Scotland’s fiscal framework exists within a UK fiscal framework and the two relate to each other. It might well be said that there are also Welsh and Northern Irish fiscal frameworks, and quite possibly an emerging English one. They are all moving parts in a system, and they are each moving in different ways for different reasons, three of which I set out in my paper.
The first reason is that the Smith commission consensus is no longer a consensus on what was written in the Smith report. In my paper, I said that John Swinney moved away from that at the press conference that marked the launch of the report. He said, “Okay, we’ll take this, but we think there should be more in various ways and for various reasons.”
The Labour Party has supplemented rather vaguely what it thinks a new Scotland bill should offer in the field of welfare, and the Conservative Party has taken away the Smith commission commitment that all UK MPs should vote on any budget decisions to do with income tax. That is now gone from the Conservative Party vision, as set out by William Hague in January and reiterated in an English manifesto, a written version of which I have as yet been unable to track down. Smith is therefore a moving target. At least three of the signatory parties have moved beyond the initial consensus in different ways.
The point about the Barnett formula is a different one. The Barnett formula is a fundamental part of the existing framework for determining the budgets of the devolved Administrations, but it is becoming less important because fiscal autonomy at the devolved level has increased, which means that there is a smaller quantum through which Barnett consequentials will flow, and because the Scottish Parliament will have part of the responsibility for fundraising under the Scotland Act 2012 and whatever comes out of the Smith commission. A similar process is under way in Northern Ireland for corporation tax and something similar is envisaged for Wales, as the Silk commission proposals on finance move towards legislation. The Barnett process will therefore become a smaller part of the system and the fiscal autonomy that generates own revenues will become bigger.
10:30
Moving beyond Smith, the Conservative Party has made an interesting suggestion about an English rate of income tax. I am not sure whether that is what it is actually proposing; it is probably proposing to have an English, Welsh and Northern Irish rate of income tax, to be determined by a group of UK Parliament MPs, to the exclusion of Scottish MPs. Whether that is English, or English, Welsh and Northern Irish, is an interesting issue relative to Barnett consequentials, because the package of decision making about what happens in England is what has driven adjustments to devolved budgets through the Barnett process. If you begin to take England as a distinct unit, not subject to decision making by all UK MPs, you move into a very different place.
I am not a fan of the Barnett system at all, but it may make some sense if all UK MPs make decisions about England in the consciousness that it affects the budgets of the devolved Administrations. If a separate decision-making space is created for England, that rationale becomes challenged. If English MPs decide on matters to do with England without the inclusion of MPs from the rest of the UK, it undermines the principles in the system. We are not there yet—that is speculation—but it is a logical consequence of the way in which the Conservative Party has moved.
The final moving part is the UK general election. If the committee was meeting in a month’s time, it might be a bit surer of where we are. There is speculation and, to some extent, parties representing distinct bits of the UK have price lists for helping to establish a UK Government of either colour. For example, a price of £1 billion per year has been attributed to the Democratic Unionists in Northern Ireland. That would not be a Barnett payment, because to generate an additional £1 billion for Northern Ireland through Barnett would mean an awful lot of extra spending at UK level. It would be, very explicitly, a deal to bypass the current system.
Plaid Cymru, in Wales, has argued for per capita returns equivalent to those that Scotland receives under the current system. Again, if that were to be generated through Barnett, it would mean a very big boost to UK-level spending, which would of course feed through to Scotland and maintain the differential, so Plaid Cymru means a side payment for Wales, which would be beyond Barnett.
Depending on how the numbers work out, we could see a system in which the mainstay of the UK’s system of territorial arrangements for budget adjustments is increasingly bypassed. The system contains all sorts of moving parts, which render the current situation less transparent, more subject to asymmetric relationships between the different parts of the UK, harder to conceive and manage through intergovernmental relations, and much harder for you and your equivalents in the various Parliaments of the UK to oversee and scrutinise adequately.