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People and Communities: Taking forward our National Conversation

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4 Options for Reform

Chapter Summary

  • This chapter examines options that go beyond the current devolution model - mainly 'devolution max' and independence.
  • Devolution max would see the Scottish Parliament having responsibility to make primary legislation in most areas, excluding defence, foreign affairs and aspects of macroeconomic policy, while independence would see Scotland with the same responsibilities as other, similar countries. Only independence would see the Scottish Parliament and Government with the full range of policy-making tools ensuring alignment of all policy in Scotland.
  • Cross-border cooperation arrangements already in place could be both enhanced and multiplied under devolution max or independence.

4.1. This chapter considers the implications of additional responsibilities for the Scottish Government and Scottish Parliament, focusing in particular on 'devolution max' and independence.

What the future could look like - options

Devolution max

4.2. 'Devolution max' refers to Scotland having the maximum amount of tax and policy devolution short of independence. Scotland would remain within the UK. The Scottish Parliament would have the ability to make primary legislation for almost all issues. Defence and foreign affairs would remain reserved. Responsibility for most elements of fiscal policy, including setting and collecting tax revenue raised in Scotland would also be devolved, although some aspects of economic policy, such as monetary policy are likely to remain reserved.

4.3. By collecting all tax revenues in Scotland, a payment from Edinburgh to London would be required to cover common UK public goods and services (i.e. 'shared services'). Whilst devolution max would give the Scottish Parliament greater responsibility for policy, a number of factors would continue to constrain fiscal policy under this framework. For example, intra-national rules and guidelines, and in particular EU laws governing taxation policy between and within Member States, may limit the level of real autonomy provided. Rules and commitments imposed by the UK Government under devolution max may also limit the ability of the Scottish Government to introduce policies which differed significantly from elsewhere in the UK.

Independence

4.4. Independence would see Scotland with the same responsibilities as other, similar countries. This would include full fiscal and economic autonomy and return responsibility for raising and collecting all revenues (including North Sea revenues) to the Scottish Parliament, as well as the full range of government expenditures (including welfare and defence). This would of course be subject to international rules and regulations, such as EU directives on competition, tax harmonisation and the EU Single Market. However, unlike the other options outlined above, Scotland's relationship with the international community would take place within the context of Scotland acting as an independent sovereign state. In short, Scotland would have full responsibility for all of its affairs.

4.5. In practice, many of the opportunities for housing, law and order, children, health and transport, delivered by devolution max would be similar to those delivered by independence. However, under devolution max, the UK as opposed to Scotland would remain the sovereign state and this would have implications. For example, the UK Government could continue to impose constraints on the policy levers available to the Scottish Government. In particular, many key elements of economic policy would remain reserved as would the negotiation of international settlements. The Scottish Government believes that only independence would provide the maximum degree of policy discretion to enable Scotland to meet its full potential.

What could the future look like - taxation as a policy lever

4.6. Under current arrangements the full benefits of using fiscal levers to support priority policy areas have not, to date, been realised for Scotland. Taxation can be a potent lever to incentivise individual and organisational behaviours as they relate to specific policy objectives. Of course, altering a single element of the taxation system would have to be considered within the overall fiscal framework.

4.7. Increasing Scotland's responsibilities in terms of taxation would enable Scotland to use fiscal levers to intervene in the areas where Scotland needs it most.

4.8. As things stand, Scotland is faced with limited options to deliver the quantity and range of housing which Scotland so desperately needs. The Scottish Government can seek to have the system reformed at the UK level but the evidence shows that this is not always practical or effective. The characteristics of the Scottish housing landscape are simply too different to the rest of the UK for there consistently to be a single solution which delivers for the whole of the UK.

4.9. Alternatively, the Scottish Government can use its limited responsibilities to seek to incentivise behaviour. While devolved achievements in housing have been significant, they also reveal cracks in the coherence of policy development when responsibilities are shared between Scotland and Westminster.

What could the future look like - Maximising the impact of social security benefits

4.10. A significant element of funding directly relating to and impacting on Scottish housing policy is provided through social security benefits. These are decided and managed by the Department of Work and Pensions ( DWP) within the UK Government. There are therefore two distinct streams of policy being implemented in Scotland, one set at a UK level and one set at a Scottish level. This raises fundamental questions about the democratic accountability for the delivery of a number of policy areas in Scotland.

Box 14: Case Study - Funding housing policy

The social rented sector receives funding from Government through a development grant and through rents. The Scottish Government subsidises the sector by providing a development grant to build new low-cost homes for rent through the Scottish settlement from the UK Government. Part of the calculation on the level of grant is the level of rental income that social housing providers will receive.

A large proportion of rents, however, are funded through Housing Benefit, which comes from DWP. Housing Benefit currently meets two thirds of the total rents in the sector, or £1 billion and it therefore cannot be disentangled from decisions on investment grants in the social rented sector in Scotland. Whilst housing policy is devolved to Scotland, the Scottish Government has little influence on the overall balance between these two sources of funding. As a consequence, as well as impacting on tenants, any significant changes to Housing Benefit could compromise policies on social housing investment developed in Scotland to meet specific Scottish circumstances.

Box 15: Case Study - Attendance Allowance

Prior to the implementation of Free Personal Care in Scotland on 1 July 2002, people who funded their own care in a care home could apply for and receive Attendance Allowance. However, the UK Government determined that personal care payments were a contribution towards the resident's accommodation costs and that the Attendance Allowance payments should be withdrawn.

The previous Scottish Executive re-set the levels of personal care payments for care home residents to compensate for the loss of Attendance Allowance to ensure that residents did not lose out. However, the extra cost of this was not transferred to the Scottish budget. In effect, the introduction of Free Personal Care in Scotland actually saved - and continues to save - the UK taxpayer approximately £30 million a year.

Lord Sutherland's recent report on the funding of free personal and nursing care found that as well as being unjust he considered the decision to be anomalous. People in Scotland living in their own homes receiving public support for their personal care needs can still receive Attendance Allowance and older people in care homes in England receiving free nursing care support can also still receive Attendance Allowance.

The UK Government has announced that it will publish a Green Paper on the future funding of long-term care for older people, including consideration of the Attendance Allowance. As with any reform of UK disability benefits, the Scottish Government are keeping closely in touch with developments to ensure that any transfer of resources will be fair and sufficient to meet Scottish objectives and ambitions for reshaping social care delivery in the future.

4.11. Social security benefits have a hugely significant impact on policy delivery. The reserved nature of social security benefits has resulted in lack of coherence with Scottish policy. That responsibility for both the overall policy direction and the detailed design of regulation should be reserved to Westminster can seriously undermine the devolved nature of housing, health and other policy areas. Greater responsibility for benefit policy and expenditure would allow Scottish Ministers to develop and implement more effective and coherent policy.

4.12. Furthermore, elements of the current design of social security benefits do not align with distinctive Scottish needs. This impacts on wider Scottish Government social and economic objectives as well as on specific policy areas such as housing, health and children.

Box 16: Case Study - Fuel poverty

The Scottish Government is committed to ensuring that by 2016, so far as is reasonably practicable, people do not live in fuel poverty. The UK Government currently spends around £2 billion per annum on Winter Fuel Payments throughout the UK by means of flat rate payments of £250 for those aged 60-79 and £400 for those aged 80 and over. This raises a number of issues. Firstly, as Scotland is, on average, colder than more southern parts of the UK, a system responsive to temperature and the associated variation in fuel bills would be required to equally mitigate the effects of fuel poverty throughout the UK. Under the current scheme design, recipients living in milder parts of the UK receive the same level of payment to those living in colder areas such as Scotland, even though their fuel bills are likely to be lower.Secondly, the Scottish Government is prevented from taking direct action to mitigate problems with benefits design by supplementing payments. Any such payment could result in recipients losing out on other social security benefits or tax credits. Scotland must rely on other policy measures within its control to address fuel poverty such as the installation of more energy efficient central heating systems.

This is particularly problematic as fuel poverty is influenced by a combination of the energy efficiency of the home, household income and energy prices. The Scottish Government has responsibility over only the first of these three factors, and even within that, much of the investment in energy efficiency is governed by regulation of energy companies which is a reserved matter.

Box 17: Case Study - Health Inequalities

In June 2008, the Scottish Government published Equally Well, the Report of the Ministerial Task Force on Health Inequalities. The Task Force was established in order to investigate the health inequalities that persist in Scotland and to set out a programme of action ensuring that improvements to the health of the population are shared by all of Scotland's people.

Equally Well recognises that in order to tackle health inequalities effectively, we need to address their underlying causes - issues such as poverty, support for families and physical and social environments. That responsibility for the wider determinants of health is largely devolved has allowed the Scottish Government to develop a comprehensive and coherent strategy for tackling health inequalities in Scotland.

However, one of the most important determinants of health is poverty and, whilst there is much that the Scottish Government can do to tackle poverty, key policy levers such as social security benefits, tax credits and employment support - key in helping to alleviate poverty and low income - remain reserved to the UK Government. This means that the Scottish Government does not have the full range of policy interventions at its disposal to break the cycle of poverty which exists in Scotland and tackle income inequalities which in turn contribute to health inequalities.

Box 18: Case Study - Kinship care

Kinship Carers are family members, or family friends, who care for children because their birth parents are unable to do so.

At the moment, the impact of any additional financial support from Scottish local authorities to a kinship carer can be diluted by UK-wide rules. This is because current UK Government policy means support, such as that potentially provided by local authorities, must be taken into account when calculating support such as child tax credit.

On the basis of decisions which are taken outside Scotland, the impact of extra support from Scottish local authorities to those caring for some of our most vulnerable children is reduced. If the design and implementation of the benefits and tax credits system was devolved to Scotland, the system could be better aligned to meet the needs of the people of Scotland in this area.

What could the future look like - aviation regulation

4.13. The overriding benefit of assuming responsibility for regulation would be in developing systems appropriate to Scottish circumstances. Under the current regulatory framework, the cost of maintaining airports in the Highlands and Islands is substantially more per passenger than at airports elsewhere in the UK. This contributes to higher fares and the high subsidy that is necessary to maintain Scotland's smaller and more peripheral airports. A Scottish system could be adopted which would provide a more tailored and proportionate approach while ensuring the continued safety of operations.

Box 19: Case Study - Aviation Regulation

For aviation regulation, under devolution max or in an independent Scotland we could:

  • assume responsibility for the regulatory framework, fulfilling some or all of the functions currently exercised by the CAA;
  • take responsibility for the application of international standards set by the International Civil Aviation Organisation and European legislation; and
  • deliver airport infrastructure which maximises safety and operational efficiency making best use of technological advances where appropriate.

These responsibilities would give greater opportunity for the reduction of operating costs at Scotland's smaller airports without compromising safety, opening up the potential to develop to provide a better service to communities and customers.

What could the future look like - increasing road safety

4.14. The recently published Road Safety Framework for Scotland set out the Scottish government's vision, priorities and commitments to 2020, under the current devolution arrangements. With devolution max or independence, we would be able to explore further many of the issues we have suggested to the UK government in response to their road and safety consultations over the past year.

Box 20: Case Study - Firearms Law

Scottish Ministers have called for all firearms law to be devolved, not just the regulation of airguns as the Commission on Scottish Devolution recommended. This would allow for an overhaul of the whole firearms regime to make it consistent, easier to understand and easier to enforce. In short, it would allow for a coherent approach for Scotland, avoiding unnecessary complexity or potential loopholes and allowing an integrated approach to regulation to be developed to best meet Scotland's interests and needs. The Scottish Parliament would be better able to protect communities from illegal or irresponsible use of firearms, as it has in relation to knives and other offensive weapons, making it absolutely clear what is acceptable in our society.

A coherent firearms policy for Scotland could also make it easier for legitimate firearms users to go about their activities than it is under the current confusing and incoherent system. Equally, policy could be developed acknowledging and supporting the important contribution to the country's economy made by shooting sports and related industries.

Legislation could be designed to minimise overlapping or inconsistent regulation north and south of the border, reducing confusion or unnecessary costs. Responsibility for knife licensing, for example, is devolved to the Scottish Parliament, but it does not have powers to regulate firearms. The Scottish Parliament has been able to establish a system governing knives that meets Scotland's needs, and the Scottish Government believes that it should be able to do so for other lethal weapons such as firearms.

Regulation of businesses providing housing services

4.15. Many house-owners and tenants are affected by the activities of private sector businesses that provide services relating to houses. These include property managers, letting agents, selling agents, financial services including those selling equity release schemes, surveyors and building firms in the maintenance, repair and improvement sectors.4.16. Consumer protection law governs the way such services are provided and can regulate for specific services as well as on a general basis. These aspects of regulation are reserved to the UK Government. However, Scotland's housing stock and market are different from those of England, as are property law, traditions for support services such as factoring and, of course, the nature and experience of home ownership. So, quite apart from differing policy objectives in Scotland, these inherent differences mean that different approaches may be needed to ensure that consumers' interests as owners and tenants in Scotland are adequately protected.

Box 21: Case Study - Regulation of Businesses Providing Housing Services

The reservation of consumer protection means that the Scottish Government often cannot ensure that regulation provides necessary protection for consumers that is suitable for Scottish circumstances. This may obstruct a package of measures which provides the right balance between formal regulation and a voluntary self-regulation approach. Scotland is dependent on Westminster for legislation. An issue which may be a priority for Scotland may be low priority for Westminster and affected by Westminster political issues, such as the prospects for regulation of property managers and letting agents, driven by a different agenda in England.

4.17. While policy areas in this paper are largely devolved, Scotland is in many cases prevented from using the most appropriate mechanism to implement policies as responsibility for some aspects of regulation remains reserved.

4.18. As would be expected with devolution of these policy areas, policy priorities and approaches to implementing policy can differ in Scotland compared to other parts of the UK. The impact that responsibility for some aspects of regulation remaining reserved to the UK Government has is further compounded by differing practical and legal arrangements in many instances in Scotland. In some cases, these differences make it inherently difficult to design schemes and regulation which can be effective throughout the UK.

What could the future look like - borrowing

4.19. With independence, the Scottish Parliament would be responsible for all aspects of fiscal policy in Scotland, including the collection of all taxes and government expenditure. Devolution max would also provide a significant increase in the macroeconomic policy levers devolved to the Scottish Parliament. Under independence the Scottish Government would be able to borrow freely in international capital markets, subject to market constraints. Devolution max would also provide an opportunity for greater borrowing responsibilities to be devolved to the Scottish Parliament, although constraints might remain on the forms of borrowing available to the Scottish Government. A discussion of borrowing options is set out in the sister National Conversation paper on Fiscal Autonomy 8.

4.20. Additional responsibilities could increase Scotland's capacity to borrow to fund major capital projects and would be fundamental to managing issues related to taxation and benefits discussed earlier in this paper. They could also influence the Scottish Government's approach to managing local authority housing debt.

Cross border arrangements

4.21. It is important to be clear that devolution max and independence would not necessarily spell the end to arrangements with other parts of the British Isles. This is the case for all policy areas discussed in this paper; in law and order, for example, continued sharing of information and intelligence would be vital. Pragmatic arrangements for the future of GB-wide organisations such as the Driving Standards Agency ( DSA), Driver Vehicle Licensing Authority ( DVLA) and the Vehicle Operator Standards Agency ( VOSA) would be established. The following case study gives a detailed account of how cross-border cooperation could continue in terms of health.

Box 23: Case Study - Cross Border Cooperation - Health

Cross border cooperation is well established under devolution and there is no reason why it should not continue under independence.

For example, Scottish Ministers currently have the ability to determine NHS staff pay, and terms and conditions, for Scotland. However, the Scottish Government recognise the benefits of determining these on a UK-wide basis, which has ensured a consistent approach for NHS staff employed throughout the UK. It has also ensured that there is not a significant cross-border flow and loss of staff and has helped to build inter-government working relationships.

Cross-border cooperation has also arisen where resources required to improve the health and wellbeing of people throughout the UK are scarce, and are therefore best utilised at a UK level. For example, the allocation of organs donated for transplantation is carried out on a UK-basis, in order to ensure that the best match between donor and recipient can be achieved. The need for organs does not respect national boundaries, and Scotland does not have a large enough population to be self-sufficient in the supply of organs. Therefore maintaining the current UK-wide allocation arrangements in an independent Scotland would ensure optimal access to organs for every citizen who requires a transplant. Organs are also shared at EU level, and these arrangements are reflected in 2 Directives currently under negotiation: the Directive on cross-border healthcare and the Directive on standards of quality and safety of human organs intended for transplantation.

Likewise, there are currently UK and European-wide arrangements for the commissioning of specialist health services for conditions or treatments that are so rare or specialised that no single UK country could sustain them alone. These arrangements are managed on behalf of Scotland by the National Services Division of the Common Services Agency (commonly known as NHS National Services Scotland), to ensure that the people of Scotland have access to such rare and specialised services when they need them. It is these reciprocal health arrangements which, for example, recently enabled a Scottish patient severely ill with the H1N1 virus to receive highly specialised treatment in Sweden, when the UK service was operating at full capacity.

There are also areas which are so complex that a UK-wide regulatory framework has proved beneficial, such as human fertilisation and embryology, and where EU legislation requires regulation on a UK-wide basis, such as the safety of the supply of blood. These areas require a level of cooperation, and it is likely therefore that an independent Scotland would wish to maintain this.

It is clear that there are many benefits flowing from devolution max or independence for the health and wellbeing of the people of Scotland. Neither will exclude continued fruitful working with neighbouring countries for our and their mutual benefit.