speri.comment: the political economy blog

Independence by increments’

The SNP still pushes ‘full fiscal autonomy’ even though this will make Scotland worse off financially

Paul Sutton, Emeritus Reader in Politics, University of Hull

Paul SuttonThe Scotland Bill to provide greater powers to the Scottish Parliament is currently before the House of Commons.  It is the product generally of the final stages of the Scottish independence referendum, when the leaders of the UK Conservative, Labour and Liberal Democrat parties jointly issued a ‘vow’ to increase significantly the powers of the Scottish Parliament if the Scottish people voted ‘no’ to independence; and specifically of the Smith Commission, which was established following the ‘no’ vote in the referendum and tasked with finding common agreement among the five major political parties in Scotland on measures to recommend to the UK parliament for further devolution to Scotland.

The process since then has been anything but smooth.  The Conservative, Labour and Liberal Democrats have been vigorously opposed by the Scottish National Party (SNP) and the Scottish Greens both of which claim that agreed devolution measures have not been included in the Scotland Bill.  Critical among these is the funding of further devolution to the Scottish Parliament.

The Scotland Bill provides for new fiscal powers for the Scottish Parliament to cover some 40% of the taxes and 60% of the spending over which it would in future have control.  The SNP wants all tax revenues raised in Scotland to be retained in Scotland, along with responsibility for all domestic expenditure within Scotland, plus increased borrowing powers. It refers to this as ‘full fiscal autonomy’ (FFA) and regards it as the economic foundation for ‘Devo-max’, which would see Scotland in control of nearly all its own affairs except for defence, foreign affairs and some matters of common economic concern.

FFA has been an ambition of the SNP since 2007, but it has only recently come under intense scrutiny.  This has revealed fundamental weaknesses in the concept and provided ammunition for the opponents of the SNP to discredit its economic policies.  They claim that, in contrast to the current arrangements, based in part on the Barnett formula, FFA will actually lead to an increase in taxes, cuts in public services and greater borrowing, leaving those in Scotland significantly worse off.

A figure has been given for this by David Mundell, the new Conservative Scottish Secretary, in the debates on the Scotland Bill.  In answer to a pro-FFA amendment tabled by the SNP, he stated: ‘An amendment that kills off the Barnett formula and ends the sharing of resources across the UK is about as far from sensible as one can get.  It would be full fiscal shambles that would cost every family in Scotland around £5,000. … The Institute for Fiscal Studies have estimated that fiscal autonomy would mean Scotland having almost £10 billion less to spend by the last year of this parliament.’

The parallel organisation in Scotland, Fiscal Affairs Scotland, broadly confirms this analysis. In a press release in March it put the deficit in Scotland under FFA as £14.2 billion for 2015-16, a significant increase over its estimate of £12.9 billion for 2014-15.  What’s more, this projected position contrasted with that of the UK as a whole, which it suggested would be in a fiscal surplus by 2018-19, compared to a forecast deficit for Scotland of £8.2 billion in 2019-20.

The response of the SNP to these arguments was not to discredit the figures directly, but rather to seek to discredit its opponents, claiming they were ‘constantly talking down Scotland’s financial abilities’.

Nevertheless, some of the arguments about FFA have clearly been hitting home.  Nicola Sturgeon came under attack in the Scottish Parliament and in April dodged questions as to whether the SNP would seek to amend the Scotland Bill in the Westminster Parliament to provide for immediate FFA as she had stated only one month earlier.  Her assertive Finance Secretary, John Swinney, also became more circumspect, speaking of delay and significant periods of transition in reaching FFA.

It was therefore not surprising to see that in its General Election manifesto the SNP spoke instead of a transition to ‘full fiscal responsibility’ (note the word change) that ‘would take a number of years to complete’.  It proposed a dual strategy designed to retain the Barnett formula alongside new devolved powers over and above those proposed in the Smith Commission.  The latter would deliver substantial additional revenue (e.g. national insurance is estimated to raise £8.7 billion in Scotland and on-shore corporation tax £2.8 billion), as well as more control over spending.

Behind much of the SNP’s ‘re-think’ on FFA has been the recent near-halving of the price of oil and the consequent massive revision downwards of the yield of North Sea oil and gas revenues (NSOR).  The Office for Budget Responsibility in its Fiscal Sustainability Report commented: ‘The effects of accumulated losses reducing the effective rate paid by companies in the North Sea, plus the repayments associated with decommissioning costs, mean that in our central projection just £2 billion of receipts will be raised in total between 2020-21 and 2040-41’.  This was down £34.5 billion from its estimates last year!

Indeed, the decline in estimates of NSOR led to a delay in the publication of the Scottish Government’s own Oil and Gas Analytical Bulletin.  In May last year this estimated receipt of up to £7.8 billion in tax from the North Sea in 2016-17.  Its prediction now is, at best, £2.8 billion and, at worst, £0.5 billion.

Jackie Baillie, the Scottish Labour Party’s Shadow Finance Secretary in the Scottish Parliament, said these figures had ‘blown the SNP’s policy of full fiscal autonomy out of the water’ and further accused the SNP government of trying to ‘sneak the report out on the last day of (the Scottish) parliament’.  She noted by way of conclusion: ‘Last week the SNP trooped through the lobbies with the extreme right of the Tory party to vote for full fiscal autonomy.  It is as clear as day now that they knew the policy would be a disaster for Scotland – the SNP’s own figures prove it.’

In which case why does the SNP persist with the policy?  Quite simply, it’s seen as a policy to move closer to independence in a situation where the party knows it would not win another independence referendum in the near future.  FFA (or even the slimmer version of full fiscal responsibility) simultaneously undermines the economic and social benefits of the Union and increases the autonomy of the Scottish Parliament, moving it ever closer to ‘Devo-max’ and thus ever closer to independence, which would then be but a short step away.

In essence, the SNP is pursuing a policy of ‘independence by increments’.  It is a tried and tested approach pioneered by Alex Salmond and now carried on by Nicola Sturgeon of ‘SNP demand and Westminster concession’ on an ever-escalating basis.  Angus Robertson, the leader of the 56 SNP Westminster MPs (out of a total of 59 Scottish MPs), affirmed this in a recent interview in The Observer.  In it he claimed that some members of the UK Parliament seemed to be living in the vain hope that the SNP and pressure for independence would be a temporary phenomenon that would just ‘go away’.   He noted merely that this would not happen.

In sum, FFA – and no doubt many other measures yet to come – is an SNP tactic to maintain the pressure and move the goal of independence to within striking distance.  It is a strategy with which many in Scotland are familiar and manifestly something that Westminster will now have to get used to.

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