Assessing Smith: Are the Powers Adequate? Evidence to the Devolution (Further Powers) Committee

Published: 11 December 2014

Devolution (Further Powers) Committee, 11 December 2014 - Evidence from Professor Michael Keating, Director of the ESRC Centre on Constitutional Change

The Smith Report

1) General Approach

The Smith proposals should be judged according to whether they give the Scottish Parliament the powers needed to foster growth and social cohesion. By this criterion they are inadequate.

The main reason is that they do not stem from a mature consideration of Scotland’s needs but from a pledge made by the pro-union parties in a moment of panic towards the end of the referendum campaign. This included an unrealistic timetable, which precluded in-depth consideration, public debate and civic engagement. The process was dominated by bargaining among political parties. The pro-union parties started from their own previous proposals, which were in many respects flawed, while the SNP had not worked out what its priorities were for a reformed union and so asked for too much.

These problems were compounded by the approach to negotiations, which was to take items piecemeal, even to the point of considering bits of existing policies, rather than focusing on broad policy fields.

2) Taxes

There is an excessive focus on income tax, which was reflected in the negotiations and the media coverage of the report. The concession is a significant one but, it should be noted:

• The tax base and threshold are reserved;

• Investment income, capital gains and inheritance, which are forms of income, are reserved;

• National insurance is reserved;

• This leaves limited discretion over basic rates (which have not been raised since the 1970s) and the higher rate (where the argument among the parties is about 50% versus 45%);

• Income tax is no longer the reliable, buoyant revenue-raiser it was, given the growth of low wages and raising of the tax threshold.

Policy discretion requires a broad range of taxes. Assignment of VAT does broaden the tax base (although not the discretion) and will reduce reliance on income tax. One might ask why it was assigned on the basis of receipts rather than population, which could have allowed the principle to be extended more easily across the UK.

3) Welfare

Proposals for devolution of welfare are piecemeal and lack coherence. The Labour Party in particular has long resisted the devolution of welfare on the grounds that social entitlements should be uniform across the state. The pro-union parties, however, have never spelt out just what should be uniform and what can vary. In practice, there is considerable variation already.

There is a need to think about taxation, welfare and labour market policy together and at multiple levels. There is no recognition of this.

Universal Credit is locked in as a UK programme, which precludes discussion of possible adaptations for Scotland. The delay in rolling it out could have given an opportunity for a deeper examination before proceeding.

There is a provision apparently designed to allow Scotland to repeal the ‘bedroom tax’, which indicates a concern with immediate short-term problems rather than a deeper consideration of welfare.

4) Barnett

The Barnett Formula is to remain the basis for distributing the remaining block grant. It is difficult to discuss taxation without also addressing this. The rationale given by the parties for keeping Barnett is that it is necessary to stabilize revenues and to equalize them in accordance to need. Yet Barnett is not an equalization mechanism – it is notable that in its Scotland Analysis papers the Treasury never made this claim. The Labour Party did (Scottish Labour Party, Powers for a Purpose. Strengthening Accountability and Empowering People, 2013, p.37, ‘An equitable system of grant distribution – to Scotland, and indeed Wales and Northern Ireland – is a key aspect in the UK’s social union.’)

5) The UK dimension

The parties have attempted to resolve the issue of Scotland in advance of addressing the territorial constitution of the UK as a whole. This will prove impossible politically, since already there are reactions elsewhere in the UK seeking to link Smith to reform of Barnett and English Votes for English Laws.

There are proposals for a constitutional convention for the UK or a federal constitution. This could not be done without reopening the Scottish settlement.

6) Local taxation

The proposed commission of inquiry on local taxation in Scotland could have at least as much impact. It opens up new possibilities for taxation in Scotland, including more progressive property taxation and land-value taxation. If local authorities are able to raise more of their own revenue, the Scottish Government need raise less. If the Scottish Parliament is to control the rates and gain the revenues from income tax, a local income tax makes less sense, as both levels would be competing for the same tax share and the tax base for public services in Scotland would be excessively narrow.

7) External Affairs

This is not a matter to which the Smith Commission gave much attention but it is part of the wider agenda.

‘Paradiplomacy’, the involvement of sub-state governments in international affairs, is part of the normal practice in federal systems. This often stems from the external projection of competences that are devolved domestically. In the Belgian formula, it is expressed as in foro interno, in foro externo. Paradiplomacy is also used to promote economic development; for policy learning; to assert national aspirations; and to give moral leadership. Constitutional provisions vary, being most extensive in Belgium.

The Scottish Government proposes a greater role for Scotland. There are two aspects:

• The promotion externally of devolved competences, which extends the devolution principle;

• The securing of Scottish interests in reserved matters, which is more difficult.

The Scottish Government proposes that Scotland be able to sign international treaties. This is allowed in Belgium, subject to the treaties not conflicting with Belgian foreign policy objectives. The principle could be extended to Scotland, although comparative experience suggests that whether an agreement is formally called a treaty, as opposed to an understanding, concordat or whatever is not particularly important.

The European Union

The European Union poses other issues, since it is both external and domestic. The Scottish Government (like other sub-state governments) seeks more ‘direct’ influence in Europe. This is problematic since only national governments are directly represented in the key institutions of the Council of the EU and the European Council and in the nomination of the Commission. More important is indirect influence, through participation in member state delegations to the Council of the EU and via European networks.

There has been a big emphasis on Scotland’s representation in the delegation to the Council of the EU and rights to lead delegations. This is a high-profile activity and there may be a case for clarifying Scotland’s rights here. On the other hand, Scottish ministers must speak for the UK as a whole and cannot dissent from the common line, so this is not direct Scottish representation.

More important is influencing the EU policy process at all stages. It is crucial to be aware of proposals pending in the Commission and the consultative mechanisms and to be prepared with an argument. Influence is maximized by making a positive contribution, not by lobbying for one’s own interests. It is important to have networks of people in the Brussels institutions, and for Scottish civil servants to be familiar with Brussels. Scottish civil society and education should also be familiarized with Europe.

The matter of the role of devolved territories in EU treaty change raises issues of a different nature. In so far as these affect the competences of the devolved assemblies, there is an argument for stronger rules analogous to the convention that their powers should not be changed without their own assent. This could, for example, provide for treaty changes to be approved by the devolved legislatures, with a special provision needed to over-ride their objections. This in turn could ensure that they are fully involved in the negotiations about treaty change.

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