Magazine article Public Finance

Caledonian Consensus

Magazine article Public Finance

Caledonian Consensus

Article excerpt

The middle of a massive debt crisis micht not seem the most obvious moment to call for more borrowing, but in the Scottish Parliament there has been something of a breakthrough in the long-running debate about fiscal autonomy and the Barnett Formula. Labour has apparently accepted the case for giving the Scottish Government borrowing powers - to take on a 'national debt'. At present, the Scottish Government is allowed to spend only what it receives in the block grant from London.

I say 'apparently' because, while the Scottish Labour Party has conceded the case for borrowing in its evidence to the Caiman Commission on reforming the constitution, Prime Minister Gordon Brown still sounds unconvinced. At a meeting with the leaders of the devolved administrations last month, he repeatedly challenged Alex Salmond over the idea, insisting that the first minister had no idea how he would pay back any money borrowed in this way.

Despite the UK government's own mounting debts, Brown does have a point. If Holyrood is to have powers to bcrrow from the private markets to finance projects such as the new Forth road bridge, how can it be sure it can repay these loans, given that it has ro powers to raise revenue?

All the Scottish parties have rejected using the existing powers to vary the basic rate of income tax by three pence in the pound. The Scottish Government couldn't simply demand more trom the muchmaligned Barnett Formula on Scottish spending.

The Scottish National Party's answer to this is, of course, fiscal autonomy, and ultimately independence. As Finance Secretary John Swinney told the Lords committee on the Barnett Formula recently, the solution to the anomalies of borrowing is to give the Scottish Parliament a full range of tax-raising powers. Being compelled to raise the money they spend is, the nationalists argue, the best way to ensure that ministers are accountable and responsible in spending decisions.

As it happens, the Scottish Labour Party has also made clear in its evidence to the Caiman Commission that it is not opposed in principle to tax powers for the Scottish Parliament. This means that all the parties in the Scottish Parliament appear to be moving toward a new consensus on the constitution around the idea of 'devolution max'.

The SNP has begun to realise that it is unlikely to win an early referendum on independence, and that it would be better to join the campaign for a kind of federalism, short of full independence, where the Scottish Parliament has a wide range of economic powers. …

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