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Fiscal Autonomy in Scotland: The case for change and options for reform

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Foreword by the Cabinet Secretary for Finance and Sustainable Growth

In May 2007, the people of Scotland voted for the country's first ever SNP Government. This decision reflected a growing ambition nationwide to improve the economic prospects of our country and the opportunities for our people.

In government we have responded to this demand, placing our core Purpose of increasing sustainable economic growth at the heart of our actions and our policies. We have consistently used every lever available to raise sustainable economic growth and break the cycle of decades of relative economic underperformance. And, in the face of the current global economic crisis affecting all advanced economies, we have redoubled our efforts to protect jobs, incomes and businesses across Scotland.

It is clear that the Scottish economy faces its greatest challenge in decades. However, the impact of the economic crisis has starkly exposed the limits of Scotland's current fiscal framework.

The right response to the present situation is to deliver a substantial, immediate and well-targeted fiscal stimulus, supporting growth, jobs and confidence throughout the economy. But, within the current framework, Scotland's Government is tied to a fixed budget determined by Westminster. The Scottish Government has no scope to borrow prudently or to boost spending, and it has very limited scope to cut taxes to spur growth. In short, at the time of Scotland's greatest economic need, its Government does not have all the powers to properly protect its citizens and businesses. This cannot be in the best interests of the Scottish economy; not now and not for the long-term. That is why this debate on Scottish fiscal autonomy is important.

More widely, the global economic crisis has called into question fundamental aspects of economic policy in the advanced economies that were previously regarded as settled. The role of the state, the scope of financial regulation, the objectives of fiscal and monetary policy and arrangements for international economic and financial coordination are all being questioned anew.

Globally, there is now underway a review of the structure and aims of economic policy. Existing frameworks and policies in many advanced nations, large and small, have been found wanting. This is the time to shape new and better economic institutions. It is in that spirit that we must consider the right arrangements for Scotland's long-term success.

The Scottish Government firmly believes that for Scotland to achieve its full economic potential, it must have control of the economic levers of an independent country. This paper sets out the reasons why we believe this is the case and considers possible options for reform. We seek to enable the broadest and deepest debate possible on the future of the Scottish economy; a National Conversation uniting businesses, trade unions, government, citizens, universities and colleges and the third sector.

This paper is an important contribution to the debate on the future of Scotland. It will be followed by discussions and further papers setting out how the Scottish Government would use the full range of levers to deliver greater prosperity for Scotland. Our aim is to provide the best possible evidence to enable the people of Scotland to make informed choices about the future of Scotland, and to agree how best to secure Scotland's full potential.

John Swinney MSP Cabinet Secretary for Finance & Sustainable Growth