolution - a decade on" (comments here). The current government, and Gordon Brown in particular, will no doubt try to bury this as quickly as it and he are able.

However, given that it is likely that the Conservative party manifesto for the next general election will propose some form of Grand Committee for England-only or England-and-Wales-only legislation, the question does arise whether the Conservatives will put more emphasis on the West Lothian Question in the lead up to the election should polling show a closer contest with Labour than at present, so that every vote counts. (Not that I think an English Grand Committee is a particularly workable answer - my proposal concerning Third Reading here seems to me to be a much better solution.)


1 Or is it 83% and 17% respectively, the figures used for the geographical allocation between Scotland and England in the Scottish government's 2008 GERS report, based on what would be international borders in the event of independence? It is not clear in the report how the hypothecation has been made.

2 In fact, the Calman proposal for MSPs in the Scottish Parliament to set income tax, stamp duty land tax, airport passenger tax, aggregates levy and landfill tax for Scotland still raises, in a more attenuated form, issues about the relationship between taxation and representation when determining these taxes for the remainder of the UK, which I will cover in a later blog article.

Update: Article on taxation and representation here.

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