Devolution Commission reflections: Comparisons and contrasts

Published: 18 March 2014

The final report of the Labour Party’s Devolution Commission is now out, ready for presentation and, we presume, approval at the Scottish Labour Conference this weekend. The publication of the report leaves the Conservatives as the only significant pro-union party yet to declare its hand on what further devolution it would consider in the event of a No vote in September. The Commission’s report gives us a better basis for understanding what a pro-union ‘offer’ might be to encourage voters to ‘vote no and get more devolution’ in September’s referendum.

What Labour’s Commission is Proposing

The big ticket items in the Commission’s report are as follows:

  • Extending the scope of income tax devolution beyond that set out in the 2012 Scotland Act, which is intended to be in operation in 2016. The current UK-wide income tax bands are 20%, 40% and 45%, each applicable at different income levels. Under Labour’s plans the ‘default rate’ for Scottish income tax would be set fifteen points lower at each band, so at 5%, 25% and 30%. The block grant Westminster sends to the Scottish Parliament would be reduced by the equivalent cash value. It would then be up to the Scottish Parliament to decide what the final rate payable at each band by Scots taxpayers would be. The 2012 Scotland Act envisaged default rates at ten rather than fifteen points lower than the UK-wide bands.
  • The 2012 Scotland Act insisted that any changes to tax rates had to be the same at each band, so there would be no possibility of Scotland having a more (or less) progressive system than the rest of the UK. That would change under Labour’s new plans, under which a future Scottish Government could tax higher rate taxpayers at a higher level (but not at a lower level) than in the rest of the UK.
  • In the field of welfare; housing benefit and attendance allowance would be devolved to the Scottish Parliament.
  • Other powers would be devolved in the fields of Scottish Parliament elections, health and safety, employment tribunals, equalities policy, consumer advice and the railways.
  • There is a commitment to stronger powers of local government in Scotland including the possibility of special rights for Shetland, Orkney and the Western Isles, the devolution of the UK-level Work Programme and the Scottish Parliament’s responsibilities for training and skills to local authorities, a role for local authorities in the administration of the Crown Estate, new economic development powers, the prospect of reform of local government finance and a constitutional recognition of local government.
  • The Scottish Parliament would be constitutionally entrenched so that it could not be dissolved by the UK Parliament and would therefore be a permanent feature of the UK constitution.
  • And new statutory partnership agreements would be introduced to bind the UK and Scottish Parliaments to ‘work together for the common good’ as defined in the language of civil, political, social and economic rights (the latter including ‘welfare and full employment’) that should apply to all UK citizens. The notion of a common good is defined right at the outset of the report in the imagery of a ‘sharing union … in which risks and rewards are collectively pooled’.

What Others are Proposing

The Labour Devolution Commission’s proposals are the latest in a growing list of reports by different pro-union voices arguing for further-reaching devolution. How do they measure up against the others?

The first to launch its proposals was the Devo Plus group associated with the think tank Reform Scotland. It produced proposals on tax devolution in May 2012 which envisaged the full devolution of income tax (including the ability to vary rates at different tax bands), corporation tax, capital gains tax and a number of other smaller taxes. The effect would be to cover around two-thirds of the Scottish Parliament’s spending through the Parliament’s own tax decisions. Later Devo-Plus papers recommended the devolution of a range of welfare powers including care, winter fuel and work programmes (September 2012) and that the Scottish Parliament be permanently entrenched (November 2012).

The Scottish Liberal Democrats’ Home Rule and Community Rule Commission, chaired by Sir Menzies Campbell, published its first report Federalism: the best future for Scotland, in October 2012. This proposed full devolution of income tax (including the ability to vary rates at different tax bands) and a number of other tax bases to the Scottish Parliament, along with the assignment of a Scottish share of corporation tax revenues to the Parliament (that is, maintaining a common UK corporation tax rate but splitting the tax take between the rest of the UK and Scotland). The 2012 report estimated that the combination of devolved and assigned taxes would cover around 55% of Scottish Parliament spending. It also proposed the constitutional entrenchment of the Scottish Parliament and a series of enhanced fiscal and policy-making powers for local government. The second report (Campbell II) in March 2014 sought to establish a common denominator in the various proposals for further devolution in the form of constitutional entrenchment plus the principle that the Scottish Parliament should cover more than half of its spending through its own tax decisions.

Finally the Institute for Public Policy Research (IPPR), the London-based think tank traditionally close to the UK-level Labour Party, published its first proposals under the banner of ‘Devo-More’ in January 2013. These proposals again envisaged full devolution of income tax (including the ability to vary rates at different tax bands) and other minor tax bases, along with the assignment of half of Value Added Tax revenues collected in Scotland to the Scottish Parliament. The effect would be that devolved and assigned taxes would cover just over 60% of Scottish Parliament spending. Last week IPPR followed up with proposals on welfare which would see devolution of attendance allowance, housing benefit, the Work Programme and aspects of childcare policies along with a general power to supplement benefits that continue to be delivered at the UK level.

How do Labour’s proposals match up?

The Labour Devolution Commission’s proposals share much common ground with the other pro-union groups, but there are also significant nuances and differences. Eye-catchingly different and rather more extensive than the others are the proposals on strengthening local government in Scotland, including ‘level-hopping’ devolution of some powers direct from Westminster to local authorities, bypassing the Scottish Parliament. There is some political point-scoring here about the perceived centralist approach of the SNP Government, but this does look like a quite radical decentralising agenda.

The proposals on further devolution of policy powers to the Scottish Parliament are on a wider front than the other pro-union groups, but less extensive in what will no doubt be seen as the core field, welfare devolution. The proposals on constitutionally entrenching the Scottish Parliament appear now to be pretty much a consensus position across the pro-union camp.

The other area where there is a clear difference is in the strength of Labour’s emphasis on the purposes of union. There is a strong echo in the recent intervention by Gordon Brown on the need for the UK government to retain powers – and for the UK and Scottish Governments to work together – in order to secure pooled resources and purposes across the union. This commitment underlies the clearest-cut difference: the need to pay for these common purposes by common contributions through to UK taxes and its flipside – an only modest level of additional tax devolution.

It is striking that the Commission’s report starts out its consideration of tax devolution – unlike all the others – by specifying the amount of Scottish Parliament spending (60%) that ought to be covered by a UK-level block grant, funded by the UK-wide taxpayer to ‘secure key UK social rights’ in Scotland.

The approach of the others is to develop criteria to explore how much Scottish Parliament spending ought to be covered by tax decisions of the Scottish Parliament (supplemented in some schemes by assigned Scottish revenues from UK-wide taxes). Their approach is to look at each tax against these criteria on a case by case basis, and then to add up the findings. Devo-Plus come out with a figure of 66% of Scottish Parliament spending covered by its own tax revenues, IPPR about 60% and the Liberal Democrats about 55%.

Given its starting position – 60% of Scottish Parliament spending should be covered by UK grant - Labour’s Commission proposes a much lower ceiling of 40% for the proportion of its spending the Scottish Parliament should cover through its own revenues. This is not much more than one third or so of Scottish Parliament spending that will be covered in any case by the tax powers devolved in the 2012 Scotland Act. The comparative modesty of Labour’s proposals on tax devolution is striking (and it extends to the possibility of variation across bands – all the others propose full control of income tax and implicitly the ability to lower, and not just raise upper band tax rates as the Commission proposes).

That Labour lags the pro-union consensus here signals its need to secure compromise between devo-enthusiasts and devo-sceptics within the party. Because of that need it appears unable to embrace further-reaching tax devolution with the same enthusiasm as other pro-union forces. That internal party compromise surely also underlies its more vigorous articulation of the common purposes of union.

Despite the novelty of its Commission’s proposals in other areas like local government reform, Labour may well end up – and will likely be depicted as such by its opponents – as reluctant devolutionists, perhaps lagging behind even the traditionally devo-sceptic Conservatives in their embrace of further devolution. That we shall be able to assess when the final set of proposals on further devolution – those of the Conservatives’ Strathclyde Commission – are unveiled in May.

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