Fiscal Policy

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Scotland's fiscal framework: Assessing the agreement

The Smith Commission Agreement, published on 27 November 2014, set out proposals for substantial fiscal devolution to the Scottish Parliament. The Scotland Bill – due to receive Royal Assent shortly – will enshrine these powers in law.

So the fiscal framework has been agreed. Or has the can just been kicked down the road? Both interpretations are consistent with last week’s last-minute agreement between the Scottish and UK governments. There is now no significant obstacle to the passage of the Scotland Bill. As a result the Scottish Parliament will take control over the setting of the rates and bands of income tax from 2017 and a raft of welfare powers will be introduced when the administrative arrangements can be made.
 
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After months of protracted negotiation, the UK and Scottish governments have finally found something they can agree on, says David Eiser - that two plus two equals five. 
 
So, after months of negotiation, a deal has finally been agreed on how the Scottish Government’s block grant will be adjusted to reflect its new powers over taxation and welfare.
 
John Swinney has effectively got the deal he wanted, at least until 2022. And Nicola Sturgeon has said the deal provides ‘not a penny of detriment’ to the Scottish budget.
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In the first of a series of analyses of the Scottish parties’ manifesto proposals from the University of Stirling and Centre on Constitutional Change, David Bell and David Eiser consider the Labour proposals for income tax announced recently.
 
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Scotland’s First Minster suggested recently that the Scottish Rate of Income Tax is ‘anything but progressive’, but, says David Eiser, this is not strictly true.
 
In December’s Budget, John Swinney chose not to raise the Scottish Rate of Income Tax (SRIT). His reason for not doing so is that it would not have been possible to protect those on the lowest incomes and would thus have been unfair.
 
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John Swinney's final budget before the 2016 Holyrood elections was billed as a Scottish alternative to austerity but, says David Eiser, it may have been Scottish but it wasn't very alternative. 
 
We knew a lot of the context before John Swinney stood up to deliver his Draft Budget on Wednesday. The Scottish Government’s grant from Westminster for day-to-day spending would be 1 per cent smaller in 2016/17 as it was 2015/16. Its grant for capital spending on the other hand would increase by almost 5 per cent.
 
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