THE SCOTTISH GOVERNMENT RESPONSE TO THE RECOMMENDATIONS OF THE COMMISSION ON SCOTTISH DEVOLUTION
1. This paper sets out the Scottish Government's response to the final report from the Commission on Scottish Devolution. The breadth and detail of the Commission's report is testimony to the hard work put in by Sir Kenneth Calman and the members of the Commission to examine the issues that face Scotland 10 years after devolution. Nevertheless the final report reflects the constraints under which the commission worked.
2. The remit of the Commission was too narrow. The Commission was established by the Scottish Parliament and the United Kingdom Government to:
Review the provisions of the Scotland Act 1998 in the light of experience and to recommend any changes to the present constitutional arrangements that would enable the Scottish Parliament to serve the people of Scotland better, improve the financial accountability of the Scottish Parliament, and continue to secure the position of Scotland within the United Kingdom.
3. From the outset therefore it was clear that the Commission would not be able to consider the proposition that Scotland should be an independent country. Federalism was also outwith the Commission's remit.
4. Some commentators have noted that the Commission's Report is remarkable not so much for its recommendations as for its constitutional language, particularly in the early parts of the Report. The language of the Report normalises the language of distributed and popular sovereignty in the UK context for what is perhaps the first time in a UK wide document of this kind. The Report states that the UK has never been a unitary state and describes Parliamentary sovereignty as a "convention". The Commission Report points the way forward for effective extensions of Scottish sovereignty, but more in its framework and language than through its recommendations for actions, which are clearly the result of a compromise.
5. The report covers a lot of ground and is organised around a small number of themes:
- Strengthening accountability in finance;
- Strengthening co-operation (between governments and parliaments);
- Strengthening the devolution settlement; and
- Strengthening the Scottish Parliament.
Although the report is structured in accordance with these four themes it is difficult to see the Commission package as a coherent blueprint for the future.
6. Given the amount of ground it covers the Report touches on a range of issues. In that context there are certain recommendations which the Scottish Government supports and others - notably on taxation - which we believe would be damaging to Scotland and so strongly reject. There are still others which require further consideration by the Scottish Parliament, Scottish and UK Governments and the devolved administrations in Northern Ireland and Wales. We set out our assessment of each recommendation in Annex A. Annex B is a more detailed analysis of the Commission's tax recommendations.
7. The Scottish Government made it clear shortly after publication in June that there were a number of recommendations in the Commission Report which had attracted widespread support and on which there ought to be immediate action. Those are described further in paragraphs 9 to 13 below. Taken individually these recommendations are modest, but the Scottish Government believes their implementation would help to improve the government of Scotland and be in the interests of Scotland. Under the current constitutional arrangements it falls to the UK Government to initiate action on most of the recommendations concerned. The Scottish Government is ready to play its part in the spirit of mutual respect and co-operation advocated by the Commission and has made that clear to the UK Government.
8. To date the Scottish Government has had no response from the UK Government to its request for co-operation other than a general statement that the Report is to be seen as a comprehensive package from which items cannot be "cherry-picked". As the recommendations do not represent a comprehensive or cohesive package in any real sense, the UK Government's insistence so far in treating it as such represents a missed opportunity.
Strengthening the devolution settlement
9. Six of the recommendations relate to additions to the competence of the Scottish Parliament and the functions of Scottish Ministers and offer an extension of devolved responsibilities. To help take these recommendations forward Scottish Government officials prepared drafts of the orders necessary to transfer responsibility to the Scottish Parliament in the relevant areas. The Minister for Culture, External Affairs and the Constitution published these draft orders in the Scottish Parliament Information Centre ( SPICe) on 25 June.
10. The draft orders cover:
- administration of elections to the Scottish Parliament (5.1)
- regulation of airguns (5.13)
- licensing and control of controlled substances used in the treatment of addiction (5.14)
- drink driving limits in Scotland (5.15)
- national speed limits (5.16)
11. The Marine and Coastal Access Bill offered an opportunity for the Westminster Parliament to implement the recommendation on devolving marine nature conservation (recommendation 5.17) through an amendment to the Bill which would have been within scope of the legislation.
12. Six other recommendations require new procedures and guidance within the UK Government and the Scottish Government has been pressing them to take the necessary action since the publication of the Commission Report. The changes would cover:
- Development of UK policy on the European Union (4.16)
- Scottish Ministers' engagement in EU business (4.17)
- Agreement to local variations on immigration policy (5.6)
- Consultation on welfare to work programmes (5.20)
- Appointments to the BBC Trust (5.4)
- Appointments to the Crown Estate (5.9)
13. These recommendations provide the opportunity to make real progress in areas of the Commission's Report on which there is broad consensus in Scotland. Action should be taken to implement those recommendations on which there is agreement rather than wait and risk losing momentum.
Strengthening accountability in finance
14. The recommendations contained in Part 3 of the Report are the most significant and far-reaching. The proposal to devolve responsibility for stamp duty, land tax, aggregates levy, landfill tax and air passenger duty could be a positive development which would give the Scottish Government additional economic levers. However, it needs to be considered in the context of the Commission's recommendations for the overall economic framework and, in particular, borrowing and taxation. Recommendation 3.7 is that the Scottish Government should be given the ability to borrow, with use restricted to funding major infrastructure investment. The Scottish Government does not agree that any such restriction is appropriate or relevant but believes that the general concept of allowing the Scottish Government the opportunity to borrow is one that should be taken forward.
15. The Scottish Government position was set out in more detail in the paper it sent to the Calman Commission in March 2009. As outlined in that paper, the ability to borrow, coupled with greater fiscal autonomy in taxation, would significantly enhance the economic policy levers available to the Scottish Government.
16. The borrowing as proposed by the Commission would give the Scottish Government greater, but limited, influence over the pace and priorities of Scotland's capital expenditure programme, subject to agreement with HM Treasury. This would provide an opportunity to address Scotland's infrastructure needs more quickly, not least in enabling progress with critical projects such as the new Forth Crossing, by phasing funding in a way that is sensible, efficient, and wholly appropriate to Scotland's circumstances. However, the Commission's recommendations make no provision for the Scottish Government to borrow to offset cyclical fluctuations in tax receipts, or to provide a fiscal stimulus at a time of economic need. Such borrowing is essential to ensure that Scotland can respond flexibly to changes in economic circumstances and help mitigate the effects of a downturn. Borrowing would be of even greater importance if the Scottish Government's budget was more closely linked to the tax revenue raised in Scotland, as recommended by the Commission. The Commission's decision to place restrictions on the ability to borrow could therefore limit the ability of the Scottish Government to effectively manage its budget over the economic cycle and would continue to impose restrictions on its ability to support the economy when economic growth slows.
17. More contentious in terms of what the Commission describes as strengthening financial accountability are the budgetary and taxation recommendations. Analysis by a number of distinguished economists has raised fundamental questions about the Commission's income tax proposals and their negative implications for Scotland. Far from actually improving the financial framework for the Scottish Parliament, it is clear that moving in this direction would deliver less transparency, less accountability and would expose the Scottish Government budget to significant risks without adequate levers to offset these risks.
18. The messy 'fudge' of the Commission's proposals and their arbitrary nature are subject to a number of significant flaws which make them demonstrably inferior to the fiscal levers available to an independent country. The proposals indicate that the number of people who believe the current situation is acceptable is dwindling. But the suggested framework is unlikely to improve accountability or economic efficiency, and may instead be even worse than the status quo. Furthermore, by retaining Barnett while at the same time introducing a mix of devolved taxes, tax assignment, tax sharing, grant finance and reserved taxes, the system created will be bureaucratic, opaque and mired in complex and confusing uncertainty.
19. The Commission's income tax proposals will also expose the Scottish Budget to a significant degree of volatility, without appropriate policy levers or administrative procedures to mitigate these effects. While the UK government would still be responsible for many of the major levers that dictate Scotland's economic wellbeing, the Scottish Government would be left picking up the pieces through potentially diminishing tax revenues. And we would still lack the ability to take decisive action to maximize economic growth. There is also a risk that the Scottish Budget could be squeezed inadvertently following a technical or administrative adjustment having unintended consequences. For example, future changes to personal allowances and tax thresholds made by the UK Government could reduce the income tax revenue 'assigned' to the Scottish Government whilst leaving the total tax revenue raised in Scotland unchanged.
20. It is clear that the package of financial recommendations provide little increase in the responsibilities Scotland needs to become a more successful country. In this regard, the proposals fall short of not only the Scottish Government's preferred option of full fiscal autonomy in an independent Scotland, but also those of others such as the Steel Commission.
21. Under the Commission's proposals, the Scottish Government would be assigned less than half of total income tax receipts raised in Scotland. On most recent estimates, approximately 80% of total tax revenue raised in Scotland would continue to flow to the UK Government.
22. Responsibility over key elements of the income tax system, such as personal allowances, tax thresholds, the tax rates on savings and dividends, the opportunity to establish tax breaks for particular groups such as pensioners and the integration with the wider tax and welfare system, would remain reserved. The Scottish Government would only be able to apply broad brush measures to the income tax system. Targeted and potentially redistributive measures, open to the UK Government, through adjusting the structure of the income tax regime and its interaction with other taxes would not be possible. For example, the Scottish Government would not have been able to protect low income households in Scotland from the abolition of the 10 pence tax rate.
23. Responsibility for corporation tax, green taxes, fuel duty, North Sea revenues, inheritance tax and other important elements of the public finances would continue to remain outside the remit of the Scottish Government and Scottish Parliament. Relative to other devolved administrations in both Europe and across the world, Scotland would remain part of a highly centralised framework.
24. Any new financial arrangements for Scotland must offer a genuine advance and provide a framework which encourages efficiency in policy setting, improves transparency and delivers maximum accountability. Independence and full fiscal autonomy would deliver this, the Commission proposals do not.
Strengthening co-operation (intergovernmental relations)
25. Part 4 of the Commission's Report contains proposals designed to strengthen co-operation. The recommendations on the Joint Ministerial Committee ( JMC) raise issues which merit serious consideration. As with recommendations on extending devolution, the Scottish Government firmly believes that we should move to implement recommendations where we can do so and where there is agreement. That said, a number of recommendations cannot be progressed without the agreement and co-operation of the devolved governments of Wales and Northern Ireland. These relate mostly, but not exclusively, to the operation of the Joint Ministerial Committee.
26. It is essential that decisions about the JMC should be taken by all four member administrations of the JMC. The recent JMC Plenary agreed that there should be further discussion of these recommendations.
27. The Scottish Government is particularly keen that discussion begins on the Commission's recommendation 4.22 which relates to improving awareness of devolution. This is important to all administrations.
Strengthening the Scottish Parliament (inter-parliamentary relations and the legislative process)
28. Procedural changes are a matter for Parliament and the parties rather than Scottish Ministers. Parliament is able to consider the issues raised by the Commission about the way in which it conducts its business and should move that consideration on.
29. Officials from the Scottish Government and the Scottish Parliament have met to discuss the implications of the inter-parliamentary relations on a number of occasions since publication of the Commission's Report. The recommendations have also been discussed by the Parliamentary Bureau.
30. The Scottish Government believes that those recommendations identified for immediate action should be implemented. We stand ready to play our part in this.
31. Other recommendations now fall to be taken forward by the Joint Ministerial Committee or by the Scottish Parliament.
32. The Scottish Government rejects the taxation proposals set out by the Commission. In the crucial area of finance the Government believes that the Commission's Report represents a missed opportunity particularly to offer real and effective fiscal and economic levers for Scotland.