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

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6 A way ahead for Scotland

Chapter Summary

  • This paper has set out the case for new and better fiscal arrangements for Scotland and the main options for reform.
  • The National Conversation is the vehicle through which the people of Scotland can discuss real improvements to meet the needs of businesses, families and communities nationwide.
  • The view of the Scottish Government is clear. This Government believes that independence is the best way forward for Scotland and would provide the assured constitutional structure to deliver increasing sustainable economic growth.
  • The publication of this paper is the next stage in the National Conversation, not the end, and the Scottish Government welcomes views on the issues raised in this publication.

Introduction

6.1 This paper has looked at the main options for improving the fiscal arrangements in Scotland. It has illustrated how each of these options meets the key criteria for reform.

6.2 This chapter provides a summary of each option and concludes that Scotland will only meet its full potential when it has the same range of responsibilities as other successful independent countries. It then goes on to outline a way ahead for Scotland through the National Conversation.

Summary of options for reform

6.3 The five options for reform considered by the paper are:

  • current framework;
  • assigned revenues;
  • enhanced devolution;
  • devolution max; and
  • independence.

Current Framework

6.4 The Barnett Formula sets a limit on funding available to devolved administrations and determines the Budget of the Scottish Government based on policy priorities elsewhere in the UK. Scotland is dependent on the success or otherwise of the UK's macroeconomic and fiscal policy framework.

6.5 As demonstrated in Chapters 3 and 5, although the current devolution settlement allows significant authority to manage public spending in Scotland, the principal tools of macroeconomic, taxation and regulatory policy are reserved to the UK Government, preventing the Scottish Government using the full range of policies to deliver improved growth. This option is therefore not considered to be a positive option for Scotland.

Assigned Revenues

6.6 Assigned revenues would not represent a material increase in the autonomy of the Scottish Parliament and in many respects would lead to the establishment of a weaker fiscal framework than the current arrangement. It has been argued by some commentators that incentives to grow the economy could be improved. However, there is no evidence that this would indeed be the case, or is not happening under the current arrangement. Indeed within the current framework and without assigned revenues, this Government has put growing the economy at the heart of its policies and its framework for public accountability.

6.7 Dependence upon assigned revenues with no autonomy to respond to changes in economic or financial circumstance would generate maximum risk to the Scottish Budget and delivery of public services in Scotland.

6.8 Therefore in practice, assigned revenues do not represent any step forward in devolution and the autonomy of the Scottish Parliament. The principal effect would be a change in accountancy rules which the Scottish Government believes could leave Scotland worse off by creating the appearance of responsibility without any real additional economic levers. This option is not considered a credible proposition for a new Scottish fiscal framework.

Enhanced Devolution

6.9 Under this option, a movement toward enhanced devolution could increase the range of policy opportunities available to the Scottish Parliament provided that it involved a degree of tax devolution ( i.e. the ability to vary tax rates/base in Scotland compared with the rest of the UK).

6.10 To an extent, enhanced devolution would represent a step forward in the fiscal framework for Scotland. However, a piecemeal reform would not allow the more substantial opportunities that could come from greater autonomy and it would not match the economic ambitions of Scotland's businesses and citizens.

Devolution Max

6.11 Short of independence this option would create the maximum policy discretion for the Scottish Government to increase sustainable economic growth. It is possible however, that elements of economic policy would remain reserved to the UK Government. This option would involve some additional administrative costs and increased reliance on Scotland's 'own-source' revenue. The fact that policy flexibility could also be increased under this option would enable the Scottish Government to deliver appropriate budgetary arrangements.

6.12 Accountability and efficiency would be high under this option and the expanded devolved budget could increase the opportunities of the Scottish Government to respond to short-term pressures in public spending and the wider economy, leading to greater opportunities to enhance Scotland's potential growth.

6.13 This option is therefore a significant step towards fiscal autonomy. However, short of full independence, this would still constrain long-term growth, to the extent that aspects of tax, spending and borrowing remained reserved to the UK Government.

Independence

6.14 Independence would allow the maximum degree of policy discretion and accountability over fiscal and economic policy. It is the arrangement chosen by similar nations around the world. Like these countries, ensuring sustainability would be Scotland's own responsibility, as would growing the economy and managing the national budget over the short and long-term. Incentives for efficient policy delivery would also be maximised. Crucially, it would give the Scottish Government the full range of economic levers to deliver increased sustainable economic growth.

6.15 The Scottish Government believes that independence is the only option which will enable Scotland to meet its full potential, giving this country the same range of responsibilities as other successful independent countries in Europe and across the world.

Conclusion

6.16 This paper has outlined the case for improving the current fiscal arrangements and the options for reform. It has put forward a fiscal framework that can enhance Scotland's long-term competitiveness and ability to respond swiftly and decisively to short-term economic pressures.

6.17 The view of the Scottish Government is clear. This Government believes that independence is the best way forward for Scotland and would provide the assured constitutional structure to deliver increasing sustainable economic growth.

6.18 Our National Conversation continues. We welcome discussion and debate on these issues and comments on this paper can be made through the National Conversation 65. Beyond this initial exploration of the options for reform, further papers will be published over the coming months setting out how the Scottish Government would use key additional economic levers to deliver a step change in growth for Scotland.

How to participate in the National Conversation

6.19 The best way to sign up for the National Conversation, or to make suggestions for participation events or methods, is to visit the National Conversation website at www.anationalconversation.com or e-mail joinin@anationalconversation.com.

6.20 Responses can also be sent by post to:

A National Conversation

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