A number of members of the academic devolution community in Edinburgh and Cardiff have suggested that proposals for further financial devolution in Scotland are now inevitable and required from the UK government. Some in the Scottish Liberal party now appear to want the Liberal part of the coalition to argue for the implementation of the Steel Commission proposals for the introduction of federalism.
All these proposals in my view underestimate, or ignore, the dilemmas presented to the UK government by the need to keep a number of different balls in the air at the same time.
Federalism: the problem
The Steel Commission report, which can be viewed here, is emblematic of this weak thinking. It proposes a "federal solution" for the UK, but only explores what this would mean for Scotland. It completely fails to examine the consequences on the wider UK and disregards the point that a federal solution for the UK requires at least four to tango.
A federal solution cannot work if, as in the case of the bulk of the Steel Commission report, it treats Scotland as an item to itself.
More particularly, the problem which the Steel Commission report (and the academic devolution industry generally) ignores is the problem of England. The Steel Commission speaks of the "nations and regions" of the UK; but what does that really mean? A federal solution would require, if not federal institutions for England as a single federal unit, then federal institutions for each "region" of England. For a "federal" solution as commonly understood to work, England, or each region of England, would require its own government, and parliament with law making powers equivalent to those of the institutions for Scotland, Wales and Northern Ireland.
Whilst regional federalism within England is something which I support (I think England could quite successfully run itself as three federated regions, say the North, the Midlands and the South), it would require a vast amount of preparation, discussion and reflection within the whole of the UK over a prolonged period, and certainly for a longer period than the 5 years remaining before a referendum on Scottish independence. More particularly, people in England would need to be asked what they want rather than have it imposed on them. If a federated UK is to be instituted, they might want England to have a single parliament for the whole of England rather than regional parliaments: who knows?
Wales and Northern Ireland
In addition, the Commission ignores that while Scotland can stand on its own feet fiscally, certainly while North Sea oil lasts, Northern Ireland and Wales at present probably cannot.
How would funding for Wales and Northern Ireland be managed in the Steel Commission version of a federal UK, and how would Scotland contribute to those nations' federal funding?
No federalism: the problem
At present devolution in the UK is asymmetrical. Put shortly, England does not have it.
The Calman Commission avoids making the West Lothian question significantly impinge on matters of taxation by proposing taking the top 10% slice off the rate of UK income tax and giving the Scottish Parliament the power to decide how much of that 10% (or more) is to be met by income tax payers resident in Scotland. The effect of this is that the rate of income tax set by the UK parliament would directly affect, on a 1:1 basis, the amount of block grant received by the Scottish Government.
All those who argue for fiscal devolution in Scotland going further than this without having also mapped out a workable federal solution (and I include the Steel Commission in this category for the reasons mentioned above) come up against the point that both constitutionally and politically there is a point beyond which asymmetry cannot go. The Calman Commission judged that their recommendations approximated to that limit. In that, they are probably right.
Let us say Scotland were to become substantially autonomous on matters of taxation. Say, instead of receiving a hand out from the UK Treasury by way of block grant, the Scottish Parliament were to set and collect tax in Scotland, and make a contribution to UK expenditure on reserved matters such as defence and the benefit system (or, in the words of the Steel Commission, "the Scottish Parliament should have a general competence over taxes and charges, other than those taxes or portions of taxes specifically reserved to the United Kingdom Parliament"). The link between, say, income tax in Scotland and that in the rest of the UK would be broken.
That breakage would be extremely problematic. It elevates the West Lothian problem to the area of constitutional fundamentals, namely the link between representation and taxation. In particular, in my view (and I think most other people's view) it would be wrong in constitutional theory for members of Parliament for Scottish constituencies to fix rates of taxes to which their constituents could not be subject, and almost certainly politically unacceptable to the country as a whole.
So let us say we reach a situation where the UK government is dependent on its Scottish members for its majority. This does not often happen, but did happen in 1950 and 1974, and is sure to happen at some stage again. If and when it happens again, how would the UK government pass its own budget? And how would it pass other contentious legislation not affecting Scotland where it depends on its Scottish members or there is a back-bench revolt (dare I mention tuition fees in higher education again)?
Any constitutional arrangement which cannot offer a solution in such a case is simply unworkable. So called "devolution max" by itself is a non-runner, without adopting new constitutional structures to cater for it. From Alex Salmond's perspective, he is wise to offer this as a referendum option because of the disruption this would cause if implemented.
How is David Cameron going to square these circles? Properly thought out federalism which looks at the UK as a whole rather than just Scotland, which is likely to require 10 years of thought and consultation, is probably the only way to do it. However, the political class at Westminster are opposed to this (including Nick Clegg and the Liberals): federalism robs them of many of the things that interest them and in particular robs them of control of England. It goes against all the centrist instincts of those at Westminster. Furthermore, the political class in Edinburgh seem incapable of looking beyond Scotland.
So probably we will have guerrilla warfare between Alex Salmond and the UK government and stagger on to a referendum in Scotland, and you would not want to bet all your assets on him not at least succeeding on a supplementary "devolution max" ticket. And the Liberals will continue to try to look in two directions at once.