3 December 2014: The Smith Commission: what Was Said and What Has Happened
There has been, and will be, much debate about Smith following its publication late last month, including further analysis on Ekklesia. It is probably the case that as much as the Westminster parties were ever going to be prepared to concede is in its proposals.
But the idea that this amounts to ‘Home Rule’ or ‘devo max’ (everything other than foreign affairs and defence) is far from true; as is the assertion that this is the maximum that can be achieved.
It is but one package, developed out of conversation – constructive but inevitably compromised – by five of the six parties that played a large part in the September independence referendum campaign.
The other involves EVEL (English votes for English laws). The whole settlement can also be questioned in terms of the lack of balance between new powers and resources to deliver with or from them – something we specifically warned about. Of course there are positives, too. Those have to be built on. But people in Scotland and elsewhere on these islands will be necessarily sanguine about the adequacy of what is on the table.
The Smith Commission process, set in motion by the deliberately vague and highly politicised ‘Vow’ by the Conservative, Labour and Liberal Democrat leaders, was from the outset constrained by a timetable which ensures minimum public involvement and consultation.
One of the major planks in Ekklesia’s submission was about this failing. It can be somewhat mitigated as Heads of Agreement are considered, but at present we can have no confidence that it will be.
Nevertheless, as the energy for change continues in Scotland, there remains, throughout all these flawed processes, the hope that the case for more substantial constitutional and political change can be pushed for across these islands – for the benefit of people in Wales and the English regions, too.
That will of necessity involve tackling ‘the London question’ – the impact on the quarter mile City State which now shapes Westminster politics and much else on the British and Irish isles. It will also involve much more thought and response on the implications of Smith. http://www.ekklesia.co.uk/node/21100
Richard Murphy is a chartered accountant and economist. He has written widely, and blogs frequently. He has appeared in many radio and television documentaries on taxation issues. He has also presented written and oral evidence to select committee committees of the House of Commons and House of Lords. Richard has been a visiting fellow at Portsmouth University Business School, the Centre for Global Political Economy at the University of Sussex and at the Tax Research Institute, University of Nottingham.
His views. There appears to be broad consensus this morning that Scotland will get devolved powers over all income tax on earnings but not savings in the review of its authority to be announced today. Some other taxing rights, which are much less contentious, will also be devolved. I have to say I am very worried about this compromise solution for Scotland. In saying so I stress I was in favour of independence and felt Scotland should have embraced its own currency. little else made sense in September. Two months on a worst possible outcome for everyone now seems to be the option.
The settlement reached appears to be based on the premise that tax’s sole purpose is revenue raising and that Scotland must have taxing powers if it spends. At the core of my concern is my belief that this is wrong. Tax has not less than six purposes:
1) It reclaims the money that a government has spent into an economy
2) It reprices goods and services that the market misprices
3) It redistributes income and wealth
4) It raises representation in democracies as people are motivated to vote by tax
5) It reorganises an economy
6) It regulates money by giving it value in exchange by requiring that tax be paid using the state currency.
You will note that none of these refers to raising revenue and that’s appropriate. We know governments can and do spend money they do not have and we know governments can also spend without ever borrowing: QE has proved that. This is why I refer to tax collection as the reclamation of money the government has already spent into the economy using the power a state has to create money at will.
The trouble is Scotland does not have that power to create money. That will, as the whole referendum debate focussed upon, stay with London. So Scotland ends up with revenue collection rights but no control over money, that’s half a power at best. And it has even been denied the right to reprice necessary parts of the economy to achieve the goal of redistribution which many think absolutely vital to economic recovery because tax rates on savings and rents are going to be taken out of its control meaning it can only redistribute earned income – which is precisely what is probably not needed in Scotland.
What’s the outcome? A mess, is the best answer. The West Lothian question remains on the table and is too uncomfortable to answer. UK fiscal control is reduced, and Scotland has powers too limited to really effect change. Macro economic policy will be hard to deliver. The practicalities of administering two, related, domestic tax systems will be enormously difficult (who will be resident in Scotland, and how will they know?). And Scotland will remain frustrated that some real reforms will remain beyond it for time to come.
If ever we wanted to know that the No vote in September was a very big mistake this is the proof. We will now live as two nations with two tax systems and no macro economic control on some key issues living under one umbrella state with one currency that no-one can be sure they control.
That’s the definition of a macro-economic mess in the making. I am, I think, appropriately worried. There could have been worse outcomes – and they may still come – but this is a potential nightmare in the making.