Ross Finnie was Scottish Liberal Democrat MSP to the West of Scotland from 1999-2011 and Rural Affairs Minister in the Scottish Cabinet from 1999-2007. He’s shared his submission to the Campbell Commission with me. I’ve put an extract on Liberal Democrat Voice but I thought you might like to see the whole thing in all its glory.
In order to provide some context to my submission I begin by stating my position on Home Rule, what I have understood Home Rule to mean and the policy positions of the Party which I have supported. I have always supported Home Rule. I have always understood Home Rule to involve a new constitutional settlement giving equal status to England, Scotland, Wales and Northern Ireland and thereafter each nation would promote what each considered to be the most appropriate governance arrangements within a federal state. For Scotland that meant not just the establishment of a Scottish Parliament but the transfer of the maximum amount of legislative, administrative and financial powers consonant with being a nation within a federal state.
Like most Scottish Liberals, I supported the Party’s policy position as set out in Jenny Robinson’s 1976 pamphlet on Home Rule: Scottish Self-Government. I was one of the overwhelming majority who voted for the motion passed at the 1982 Conference in St Andrews calling for ” … the establishment of a Scottish Parliament, elected by proportional representation, within a Federal United Kingdom … .” I was Chair of the Scottish Liberal Party when the policy pamphlet Scottish Self-Government was revised and updated by Jenny Robinson and Margo von Romberg prior to the 1983 General Election.
I was also one of many Party members who, long before Donald Dewar coined the phrase that Devolution was not an event but a process, believed that establishing a Scottish Parliament, as a priority, was a first step towards bringing about federal Home Rule. With the benefit of hindsight, I think that in our pursuit of a Scottish Parliament, Scottish Liberals and Scottish Liberal Democrats have seriously underplayed the critical advantages of federal Home Rule over Devolution, often deferring to a Devolution proposal and, as a consequence have failed to make the case for federal Home Rule. In support of that contention, I give my take on the recent history of Home Rule/Devolution to illustrate the Party’s apparent reluctance to press the federal Home Rule case.
In 1976 during the Lib-Lab Pact, George Mackie and Russell Johnston were tasked to improve what became the Scotland Act 1978 and they did. There is little if any evidence, however, of a more federal Home Rule settlement ever being considered. Likewise, although the Scottish Constitutional Convention’s report of 1995 Scotland’s Parliament, Scotland’s Right formed the blueprint for the excellent Scotland Act 1988, Scottish Liberal Democrat submissions to the Convention, sought to build a consensus which had the unintended effect of playing down their federal Home Rule content. The result was that the Convention’s report effectively accepted the sovereignty of the Westminster Parliament and called for it to “ … move a special Declaration before passing the legislation creating the Scottish Parliament … that the Westminster Parliament will not remove or amend the Scottish Parliament without consulting directly the people of Scotland and the Scottish Parliament itself.” A reasonable protection, perhaps, but one that would have been unnecessary under a federal Home Rule settlement.
Jim Wallace spotted the Devolution trend away from federal Home Rule when he established the Steel Commission in December 2003 with a remit “to consider [amongst other things] how to move forward to a fully federal structure for the United Kingdom … “ The report of the Steel Commission: Moving to Federalism- A New Settlement for Scotland was adopted as Party policy in 2006 and the 2007 manifesto, under its section on Governance, called for the development of the Steel Commission’s proposals and specifically “a new system of fiscal federalism”. The Party appeared to be back on a federal Home Rule track. Nicol Stephen’s attempts to move the debate forward on an all party basis, however, got subsumed by the drive of the then leader of the Labour Party, Wendy Alexander to take Devolution further and somehow take the steam out of the SNP. This led to the establishment of the Calman Commission in 2007 with a remit which restricted it to considering improvements to the Scotland Act 1988 thus precluding consideration of anything remotely resembling federal Home Rule.
The Party then proceeded to endorse the interim report of the Calman Commission at the 2009 Scottish Conference and the final report at the Federal Conference the same year with its proposals for substantial improvements to the Devolution settlement. Liberal Democrats in the Coalition Government then introduced the Scotland Bill, currently passing through the Westminster Parliament, incorporating and in many cases improving the Calman recommendations. In particular, the proposed financial powers for the Scottish Parliament represent the biggest transfer of fiscal powers from Westminster in the history of the UK. Welcome though the transfer of powers is, it is still a transfer to a Parliament that is subsidiary to the (now hybrid) Westminster Parliament. Scotland Bill or no Scotland Bill, Scottish Liberal Democrats are still a very long way from achieving federal Home Rule.
The conclusion I draw from the last thirty six years or so is that unless the Party sets out with a single-minded determination to achieve a federal Home Rule settlement, and is not fobbed off with further variants of Devolution it will continue to make no progress towards achieving that goal. Yet, as I write this submission, leading Scottish Liberal Democrats, Tavish Scott and Jeremy Purvis, have announced they are to play leading roles in the “Devo-Plus” campaign which whilst it would develop Devolution very much further than Calman or the present Scotland Bill will still leave the need for federal Home Rule unmet.
The case for the UK
I will not dwell on the case for the UK but given the current independence debate in Scotland I think it is dangerous simply to assume the continuation of the UK. Both Steel (P48-50) and Calman (P63-64), particularly Steel, provide a well argued case in favour of the UK which I support. The UK enjoys a very high level of political and social cohesion. It is interesting that the SNP talks increasingly of retaining this important social union. Underpinning the current social and political union, however, is the fact that despite the diversity of our respective nations we are all part of the UK. It is difficult to see how the same degree of cohesion could be maintained in the long-run if Scotland were to become Independent.
In my opinion, the present level of social cohesion is sustained by the UK’s ability to direct economic resources to where they are most needed and to make common provision for pensions and social security for individuals in most need. Given the high degree of economic integration within the UK, I can see no case for separate monetary policy for Scotland: a point apparently ceded by the SNP. In an increasingly interdependent world, the UK punches above its weight and enjoys more influence in the EU, UN and NATO than would an independent Scotland. A common policy on Foreign Affairs allows the UK to have united armed forces supported by a network of Embassies prosecuting the UK’s foreign policy and promoting UK trade. None of that is compatible with an Independent Scotland
The Steel Commission describes the UK as (P48) “one of the great success stories of the world” but the same Commission and later the Calman Commission pointed to serious flaws in the Devolution settlement including: the absence of an English dimension in a quasi-federal structure; a lack of constitutional equivalence as between the nations of the UK; and funding arrangements for the Devolved Parliament and Assemblies that lack accountability and control. I believe there is a powerful case for the UK but I also believe the present constitutional arrangements are unsustainable in the long-run.
The case for a federal UK
I believe federal Home Rule offers the most logical basis for: modernising the UK’s antiquated and inadequate constitutional arrangements and thereby providing a stable platform for the future of the UK; giving equivalence of status amongst Scotland; England, Wales and Northern Ireland; allowing the respective nations to determine their own governance arrangements in a federal structure; and allowing each nation to have economic and fiscal powers consonant with that federal structure
A new written constitution
Liberals and Liberal Democrats have consistently argued for the UK having a written constitution. It is not a topic that generates much public interest but in the context of the prospective referendum on independence it should. The threat of the UK’s current constitutional arrangements being undone by Scotland voting for Independence is real and, in my opinion, it is in everyone’s interest to consider not only whether our present constitutional arrangements are adequate in general terms but also whether they are adequate to resist the threat of Independence.
Scotland is a Nation: that is not in dispute. In common with many Liberal Democrats I make the same distinction, as was frequently made by Russell Johnston, between the nation as the symbolic community which provides one’s feeling of identity, nationalism as an emotional commitment to a nation becoming a nation state and the nation state as a political formation which rules over a given territory defined by its boundaries. A Nation, however, should not be subject to another Nation but that is the current position of Scotland, Wales and Northern Ireland within the UK.As the Steel Commission points out (p45) “Scotland is not afforded the same level of constitutional protection through the Scotland Act as is seen in many federal states… … It is unusual in that it confers ultimate power to Westminster.” It may be unusual but it is the consequence of our constitutional arrangements and where sovereignty lies.
The Calman Commission, provides a useful summary of the UK’s constitutional conventions (p50): sovereignty resides in the Queen in Parliament but in practice in the Cabinet comprising Ministers appointed by the Queen and legislation is made by the Queen in Parliament giving rise to the doctrine of Parliamentary sovereignty vesting with the UK Parliament The importance of this doctrine was stressed last year by Lord Hope, Deputy President of the Supreme Court, when addressing the question of competence of the Scottish Parliament: (Axa General Insurance and ors v The Lord Advocate and ors para 46) “The United Kingdom Parliament has vested in the Scottish Parliament the authority to make laws that are within its devolved competence. It is nevertheless a body to which decision making powers have been delegated. And it does not enjoy the sovereignty of the Crown in Parliament that, as Lord Bingham Said … , is the bedrock of the British constitution. Sovereignty remains with the United Kingdom Parliament.”
Although Calman highlights the issue the Commission appears to be satisfied that the use of legislative consent motions (formerly the Sewell Convention) “is the way of reconciling the doctrine of Parliamentary sovereignty.” In my opinion legislative consent motions are a hopelessly inadequate response to a serious flaw in our current arrangements. It may be that in practice the UK has not legislated in areas of the Scottish Parliament’s competence without recourse to legislative consent motions but the fact remains it is an unsatisfactory and in my opinion unsustainable arrangement. The Scottish Liberal Party policy pamphlet, Scottish Self Government was more blunt: “Scottish Liberals have never accepted the artificial unionist state which was imposed on Scotland in 1707…” Our policy “… is for a revised Treaty of Union which would create a new federal relationship between the countries of the United Kingdom.”
I believe there is an urgent need for there to be a new written constitution that recognises the geographic and cultural diversity of the nations of the United Kingdom As a minimum, (based on Liberal Democrat Policy Paper 40 as developed by the Steel Commission) the constitution should:
(i) establish the federal institutions of the United Kingdom as being a UK Parliament as the
federal state parliament and the parliaments/assemblies of the respective nations as the national parliaments/assemblies each ranking pari passu one to another;
(ii) set out the right to self-determination of the peoples of Scotland, England, Wales and Northern Ireland;
(iii) set, the powers and limits of the federal institutions, the specific powers reserved to the UK Parliament, the powers that are subject to formal partnership working, the powers of the respective cabinets, judges, courts and the Head of State; and
(iv) entrench the Human Rights Act and the independence of local government.
I recognise that at least three major political problems are raised by this proposal: the call for a written constitution; the suggestion that there needs to be an English Parliament; and the creation of an asymmetric federal structure. Clearly, it is not our place to frame a new constitution on our own far less is it our place to tell the English how they should be governed but that should not prevent us developing and proposing a federal settlement for the UK. As Murray Leith says in his chapter in The Little Yellow Book: “Simply put, the lack of a written constitution is a problem that the UK has not addressed, and it is one that the country must consider if it is to survive as a political entity in the 21st Century. “
In practical terms, the “West Lothian Question” and all the English governance issues that are wrapped up in that phrase need to be resolved. Calls for more legislative and economic powers for the Scottish Parliament and the Welsh Assembly will only exacerbate the problem. The notion that the problem can be resolved by either restricting the voting rights of Scottish, Welsh or Northern Irish MPs or further reducing their representation at Westminster whilst it remains the Sovereign Parliament is preposterous.
As regards an asymmetric federal structure, this was examined by the Steel Commission and it concluded (P45): “Asymmetric federalism is not unusual, both in terms of the varying size of the component units and variations in the levels of power and responsibility afforded to them. … there is clear evidence that asymmetric systems can work …”
It is imperative that the Commission works with our Liberal Democrat colleagues across the UK on its proposals on federal Home Rule. Our Liberal Democrat colleagues need to be fully engaged in the process and to understand that, in the Independence referendum debate, Liberal Democrats must be seen to campaigning for a constitutional settlement that meets the needs of the nations of Scotland, England, Wales and Northern Ireland for the 21st Century and beyond and puts the case for the continuation of the UK beyond doubt.
Internal and external relationships
Both Steel and Calman report that the workings between the Scottish and UK Governments and between the Scottish and UK Governments and the EU operate satisfactorily. That they operate satisfactorily is, in my experience, entirely down to the hard work and goodwill of certain individuals both ministers and civil servants because the institutional arrangements are profoundly unsatisfactory. I say this as a former Scottish cabinet minister who over eight years attended some thirty meetings of the EU Council of Minister on environment, agriculture and fisheries business and met with UK ministers and ministers from the other devolved administrations on nearly fifty occasions.
The problem arises quite simply because UK ministers are just that. They are appointed by the Queen, must be appointed to the Privy Council, their civil servants serve a UK minister and the policies they prosecute are deemed to be the policies of the UK Government. That is quite proper for policy areas that are reserved but for Justice, health, sport, education, culture, enterprise, transport, housing, local government, environment agriculture forestry and fisheries it is not. When I was at meetings at Westminster, unsurprisingly the UK minister assumed his/her policy position was the UK position and the papers presented in support of a position were prepared by that minister’s civil servants who made the same erroneous assumptions.
This position was only exacerbated in the run-up to a meeting of the EU Council of Ministers where trying to impress upon the UK minister the need to agree a UK line was initially not helped by the UK Representation in Europe (“UKRep”) instinctively supporting the line presented by the UK minister. In order to try and overcome this problem a system (initiated by my department) was put in place whereby: the civil servants of all administrations met and prepared papers on matters under discussion at the EU Council, ministers from the UK and devolved administrations then met to agree the UK line and the UK minister then delivered that line with ministers from the devolved administrations in attendance.
This was not an easy process. Some ministers and civil servants at Westminster with whom I worked got the devolution point, others didn’t and some were even resistant to it. The whole process was too dependent upon the understanding and goodwill of individuals and a change in personnel, either minister or civil servant, could set it back. Although the Memorandum of Understanding, the Joint Ministerial Committee (“JMC”), and informal bilateral concordats between UK departments and the devolved administrations were in existence throughout both Liberal Democrat/Labour Coalitions they were regarded as mechanisms for dispute resolution notwithstanding their terms. Donald Dewar and Jim Wallace as First Minister and Depute First Minister and their successors encouraged ministers to deal directly with their opposite numbers and avoid resorting to formal dispute resolution mechanisms,
When the SNP minority Government came to power in 2007 the JMC had not met since 2002. The SNP accused the Coalition of having failed to “stand up for Scotland.” The truth was that despite some very real difficulties the Coalition had sought to cooperate – not pick a fight.
The fact is, however, that the fundamental problems largely associated with ministers having jurisdiction over only English policy being invested with the authority as the UK minister remain. Almost all of these problems would be greatly simplified if not resolved if we had a proper federal settlement. The constitution would provide for a proper separation of responsibilities as between UK ministers and ministers of the nations and regions and a mechanism for agreeing the UK position for EU meetings.
Legislative powers and responsibilities
I believe the Scotland Act 1998 is a good piece of legislation. Founded on the principles and proposals that emanated from the Scottish Constitutional Convention, it established the Scottish Parliament with a reasonable range of legislative and administrative powers and set out the boundaries between reserved and devolved competences. The competences have been extended particularly in terms of transport and, if the Scotland Bill is enacted then, as I understand it, the Parliament’s powers will be extended further to include: the administration of elections; control over air weapons; control over the misuse of drugs; the setting of drink driving limits and speed limits; rights over the appointment to the BBC trust and the appointment of the Scottish Crown Estates Commissioner; shared responsibilities over Insolvency; and the regulation of health professionals would become reserved.
Even with these further transfers of powers there are still areas where I believe the Scottish Parliament should be given competence including:
(a) Medical Contracts where because of the considerable divergence in the method of delivery and incidence of private providers between Scotland and England it would make more sense for medical contracts to provide terms and conditions and levels of remuneration that reflected the outcomes and means of delivery expected in Scotland; and
(b) Animal Health policy which is developed within Scotland but the funding is reserved which is anomalous whereas the control of exotic diseases whilst operated at a UK level on a partnership basis because the UK is a single epidemiological area and the funding needs to be reserved with access to the contingency fund in case of emergencies.
The Steel Commission called for (P67) a new constitutional category of Partnership Working. I think this a very neat solution for those areas where self-evidently there is a UK dimension but where nations and regions have a real interest the implementation of the policy. Some of the policy areas I consider as important candidates for Partnership Working include:
(a) Transport Policy where the remaining transport powers call for coordination and should be a shared responsibility;
(b) Energy Policy where Scotland needs to be able to promote renewable sources and must be able to share in the development of economic stimuli like carbon trading and the Renewables Obligations and influence the policy on grid strengthening and renewal;
(c) Marine Policy which is largely regulated by the Marine and Coastal Access Act 2009 and the Marine (Scotland) Act 2010 but where there is a large measure of national interest in marine spatial planning, conservation and sea fisheries, a federal state interest in naval operations, merchant marine operations, offshore exploration, energy transmission and shared interests in marine conservation and protection;
(d) Immigration which needs to be reserved but where account must be taken of differing economic and demographic needs of the nations and regions and where policies for dealing with asylum seekers must recognise the statutory framework operating within a nation or region;
(e) Strategic planning of welfare services which needs to take account of the very different levels of need identified within the nations and regions of the UK;
(f) Crown Estate where until its anomalous position exercising rights over the sea bed without democratic accountability is resolved the directions between UK ministers and National ministers need to be shared.
Steel and others have supported calls for a separate Scottish civil service. If we are to retain the UK, as I believe we should and we are promoting federalism, then there will be a federal state government and we will continue to have UKRep. Both of these institutions need to be supported by civil servants drawn from throughout the UK and I can see no reason why each part of the civil service should not continue to benefit from individuals transferring within the UK to the joint benefit of all concerned.
Both Steel and Calman concluded that one of the major weaknesses of the current Devolution settlement is the lack of financial responsibility and accountability. Steel’s solution was to propose fiscal federalism whilst Calman proposed a considerable increase in the financial powers of the Scottish Parliament which, as noted in my Introduction, the Coalition Government at Westminster greatly improved at the instigation of the Liberal Democrats and incorporated into the Scotland Bill.
If, like me, you see federal Home Rule as the constitutional solution in legislative and administrative terms, then the logical extension of that argument is to see fiscal federalism is the economic solution. That has certainly been my understanding of the Scottish Liberal position over many years. It may not have been called “fiscal federalism” but that is what the policy amounted to, In 1982, Scottish Self-Government spoke of: “The independent right of the states to raise their own revenues … … the federal government would continue to control monetary policy … … all taxes, with the exception of Customs and Excise and possibly VAT, should be raised in Scotland … … a Joint Exchequer Board would agree Scotland’s contribution to the UK …” As the Party’s economics spokesperson in the late ‘70s and early ‘80s I vividly recall supporting these policy positions.
More recently, Jeremy Purvis became the first Scottish Liberal Democrat to set out cogently the case for fiscal federalism in his pamphlet of that name and which formed an influential submission to the Steel Commission of which he was a member. I fully support the Steel Commission’s conclusion (P89) “that fiscal federalism will provide the best mixture of economic stability, financial and political accountability and scope for innovative action … for the economy”. Steel set out (P93-96) ”Principles of Fiscal Federalism for Scotland” with which I broadly agree and, more importantly, I think could be adapted to apply to the nations and regions of the UK in a broader federal settlement.
Equalisation and shared responsibilities in fiscal and monetary matters
Equalisation and intergovernmental transfers exist in all federal systems and so in establishing a system of fiscal federalism in the UK there would be a need for a Joint Exchequer Board (JEB) with two primary tasks: first to bring about an element of equalisation on the basis of need; and, second to ensure the effective coordination of the fiscal and monetary policies being pursued by the Federal Government and the respective Governments of the Nations and Regions.
In a system of fiscal federalism I can see no alternative to a new needs-base formula replacing the current Barnett Formula. The JEB would have the critical responsibility for ensuring a fair distribution throughout the UK taking account of indicators of need relating to, for example, income distribution, poverty, deprivation and the effect on the cost of essential service delivery of rurality and peripherality. In addition to the general responsibility for ensuring that the fiscal systems operate effectively with no overlap and that borrowing limits are strictly adhered to I think the JEB should assist in coordinating the operation of benefits such as housing benefit, tax credits and pension credits with the workings of council tax and income tax at a National level.
Tax base and tax rate
As the Steel Commission out it (P45) “The greatest fiscal autonomy for sub-central states comes from control over the tax base and the tax rate.” Steel goes on (P96) to set out four principles that should guide any system. I think clarity and simplicity will be best achieved if the division of taxes is clean cut, if the application of borrowing rules for both capital and revenue are clear and unambiguous and if the system for equalisation is based on a transparent needs-based formula. Similarly, I think a clean cut of taxes will greatly reduce the chances of tax exportation but as with the danger of tax migration I think the key restraining factor will be in the design of the borrowing powers.
There has been concern expressed at the prospect of a Scottish Government leading a charge to the lowest (say) corporation tax rate and provoking unseemly competition within the UK at the expense of the most vulnerable. Johann Lamont, Leader of the Scottish Labour Party, is amongst the most recent to express such concerns. If one is considering reducing a tax rate then, self-evidently, you cut expenditure, increase another tax or fudge the issue by bridging the gap through borrowing. I regard the choice between raising/lowering expenditure and raising/lowering taxation as a legitimate political choice. I regard abusing borrowing limits as imprudent and unacceptable financial management and I develop this further at Borrowing Powers below.
The final principle Steel highlighted was efficiency and I think this is best achieved by developing further the responsibilities of HMRC such that it becomes the servant not only of the UK Government but also the nations of the federal state.
The Calman Commission considered in some detail whether any taxes might be devolved (P90-102). It found against devolving any tax that give the Scottish Parliament any real economic powers, only considered relatively minor taxes as suitable for control by the Scottish Parliament and opted for a substantial increase in the amount of revenue from income tax to be raised directly by the Scottish Parliament. I think the Nations and Regions of a Federal UK need to have the economic powers to set a fiscal framework that is appropriate to meet their needs whilst at the same time taking responsibility for raising the overwhelming proportion of the revenue required to meet their social needs. The Federal UK should be responsible for not only funding defence and national security but also providing the glue for the social cohesion of the Federal State by guaranteeing basic levels of pensions and social security and tackling poverty and deprivation
I believe, therefore, the Scottish Parliament (and other National Parliaments/Assemblies) should have the powers to raise as much as possible of its expenditure needs and should have responsibility for all taxes except those reserved to the Federal UK. The Scottish Parliament should have the power to alter the tax base and the tax rate for each devolved tax and should have the power to abolish any devolved tax or introduce a new tax subject to meeting objective criteria agreed with the JEB
At a Scottish/National level I would, therefore, give the Scottish Parliament control over:
(a) Income and wealth taxes: Income Tax, Corporation Tax, Capital Gains Tax, Inheritance Tax, all other taxes on income and wealth;
(b) Property taxes: Council Tax, Non-domestic Rates, Stamp Duty, Land Tax;;
(c) Environment taxes: Climate Change Levy, Aggregate Levy, Landfill Tax; and
(d) Miscellaneous: Betting and Gaming Duties
In addition, I would provide for the Scottish Parliament to have automatically allocated to it:
(a) The Geographic share of NS Oil revenues; and
(b) Interest and dividends, Gross Operating Surplus (being mostly from Scottish Water), Rent and other current transfers and other taxes etc
This would leave as reserved or UK Federal taxes: National Insurance Contributions; VAT; Stamp Duty Reserve Tax; Alcohol, Tobacco, Fuel and Vehicle Excise Duties; Air Passenger Duty, and Insurance Premium Tax.
Both Steel and Calman considered the very limited and short-term borrowing powers provided in S66 of the Scotland Act 1998 to be inadequate. Calman proposed (P112) an additional power to borrow to increase capital investment in any one year with the limit to be determined in a similar fashion to the Prudential limit operated by local authorities. The Scotland Bill proposes an extension in the borrowing powers setting a limit for short-term revenue borrowing at £500 million and granting new powers to Scottish Ministers to borrow to fund capital expenditure with a limit of £2.2 billion. From debates on the Bill at Westminster it is clear that the limit of £2.2 billion is considered by the Coalition Government to represent an acceptable risk for the UK finances that does not crowd out other priorities in the next spending review period. It appears that the limit could be increased depending on economic circumstances with the approval of the UK Parliament.
The borrowing powers required by the Scottish Parliament would require to be amended from those set out in the Scotland Bill (S37) to reflect the change to the tax base and the removal of the current block grant. The powers would need to address three areas: short-term timing differences; the effects of an economic downturn; and funding capital expenditure. The powers would have to be capable of relating to UK macro-economic policy, be operated with the JEB in accordance to its terms of reference and the mechanism for deciding the total quantum of permitted borrowing under each heading has to be set out in terms that are clear and transparent.
Drawing up rules to manage short-term cash deficiencies that arise from timing differences between planned income and expenditure should not be difficult as they are currently provided for. The second category, funding policies that smooth the economic cycle maintaining public service provision during an economic downturn, might prove more difficult. These rules would have to draw a clear distinction between a loss of revenue arising from a reduction in the buoyancy of a particular tax as the result of an economic downturn and a loss of revenue arising from a decision to lower the rate of a particular tax. (This is the issue referred to at para 2 of the section Tax base and tax rate above). The third category, financing capital projects, is again easier to define but the rules have to make clear how the limit is arrived at and how it fits into wider UK macro-economic policy. In drawing up borrowing rules the Steel Commission helpfully suggested P95 that “it would be necessary to develop “Golden Rules” governing the way in which the UK Government and the Scottish Government exercise their fiscal powers.”.
The problem with the current Golden Rules is that they are only a guideline for the operation of fiscal policy. The Golden Rule in the UK states that: “over the economic cycle, the Government will borrow only to invest and not to fund current spending”. In other words on average over the duration of an economic cycle the government should only borrow to pay for investment that benefits future generations. Day-to-day spending that benefits today’s taxpayers should be paid for with today’s taxes, not with leveraged investment. Over the cycle, therefore, the current budget (net of investment) must balance or be brought into surplus.
I think that the core of the ‘golden rule’ framework which is that, as a general rule, policy should be designed to maintain a stable allocation of public sector resources over the course of the business cycle has a great deal to commend it. I believe the core provides the basis of binding borrowing rules particularly if one takes account of the fact that “stability” is defined in terms of the following three ratios: (i) public sector net worth to national income; (ii) public current expenditure to national income; and (iii) public sector income to national income.
The difficulty is that everyone is well aware of how these very sound principles, expressed in terms of the Golden Rules or the Euro Borrowing Rules, have been rather easily over-ridden. In the UK, the over-ride was effected by changing the length of the economic cycle and in the EU by redefining the assets that qualify as security. I still think the principle should form the basis of UK federal borrowing rules but they would have to drawn up in such a way that any breach constituted an illegal act by the respective Government/Parliament and meant it was acting Ultra Vires.
As I hope is clear from my submission, I have not deviated from my long-held belief that only federal Home Rule offers a stable constitutional settlement that satisfies the legitimate governance aspirations of the Nations and Regions of the UK for the 21st Century and beyond. I believe I have demonstrated that only federal Home Rule has the capacity to address both the constitutional and financial accountability shortcomings of the current Devolution settlement, the operational anomalies of the UK (predominantly English) Parliament at Westminster and the absence of a dedicated UK federal parliament that would facilitate fiscal federalism.
Your Commission has been asked, amongst other things, to build on the findings of the Steel Commission and I hope my submission will contribute to that process. As a matter of practical politics, however, your “Flyer” poses a number of questions including: how do we ensure home rule is a permanent solution? how do we ensure it is not dependent upon wholesale changes across the UK? and what are the hurdles to governance of England?
I cannot see how we even begin to move towards a permanent solution unless and until there is at least some consensus as to the nature of the problem. It is depressing that Cameron, Clegg et al (with the singular exceptions of Michael Moore and Jim Wallace) think the answer is more powers to Scotland under Devolution if the Scots say “No” to Independence. A Scottish Government proposing to bring forward an Independence referendum is a threat to the continuation of the UK and the UK Government ought to be treating it as such. If the threat is to the UK, as it manifestly is, then the answer has to be framed to address that problem.
Because the de facto position is that the UK Government is the English Government and vice versa, I also cannot see how one can avoid engaging with the English to find a stable and long-term solution to the problem. Indeed, I think it is potentially dangerous to contemplate any further constitutional change unless it is at a UK level. As I have shown in this submission, positing a Scotland only solution proceeds on the wholly erroneous assumption that one can change the constitutional arrangements for Scotland without affecting the rest of the UK.
In my opinion, therefore, that aim has to be to establish the creation of a modern federal British State with Home Rule for all of its constituent parts as the long-term objective. A route map for the progressive untangling of the British equals English equals British conundrum has to be put in place. Any proposal to transfer further legislative or administrative powers to the Scottish Parliament should be framed on the basis that it ultimately would form part of a federal Home Rule Settlement that would apply equally to the other Nations and Regions of the UK. Likewise, any proposal for the transfer to the Scottish Parliament of financial powers in the form of fiscal federalism should be framed on the basis that this is the system that would ultimately apply throughout the UK.