Those of us in favour of “fiscal autonomy” for Scotland have been sent homewards to think again by the Calman Commission (pdf, here), which looks at the asymmetrical mess which calls itself devolution. But it’s not all bad news. It had been expected to dump on the idea, but is fairly clear about the need to abolish the Barnett Formula which is even denounced by its author, Lord Barnett. This is what the commission has to say:
“With no substantive tax raising power, the Scottish Parliament is funded by a block grant, needed to address a near total vertical fiscal imbalance. Voters are not exposed to tax and spending decisions at the margin, meaning that a degree of political accountability for the taxation which supports spending decisions is missing. The disconnection between revenues and economic performance also means that the incentives to develop growth are secondary rather than immediate. The current arrangements also mean that the Scottish Parliament lacks a degree of autonomy – its scope to influence the size of its budget is limited whilst it is not able to use fiscal measures to influence behaviours.”
This cuts to the heart of the problem of Scottish “government”. Since its inception, the Scotland Office – and its successor, the Scottish “Government” – has had one mission: to justify as big a budget as possible and spend it. For decades, the pride of the Scotland Office has been that public spending per capita in Scotland is about 20% higher than England. This fact was testimony to its budgetary success. This continued under the Tories. At no stage does the government think in terms of value for money. The more things costs, the better it can justify its budget. This has led to a bloated state which squeezes out private enterprise in Scotland. When you can get paid more for being a rail timetable adviser to the Scottish Executive (sic) than you can to be a graduate trainee in a company, you know the whole basis of the economy is shafted.
Result: state spending in Scotland is 54.7 of GDP, higher than any country in the world. This is not only wasteful but harmful. It distorts the Scottish economy and has taken it from Silicon Glen to Mandarin Mountain.
My solution: is to adopt the Basque Country’s setup of “fiscal autonomy” where Scotland’s budget is set at what it can raise in tax. The SNP realises the attractions of a lower-tax model, having seen them work so well in Ireland and the former Soviet Republics. This is the best way of encouraging regeneration that Scotland needs so badly. And yes, you may argue that we’d be just a flag and an army away from independence. But at least Scotland would start to renew itself.
The Calman Commission says it is unpersuaded by this, and points to a needs-based formula like Australia’s where the pie would still be sliced up in London. In my opinion, only full fiscal autonomy will do. And with an SNP administration in Westminster thinking this is a good idea, a Prime Minister Cameron would have an ideal chance to implement this.
P.S. About a decade ago, Jeremy Peat produced a book called the Illustrated Guide to the Scottish Economy which made me realise just what an appalling state Scotland is in. I have tried to update those graphs ever since, and here are some below:
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