Finally, the Treasury and the Scottish government have done a deal on the Scotland Bill fiscal framework. Both sides deserve some credit for reaching an accommodation, but the really important thing is that the Scottish Parliament will now get the extensive new powers that were promised in the referendum campaign.
These negotiations have been endless, but it looks as though the Scottish government have extracted a remarkably good deal from the Treasury. As I explained in earlier blogs, the real question in dispute was whether, as well getting as a Barnett formula share of common UK taxes, the Scottish government should also get a share of devolved taxes like income tax that are paid in the rest of the UK, even though it keeps all Scotland’s income tax and other devolved taxes.
To be strictly fair to taxpayers elsewhere in the UK the answer’s no, but the promise of “no detriment” allowed the Scottish government to argue that they should, as under Barnett, get some share of those taxes too. In the negotiations, the UK government’s second offer was quite an ingenious formula for giving Scotland a share of devolved taxes paid in England, Wales and Northern Ireland. But SNP ministers wanted more: they think Scottish population will decline compared to England’s, and they want their budget to be protected from relative population change.
The politicians have come to a compromise: one suggested first, in public at least, by Tory leader Ruth Davidson. (I’m willing to bet she first tried it out on with her friends in London.) The Treasury will apply their formula but gives the Scottish government what sounds like a safety net for the first five years: that delivers what SNP ministers asked for – protection for their tax revenue in the event Scottish population declines. There will be a review after five years, when the Treasury will surely want to transfer some more risk – but who knows how the population numbers will look by then, and what else will be going on?
Scotland’s new welfare powers will also be supported by new Treasury cash, though not as much as the SNP were demanding.
In all fairness?
Both sides emerge with some credit. The Treasury have moved a very long way from the strict application of fairness to UK taxpayers, and Mr Osborne may face criticism from some of his own people. But SNP ministers have also allayed the suspicions of those (like me) who had begun to wonder whether they preferred a continuing grievance about being denied new powers to actually exercising fiscal responsibility.
So the Scottish Parliament will now consent to the Scotland Bill. The SNP will vote for it, and there is a majority in Westminster for it too. The Bill will get a hard time in the Lords, but will get onto the statute book. Holyrood will now be supported by a mixture of shared UK resources (calculated by Barnett) and its own Scottish taxes, supplemented by additional UK resources. Devolution has always meant a balance of shared UK power and Scottish autonomy. It will now have a big fiscal aspect.
It has a political aspect too: the SNP government will have to tell voters how they propose to use these extensive new powers. The reality of fiscal devolution is that you may have to put your money where your mouth is.