More Powers for Scotland – Simple, huh?

Adam Smith

Apologies to my international readers for focusing in the last few posts on what must seem a parochial issue compared with what’s going on elsewhere in the world. But we Brits are a bit preoccupied at the moment with the prospect of some major changes in the way our country is run.

So a constitutional settlement for the United Kingdom in the wake of the Scottish Referendum is simply a matter of signing over to Scotland tax-raising powers subject to a levy to pay for defence, intelligence and diplomatic overheads, and then passing a law to that prohibits Scottish members of the Westminster parliament from voting on matters pertaining only to England – right?

Wrong.

As a humble voter unconnected with the corridors of power and aligned with none of the political parties, despite my relative ignorance I can see a number of tricky issues that will need to be negotiated. For instance, I shall watch with interest to see how the panjandrums deal with these little questions:

Funding for Pan-UK Institutions: Will Scotland be required to hand over a fixed percentage of the income tax it raises to pay for spooks, battleships, ambassadors and our beloved Royal family? Or will there be a specific lump-sum levy fixed in the annual Westminster budget? That’s a crucial question. If, say, we need dramatically to increase the numbers of spooks and soldiers to deal with a sudden escalation of internal threats and military commitments – as seems currently likely – will the Scots have to raise taxes or cut public expenditure to pay for the additional spend? That will affect the internal budgeting that will be within their remit, and thereby curtail their financial independence.

The other likely consequence will be some level of the hypothecation – the ring-fencing of individual budgets for specific cost centres, such as military, health and so on – that the UK Treasury has long resisted. It will no longer be so easy for governments to slosh funds about from one department to another without being subject to public scrutiny. There will be a dividing line going right through the heart of government spending, so don’t be surprised if within the two pots – regional and British – we see more lines being drawn. For those who argue that hypothecation will bring greater transparency in spending, that can only be a good thing.

If there is to be a lump sum annual levy, it will also be necessary for Westminster to negotiate an annual settlement with Scotland and, presumably, Wales, in advance of the UK budget. Whether the levy is imposed or negotiated, unless a process of consultation takes place concurrently with development of the UK budget, we will probably see a time lag between the Westminster and regional budgets, which could make the “budget purdah” governments like to impose in order to head off speculation and market anxiety more difficult to manage.

European Law: If, as seems possible, the UK leaves the European Union within the next few years, Scotland will be dragged out with it. Scotland is generally more pro-EU than England, and will be likely to want to retain much of the EU legislation currently in force – the Human Rights Act and the Social Chapter in particular. Should England repeal this legislation to create a social landscape more favourable to business, the changes will most likely result in a lower cost of employment south of the border. This then becomes a competitive issue that might disadvantage Scotland. It could affect Scotland’s chance of winning inward investment, and might even result in British firms moving jobs south. So leaving the EU could be another indirect inhibitor of Scottish autonomy.

Oil and Gas: How will the revenues be divided? Will there be a difference between levies by the Scottish government and Westminster on oil and gas production? If so, that could lead to further competition war, with investors and exploration companies focusing on one area of the United Kingdom over another. If things don’t go Scotland’s way, old resentment over who benefits from the oil revenues will not be alleviated, and instead might intensify.

Definition of “only relevant to England”: As one or two pundits have already pointed out, in this area the devil is in the detail. What are the areas that are exclusively relevant to England? What areas might have a knock-on effect on Scotland? Let’s say that financial regulation of the Scottish financial industry becomes a matter for Scotland to determine. If Westminster decides to change the regulations that apply to firms in the City of London, what will be the effect on Scotland’s counterpart?

Supposing Westminster raises fuel duty for England, and Scotland declines to follow suit. Will we see a new line of business for criminals: smuggling fuel across the border, as happens between the north and south of Ireland? How would that be policed? Who would pay for the additional policing?

There will be a whole host of similar scenarios to be considered and resolved. Clearly there are many areas where the different authorities will need to coordinate and cooperate even if they are under no constitutional obligation to do so. In public health and farming policy, for example, as long as the UK is in the European Union, European law will maintain commonality. But if we secede, it will be down to the constituent parts of the UK to ensure that there is a consistent approach to dealing with foot-and-mouth disease, epidemics and immunisation policies. And what about environmental and air transportation issues?

So here’s the bottom line.

Devo max – the term used by the politicians to describe the stretching of fiscal devolution to the greatest possible extent – will not give the Scots, the Welsh and the English control of their own destinies, or anything like it. The Scots will be able to build a few roads, hospitals and universities if they can afford it. They will be able to vary tax rates – upwards or downwards – and take measures to create jobs and industries.

But just as the earth’s gravity prevents the moon from flying off and becoming a planet in its own right, Scotland’s ability to operate independently will still be circumscribed by the big bad wolf down south. It will remain in England’s orbit, whatever level of independence it achieves. And the same goes for the UK and the EU. So in one sense independence was always an emotional rather than a practical construct.

Enough of the problems. What about the opportunities?

Instead of moaning about being bounced by the Scots into some form of federal constitution that we neither sought nor felt we needed, perhaps we English should start looking on the bright side. If the home of Adam Smith can come up with some imaginative initiatives to improve the lives of the people north of the border, can we not learn from those new ideas? If the best talents in England, Scotland and Wales are motivated to work for the benefit of their national governments, cannot each of the nations in the UK benefit from their efforts? True devolution is surely the devolution of talent, of minds.

Nobody wants to see the central government in Westminster populated with even more functionaries and dead-heads than is already the case. But if bright people can make more of a difference in the regions where they were born and grew up, then surely those regions will be the stronger as the result. And we, in our still-United Kingdom, will all be stronger too.

The tide is flowing fast away from the shores of central government. Let’s ride it and see where it takes us.