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Shelve ‘hasty’ Scottish devolution until fiscal details agreed – Lords

The House of Lords Economic Affairs Committee has called for the Scotland Bill to be shelved until the devolution fiscal framework underpinning it is scrutinised, just a few days ahead of the Bill’s second reading.

The Committee said MPs did not have the opportunity to inspect the framework before the Bill passed through the Commons, meaning it should not move to Committee stage in the Lords – where amendments can first be made – until details are examined and agreed.

The Scottish and UK governments are negotiating a fiscal framework that will be central to future devolution arrangements between both parties. It will underpin new tax and spending powers, including agreeing on the Scottish budget and how it is adjusted once powers are devolved, scrutinising public revenues and spending and borrowing powers.

Committee chair Lord Hollick said: “The Scotland Bill has the potential to fundamentally change the UK and impact on us all both politically and economically. It is crucial that what is proposed is stable and sustainable.

“Parliament is being asked to pass the Bill before we are told full details about the fiscal arrangements that will underpin this new era of devolution. That cannot be right.

“We are calling on the progress of the Bill to be halted until the details are agreed and published. That would at least allow Peers the opportunity that MPs were denied of scrutinising and amending this important legislation as informed participants.”

The Committee’s report also identified key issues that the fiscal framework should clarify, such as what happens if any part of the UK borrows more than it can repay and how much debt Scotland can take on.

“We also need a proper explanation and investigation into the impact of proposals to devolve almost all income tax revenue to Scotland, some £11bn. That is unprecedented internationally and risks undermining the relationship between Scottish taxpayers and the UK government and Parliament,” Hollick added.

According to the Committee, the Barnett Formula is also outdated and needs to be modernised and replaced, allowing for further devolution to benefit from a new needs-based funding formula.

This also came on the same day as similar warnings from the Institute for Fiscal Studies (IFS) that it is “impossible to design a block grant adjustment system that satisfies the spirit of the ‘no detriment from the decision to devolve’ principle at the same time as fully achieving the ‘taxpayer fairness’ principle” – at least while the Barnett Formula is used.

In its report, funded by the Nuffield Foundation, the IFS also called for adjustments to Barnett-determined block grant to reflect the new tax-raising powers and new expenditure possibilities being devolved to Scotland.

The Economic Affairs Committee looked into options for how to adjust the block grant in order to allow Scotland to take account of the devolved income tax – but found that it is impossible to recommend anything given the lack of clarity over what level of economic risk the Scottish Government should take alongside its devolved income tax revenues.

Hollick continued: “How the funding arrangements for Scotland adjusted to take account of further devolution is a highly technical but crucial issue. Choosing the wrong method could work to Scotland’s detriment.

“The second no-detriment principal agreed by the Smith Commission is unworkable and will simply create ongoing disputes. This whole process has been done with undue haste and not enough attention to detail or principles. Devolution and the future of the UK are too important for us to legislate in haste and risk repenting at leisure.”

The Committee’s report follows on from threats by the Scottish finance secretary and deputy first minister John Swinney MSP to block additional devolved powers to Holyrood unless there was a fair deal on money.

Swinney discussed the Bill in the Scottish Parliament in September after the issue came up at Westminster during PMQs. He said the devolution proposed would not be passed without a just fiscal framework that allows the country to address its own priorities.

But secretary of state for Scotland David Mundell MP has already promised that the Bill will be a game-changer regardless, allowing ministers to design a significant part of the country’s welfare system and control income tax.

(Top image c. Danny Lawson/PA Wire)