Scottish Fiscal Choices Post-Referendum: Powers, Purpose and Potential Impact
The Referendum on Scottish independence held on the 18th September, 2014, resulted in a significant majority vote (55% as against 45%) in favour of “no”. Accordingly, Scotland will remain a member of the U.K. for the foreseeable future. However, further changes in the Scottish fiscal system are inevitable. Firstly, some tax changes are already in the pipeline (for April 2015 and 2016) as a consequence of the provisions of the Scotland Act 2012. Secondly, all of the UK leaders of the main unionist parties committed, in the latter stages of the referendum campaign, to transferring significant additional powers to the Scottish Parliament in the event of a majority no vote. Lord Smith of Kelvin Chairs a Commission charged with rapidly generating a proposal for a new devolution settlement for Scotland.
In Section 2 we briefly review the tax powers introduced by the Scotland Act 2012 and discuss those that seem likely to be proposed by the Smith Commission. We consider each of these changes in turn and seek to identify those that have the potential to exert significant macroeconomic or system-wide effects on the Scottish economy.
In Section 3 we provide a first attempt to analyse the likely consequences of changes in those taxes that will be devolved, or could be devolved post-Smith Commission, and that could exert a significant system-wide impact on the Scottish economy. While there has been extensive debate around the issue of which powers should be devolved, there has been much less consideration of the likely impact that any new powers would have.
We then reflect, in Section 4, on the wider lessons of our analysis for two key aspects of the debate on further devolution of fiscal powers: the link between Scottish economic activity and Scottish Government revenues; fairness, well-being and inequality in Scotland. Section 5 presents our conclusions and outlines the further research that would enable us better.