Question mark

Devo-max or Deja-vu max?

Published: 5 January 2021

Following Labour leader Keir Starmer’s speech on devolution, Graeme Roy and Stuart McIntyre of the Fraser of Allander Institute suggest that, without a massive u-turn in economic philosophy, the promised ‘radical reform to economic and political devolution’ is unlikely to produce proposals for meaningful change.

Amidst all of the news stories of UK-EU trade and COVID, one story flew largely under the radar in the final week before Christmas: the launch of (another) commission into devolution in the UK, this time by the Labour Party.

That such a potentially important speech by UK Labour leader was pushed to the 21st December – ensuring that it would have little cut-through – was remarkable. The key announcement that another commission was to be established was….well, less remarkable.

It’s hard for those of us who have been around these debates for a while now, not to feel a touch of deja-vu.

At the centre of Keir Starmer’s speech was the phrase “a new phase of radical economic and political devolution across the United Kingdom”.

One useful reference point for clues about what this might entail is the 300-page report of the last Scottish Labour Devolution Commission, Powers for a purpose - Strengthening Accountability and Empowering People, published in 2014. It formed the basis for the party’s submission to the Smith Commission later that year.

It’s striking just how similar the language of the report is to last month’s speech.  Both are heavy on arguing for solidarity across the nations of the UK, the need to pull together and share resources (particularly on social welfare), the costs they see of erecting economic barriers within the UK, and the need to devolve fiscal and economic powers to local government.

Also striking is just how limited the 2014 proposals actually were for devolving more power to the Scottish Parliament. To recap, in the 2014 Labour report, key fiscal recommendations included:

  • Widening the ‘Calman Commission’ income tax power from 10p to 15p of the basic rate. This proposal was much less expansive than that ultimately agreed by the Smith Commission (which devolved control over all bands/rates for all NSND income tax, with the exception of the personal allowance)
  • All other taxes to remain reserved, for supposedly “a variety of good reasons”. Once again, these proposals were less expansive than put forward by other parties and the Smith Commission’s recommendation that aggregates levy and air passenger duty be devolved alongside assignation of VAT.*
  • The Barnett formula – in place since the 1970s – was to remain as the principal funding mechanism for public services.
  • No new borrowing powers were recommended, beyond those already due to be implemented following the Calman Commission recommendations. The Smith Commission recommended increased borrowing powers for capital programmes and also new powers to manage day-to-day fluctuations in revenue spending following greater tax devolution.
  • With the exception of Housing Benefit and Attendance Allowance, the core of the Welfare State – pensions and the majority of cash benefits – was to remain reserved to ensure the “social solidarity that helps bind the UK together”. Again, these proposals were less expansive than those put forward by other parties and the Commission’s recommendations to devolve around £3 billion of social security, including key benefits associated with disability and ill health alongside a collection of smaller benefits including cold weather payments, Sure Start grants, and winter fuel payments.
  • A number of other smaller proposals (at least measured at the macro level) were put forward, including with regard to fixed-betting terminals etc. But the report concluded that key issues of economic regulation, such as competition, should remain reserved.

*Note, consideration had been given by the Labour Party to devolving Air Passenger Duty but was rejected until “further consideration is given to the environmental impact and how else this tax might be reformed”.

From an economic and fiscal perspective, without a fundamental change of philosophy, it is difficult to imagine the new Commission proposing anything other than tweaks at the margins.

There are weaknesses in the current Fiscal Framework, particularly around the ability of Scottish Governments to manage revenue risk. But any proposed changes to the Fiscal Framework are likely to be about making the existing powers work more effectively as opposed to ‘radical devolution’.

So given these constraints, where might the focus be?

First and foremost, one would expect greater clarity about what to do with the existing powers in the hands of the Scottish Parliament. The 2016 election was arguably too soon for Scotland’s political parties to have thought through how they intended to use the new Parliament’s new powers. But this May, it won’t be sufficient just to criticise the government. New ideas will be needed.  

Secondly, from a UK perspective, the elephant in the room remains England. But radical devolution for English regions won’t necessarily imply radical devolution for Scotland. Likewise, for any talk of radical devolution to local communities. Any move to greater devolution for England is also likely to open up some challenging questions around funding, with possible knock-on implications for the Barnett Formula (discussions that aren’t likely to work out in Scotland’s favour).

Arguably the focus of attention should not be on devolution but on the UK political and economic model itself.  The debate about ‘more powers’ that dominated devolution discussions following the 2014 referendum appears less relevant now. Instead, in a post-Brexit/Internal Market Act world, the key fiscal and economic debates now centre upon basic fundamental questions on the authority of the Scottish Parliament itself to take economic and fiscal decisions in the interests of the people of Scotland, the constraints on that power and fundamental questions of sovereignty and accountability.

Irrespective of your views on Scotland’s constitutional future, it is clear that Brexit has thrown up a number of challenges to the basic structure of devolution in the UK and the authority of the parliaments in Edinburgh, Cardiff and Northern Ireland.

Whilst it might be impractical for a devolved government in one part of the United Kingdom to hold (in effect) an unchecked veto over the decisions of a parliament representing the UK as a whole, existing processes for managing intergovernmental relations, resolving differences of opinion and respecting each other’s policy responsibilities do not work as they should. It is worth noting that the 2014 Labour Commission recommended putting the Sewel Convention on a statutory footing, calling for the Scotland Act to be amended “to reflect the now firmly established convention (the Sewel convention) that the UK Parliament does not legislate for devolved matters or to amend the powers of the Scottish Parliament without its consent.” (p123). Note the absence of the ‘normally’ qualification.

But how radical is Labour now prepared to be?

Sir Keir Starmer’s speech has left many questions unanswered about where the Labour Party is heading with regard to Scotland’s future. Based upon past experience, and without a massive u-turn in economic philosophy, don’t expect any radical proposals offering new economic or fiscal powers for Holyrood.

If this latest commission is to contribute anything at all, beyond soundbites of ‘home rule’, ‘social justice’ and ‘solidarity’, its best hope would be to focus its attention on reforms not for Holyrood but Westminster.

Graeme Roy is Head of Economics and Director of the Fraser of Allander Institute, University of Strathclyde

Stuart McIntyre is a Senior Lecturer in the Department of Economics, and Head of Research at the Fraser of Allander Institute, University of Strathclyde

Photo by Emily Morter on Unsplash

MPs Job-Share: A Practice Worth Trialling

Northern Ireland and the 2024 General Election Results

A smart electorate makes its views known

Election 2024 analysis: The future for Labour in Wales

How Scotland Voted in the 2024 UK General Election