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Smith Report Uncategorized

Devolution – A Diplomatic Gift From Westminster Or A Poisoned Chalice Concocted to Destroy Scotland – Part 1

 

 

 

17 December 2002: Devolution (Scotland) Arrangements within the UK Government

A commons select committee was formed early in the year 2002 with a remit to review inter-government working arrangements insofar as they were applicable to devolution and to bring forward recommendations, if any, for change which would further enhance devolution legislation.

Within the UK Government, responsibility for intergovernmental relations is widely dispersed. Few parts of the UK Government are untouched by devolution. In a department such as the Department for the Environment, Food and Rural Affairs (DEFRA) almost every part of the organisation has to interact with its counterparts in the devolved administrations with some degree of frequency. What follows addresses how the UK Government is organised at the centre to deal with intergovernmental relations as they affect Scotland.

 

David Mundell and his son (Future Secretary of State for Scotland) Nepotism !!

 

 

The Secretary of State For the UK Government in Scotland

The Scotland Office, in it’s present form, was established in 1999 to deal with UK Government functions which related to Scotland. The Secretary of State for Scotland is supported by a Parliamentary Under-Secretary.

  Under-Secretary of State for the UK Government in Scotland

 

The Secretary of State and office plays a number of roles. Different views have been expressed as to what these roles are and some of the claims made are contested. Not all of the roles are related to devolution. According to a senior official in the Scotland Office, the Secretary of State:

“is there to have particular regard to the impact of the UK government in Scotland and to Scottish concerns that need to be dealt with within the UK government”

The Secretary of State’s “two headed dog” role has been defended by UK interested parties who offer that:

“It is a false dichotomy to say that the Secretary of State is either Scotland’s man in government or the government’s man in Scotland. He tries to be both. To be the voice of Scotland within the Cabinet and also to promote the Government’s policies in Scotland”

This particular interpretation of the Secretary of State’s role implies that the minister assumes a broad political role in relation to the devolved area concerned. It involves membership of upwards of 20 Cabinet Committees.

Such a role need not be limited to devolution; it follows that the Secretary of State will be involved in discussions on any matter concerning that area whether the matter is devolved or not. Indeed, one would expect them to be more active where the matter remains a UK responsibility (for example in relation to defence) than where the matter has passed to the devolved bodies. This role relates to the devolved area, and not to devolution as such; it is very much the same role as that always played by the relevant Secretaries of State.

Beyond this, we are sceptical about the value of the political role of the Secretary of State for Scotland. The Secretary of State is not accountable to Parliament for what the devolved administration does. He or she has no financial responsibility for how the devolved administration spends its funds. While the role may have been valuable for a transitional period, while the devolved institutions were established and immediately afterward, we have to question what its value is once devolution has become a settled part of the constitution.

 

This Janus-faced role of political presentation and liaison is not in itself the consequence of devolution. It complements a further role arising as a result of devolution, that of resolving issues concerning both the UK Government and the devolved administration. The Secretary of State for Scotland has lost almost all responsibility for government programmes; elections being the principal exception.

In other areas, the Secretary of State has no direct involvement in policy-making. Rather, the relationship is directly between the devolved administration or administrations involved and the relevant UK Department.

The Secretary of State and his or her Office only become involved when matters cannot be resolved at that level or become complicated or difficult, as their expertise is in the particular devolution settlements, not the policy issues involved.

The Secretary of State is therefore at one removed from the making of policy, kept abreast of what is going on but only involved when an issue cannot be resolved directly between the devolved administration and the relevant UK Department. For the Secretary of State this means that a great deal of his/her work is done behind the scenes. Consequently, the nature of the roles of Secretary of State has changed considerably with devolution.

Both these roles rely in large part on the Secretary of State being a member, not just of the majority party at Westminster but also the dominant party in office in the devolved administrations. The assumption is that parties share “a common agenda, a common understanding as to the values and problems they were trying to address. That obviously raises the question of how these functions would work if different parties are in office.

 

 

 

The Third Role

A third major role for the Secretary of State is in relation to Westminster legislation affecting devolved functions. The the role appears to involve determining whether legislation before the Scottish Parliament is within the Parliament’s powers. (If legislation at Westminster affects devolved matters it therefore requires a (Sewel motion) There is a legislative role at Westminster if legislation affecting Scotland is introduced. Determining the status of legislation also calls for heavy involvement from the Advocate-General for Scotland and the Office’s legal advisers.

 

 

 

Sewel Motions

Sewel motions are motions introduced into the Scottish Parliament inviting the Westminster Parliament to legislate on matters that are devolved and thus fall within the competence of the Scottish Parliament.

Sewel motions derive their name from the statement made in the House of Lords by the Scottish Office Minister, Lord Sewel, during the Second Reading of the Scotland Bill. He outlined the principles governing the introduction of legislation at Westminster affecting devolved matters. These principles are now set out in a “Memorandum of Understanding.” Paragraph 13 of this provides:

“The United Kingdom Parliament retains authority to legislate on any issue, whether devolved or not. It is ultimately for Parliament to decide what use to make of that power. However, the UK Government will proceed in accordance with the convention that the UK Parliament would not normally legislate with regard to devolved matters except with the agreement of the devolved legislature. The devolved administrations will be responsible for seeking such agreement as may be required for this purpose on an approach from the UK Government.” Sewel motions are the means through which such agreement is expressed.

 

 
The Fourth Role

A fourth role concerns legislation enacted by the Scottish Parliament. Such legislation would be void if it were beyond the Parliament’s or Assembly’s legislative competence. The primary responsibility for ensuring that a bill is within legislative competence lies with the Minister responsible for the bill and the Presiding Officer. However, the relevant statutes have provisions to prevent the granting of Royal Assent to legislation by challenge before the Judicial Committee of the Privy Council. The consideration of whether legislation is beyond legislative competence falls to the Law Officers and the Secretary of State.

 

The Fifth Role

A fifth role relates to finance. On a formal level, the block grants payable to the devolved administrations is paid to the Secretary of State, who passes those grants to the devolved administration after deducting the costs of running the Scotland Office, (A ring fenced budget). This has served as a convenient means of enabling funding to be paid to the devolved administrations within the existing financial framework of Votes and Appropriations to ensure Parliamentary accountability. The Secretary of State is responsible for the use of public funds by the Scottish Office, but not to the devolved administration which is accountable to its own assembly or legislature and thence to its own electorate.

On a more practical level, the Secretary of State has a key role in any negotiations about financial matters, such as the overall amount of the block grants as determined by Spending Reviews, and any amounts additional to that. While the Secretary of State does not act as a proxy for the devolved administration, his/her office relys heavily on support from officials working for the devolved administrations regarding technical matters.

The foregoing roles are important in making devolution work. The issue is not whether they should exist, but whether there is a need that they should continue to be played by a Secretary of State or some other more suitable arrangement.

 

 

 
The Scotland Office

The role of the Scotland Office, in large part, is to support the Secretary of State. To that extent, they replicate the roles of the Secretary of State.

One important exception is the arrangements within the Scotland Office for legal matters. Scots law is different in many respects from the laws applying elewhere in the UK. This creates two legal offices: the Advocate-General for Scotland, the UK Government’s Scottish law officer, and the Office of the Solicitor to the Advocate-General, (OSAG) which houses the UK Government’s general legal advisers on matters of Scots law. OSAG also deals with Scots law issues arising from Westminster legislation and has a role in the scrutiny of legislation before the Scottish Parliament.

There is a glaring disparity in size of the Scotland and Wales Offices. In many ways the roles they play are similar. There are two major differences that do exist:

(1). The Scotland Office incorporates the Office of the Solicitor to the Advocate-General (OSAG), which has no parallel for Wales.

(2). Since Westminster remains the sole legislature for Wales it is expected the staffing of the two offices would be similar.

This is not the case however. Reports indicate that the Scotland Office has retained 85 staff, (excluding OSAG and the Legal Secretariat to the Advocate-General) despite many functions being transferred to the Scottish Parliament. This has the effect of increasing the cost of running the Holyrood parliament whilst retaining an unsustainable ring fenced establishment at the Scottish Office.

The Wales Office an average of 41 (excluding its legal adviser). The Scotland Office therefore has more than twice as many officials as the Wales Office, even though the devolution settlement for Scotland is rather more straightforward from a UK Government point of view than the Wales one. There is an on-going lack of a cogent explanation for the discrepancy and how this anomally has been allowed to be retained.

 

 

Remedial Action

In recognition of a transfer of many powers of state to devolved governments it is recommended that the UK Government should merge all UK Devolution teams under the direction of one Cabinet Minister. This single single group of officials would be well able to deal with the full range of much reduced intergovernmental issues.

http://www.publications.parliament.uk/pa/ld200203/ldselect/ldconst/28/2801.htm

 

 

 

 

 

 

 

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Smith Report

Experts Warn The Elephant trap will be Sprung Once Holyrood Is Handed Some Welfare Powers

December 2014; Experts warn Scottish benefit claimants could end up worse off once Holyrood is handed welfare powers

The Scottish Parliament is expected to gain control over carer’s allowance, industrial injuries benefit and severe disablement allowance under the powers negotiated in the Smith Commission on Scottish devolution. This will allow MSPs to raise or cut these benefits in line with the specific needs of the Scottish people, and “top up” payments from the new universal credit (UC) which will remain the purview of the UK Government. However, some benefits will be treated as income when deciding how much UC should be awarded.

If the Scottish Parliament increases its devolved benefits then claimants will get a pound-for-pound reduction in their UC, the Scottish Parliament Information Centre (Spice) has warned. Holyrood could then top up claimants’ depleted UC from its own budget – but the SNP said this goes against Smith’s principle that additional income for the recipient should not result in money being offset from somewhere else. UC will replace job-seeker’s allowance, housing benefit, working tax credit, child tax credit, employment and support allowance and income support across the UK.

Scottish Secretary Alistair Carmichael pledged to investigate Spice’s research at Holyrood’s Devolution (Further Powers) Committee today, insisting “it does not make sense” and could be an “unintended consequence” of the Smith proposals. Spice said: “If a UC claimant is receiving any of the reserved benefits, and they have been increased by the Scottish Parliament, then they will get a reduction in their UC award pound-for-pound. “This could mean a UC recipient is worse off. “However, this eventually could be offset if the Scottish Parliament decided to increase the UC award as well.”

Committee convener Bruce Crawford, an SNP MSP, said: “The Smith Commission report actually says: ‘Any new benefits or discretionary payments introduced by the Scottish Parliament must provide additional income for the recipient and not result in automatic off-settings.’ “So it doesn’t actually talk about the top-up process or the devolved powers, so I think we need a bit of clarity around that area because otherwise what would be the point of having the powers to do that.”

Mr Carmichael said: “Exactly, without hearing the reasoning behind that conclusion I couldn’t really offer you any explanation for it. “It doesn’t make sense to me, but it may be that our old friend, the law of unintended consequences, is at play here and if that is the case then all the more reason that we have proper scrutiny of the draft clauses when they come forward.”

Giving evidence to the same committee, Deputy First Minister John Swinney said: “I think that would be a travesty if that was the case. “The purpose of section 55 was to put into the Smith Commission report a guarantee that if the Scottish Parliament was to decide to do anything in relation to welfare, then the individual who was to be the beneficiary of that should get that benefit.” He added: “To me it’s pretty clear that anything that we do within the Scottish Parliament should not see the benefit of that undermined or negated in any way as it affects the individual. “Without wishing to tread over the line of my participation in the Smith Commission, that was certainly my view of the purpose of paragraph 55.”

The Smith proposals could also contain a benefits “elephant trap” for the Scottish Government if it continues to pursue divergent policies on welfare from the UK Government, Conservative MSP Alex Johnstone warned. He said the UK Government is trying to reduce dependency on benefits, cut demand and limit cost, and accused the Scottish Government of doing the opposite. If the UK benefit bill goes down there will be less money for Scotland through the Barnett formula, but if Scotland increases benefit demand it could leave Holyrood underfunded, he said. Mr Carmichael said the Scottish Government would ultimately be held to account if such a situation emerged.

Mr Johnstone said: “Having spent three years on the Welfare Reform Committee, I have seen the process of divergence that has happened in relation to welfare already and the proposals under the Smith Commission open that up quite significantly. “Now there is a determination to cling to the Barnett formula, almost a white knuckle death grip in some cases. “But as we go towards the proposals contained in the Smith Commission, particularly in relation to working age benefits, there is a significant divergence in policy already where south of the border there is a policy of reducing dependency and demand reduction in order to limit costs. “Whereas there is a priority to do something different – rather the opposite – in Scotland.

“As we move forward with this are we not heading towards a Barnett formula elephant trap where the amount of money allocated in UK budgets for working age benefits in particular will fall away, while Scotland may simply pile on demand and find itself underfunded.” Mr Carmichael said: “Well, that’s the beauty of devolution isn’t it? “You make your spending decisions and now you’re going to have to account for that in your funding decisions as well. “You can only spend the money once, and if we have learned nothing else over the last 10 years we should have learned that.” http://www.eveningtimes.co.uk/news/u/experts-warn-scottish-benefit-claimants-could-end-up-worse-off-once-holyrood-is-handed-welfar.1417695750

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Smith Report

The Smith Commission- Expert Observations and Warnings to Scotland of The Trap

1. Submission To The Smith Commission – Simon Barrow Co-Director:

a. Ekklesia is a public policy think­tank, (one of the UK top 5) headquartered in Edinburgh and London, which examines the role of beliefs and values in shaping policy and politics for the furtherance of social and environmental justice. Christian in background and orientation, It works with people across and beyond the spectrum of religious and non ­religious conviction. Ekklesia is supported by a charitable trust but is fully independent of both political parties and faith bodies.

2. The Proper Discharge Of the Commission’s Terms Of Reference:

a. The Smith Commission is charged with securing recommendations to deliver more financial, welfare and taxation powers to strengthen the Scottish Parliament within the United Kingdom based on wide consultation with political parties, civic society, businesses and individuals across Scotland. It is recognized that this is an extremely challenging and complex task. Our submission will therefore focus on two areas. The need for civic participation and the principles which we believe should rest at

b. The Commission has advised against a mere ‘shopping list of powers’, and we concur with that. The issues involved in achieving a radically improved devolved settlement for Scotland require a more wholistic approach. We are not convinced that the top-down nature of the Commission’s structure, with two representatives each from the political parties who currently sit in Holyrood, but no solid framework for civic participation, is adequate to this challenge, and we will therefore suggest an addition and amplification.

3. Adequate Time and Scope For Popular Participation:

a. The scale and complexity of the Commission’s remit relate directly to chronology. While we recognize the pressure to produce Heads of Agreement by 30 November 2014 on the path to a legislative process by January 2015, we are concerned that this timetable does not allow realistic time for adequate consultation with the people of Scotland. Lord Smith has responded to this concern by arguing that, effectively, consultation expands to fill the time available for it, and that discipline is no bad thing in this respect. While recognizing the weight of this observation we would argue that there is a balance between efficiency, quality, reach and coherent outcome to be achieved which cannot automatically be resolved on the side of brevity.

b. The 18 September referendum on Scottish independence and the two years of debate that preceded it were an unprecedented ‘democratic moment’in the history of this country and the islands of which it is part. What was particularly significant was the revival of ‘town hall politics’, the extraordinary level of local engagement, and the growth of political and constitutional literacy at a grassroots level in Scotland.

c. The energy for change and development came not from top-down institutions but from ordinary people and communities. To be consistent with this reality, the form of delivery of the Commission and the framing of its proposals needs to make time for genuine and extensive public discussion of the Heads of Agreement, so that it is the people of Scotland and not simply the representatives of political parties or other vested interests who are consulted and involved in the process of agreeing the instruments for devolving power within and across the nation.

4. Key Practical Principles and Yardsticks To Be Observed:

a. Ekklesia is committed to social justice, equality, conflict transformation and non-violence, the localization of power, environmental sustainability and public dialogue as procedures (not just theories) capable of bringing people together from different belief backgrounds and experiences in the creation of common purpose. We would urge attention to the following principles in determining the outcomes of the Commission.

i. Subsidiarity:

Derived from Christian (especially Catholic) social teaching, but applicable to the kind of mixed belief society that Scotland and the British isles are now becoming, the principle of subsidiarity is that central authority should have a subsidiary (that is, a supporting, rather than subordinate)function in political and constitutional organization, performing only those tasks which cannot be performed effectively at a more immediate regional or local level. In the case of the Smith Commission, therefore, we would wish for outcomes that demonstrably allow and encourage the possibility of further sharing of power from the Scottish Parliament to regions and communities.

ii. Recognition of Nationhood:

We would wish that the Commission recognize Scotland to be a nation (that is, a geographical unit capable of enabling a large group of people to be united in their diversity of language, culture, environment and economic life ) rather than simply a region of a larger state. We make that point not in any ‘essentialist’ way, since Ekklesia is and has been critical of overly determinist notions of nationhood or statehood, but because of the strong desire for self-determination expressed both by those who voted for independence in September 2014, and by many who voted to remain part of the United Kingdom while responding positively to the promises of “substantial powers” and “what would amount to home rule” or (so-­called) “devo-max” made by representatives of the largest Westminster parties during the run-up to the referendum. In other words, recognition that Scotland as a national entity provides, on practical grounds and in terms of scale, the genuine possibility of ensuring the kind of political,social, economic and ecological accountability that can make life better for people within its embrace especially those who are currently suffering from levels of poverty and deprivation which is wholly inconsistent with the
natural and manufactured resources available to those who live in Scotland, whatever their background or nationality.

iii. A ‘Family Of Nations’:

Both during and after the referendum, Britain has been spoken of as a ‘family of nations’. This complements the point we made in 4.b, above. Our own view is that there are genuine practical, economic, political and legal difficulties to achieving straightforward federalism in a country marked by enormous differences of size (with England housing 85% of the population of the British isles) and financial power (with the City of London, in particular, operating as a virtual city state and therefore strongly shaping, intentionally and otherwise, the political disposition of the largest Westminster political parties). We therefore hope that the proposals emerging from the Smith Commission, while taking a generally federal shape, will remain open to other possibilities in the future, notably that of confederalism an association of states in which each member state retains substantial independent control over internal and external affairs, with sovereignty pooled and shared by agreement. This enables the combining of a high level of autonomy and self-determination with interdependence and conviviality pointed towards a post ­national way of thinking and acting in a globalized world.

iv. The Embedding Of Devolved Power:

As Canon Kenyon Wright (widely regarded as the father of the Constitutional Convention and the present devolution settlement in Scotland) has observed, devolution has two in­ principle limitations. First, it is incomplete. The recent debate about the impact of a UK-wide decision which could potentially see the withdrawal of Scotland from the European Union against the will of the majority of its people is illustrative of this. Second, and especially important for the work of the Smith Commission, it is conditional. In other words, devolution is power on loan; power ultimately retained rather than given. It can be withdrawn, as has been seen recently in Scotland’s case in relation to the 2013 Energy Act. This is crucial. For Westminster to retain the permanent power to grant, alter, or rescind powers devolved to the Scottish Parliament would leave Scotland insecure and the United Kingdom as a whole fundamentally unreformed. A core principle for the Commission should therefore be to ensure that devolved powers granted to Scotland are underwritten by a legal framework that ensures their durability and stability.

v. The Capacity To Disavow the Threat Of Mass Destruction:

While we recognize that it is not within the remit of the Commission to recommend substantial devolution of powers in the area of foreign affairs and defence (security) policy, we regard it as axiomatic that the people of Scotland should not have to have weapons of mass destruction, namely the Trident nuclear submarines based at Faslane on the Clyde, imposed on their territory without, as a minimum, democratic consent of a kind not provided within the current United Kingdom settlement. This should be addressed. Ekklesia will, of its own volition, continue to argue that nuclear weapons and other weapons of mass destruction are not only immoral but illegal in international law.

vi. An Equilibrium Between Powers Granted and the Capacity and Resources To Utilize Them For Public Benefit:

It is extremely important that political and constitutional powers granted to the Scottish Parliament and Government under a devolution settlement are matched by the tax-raising, financial and economic powers required to enable them to deliver measurable benefits to people and communities.

vii. The Right Of Civic Engagement, Consultation and Assembly:

We see the institutions of governance and policy invested in the capacity of people and communities to determine their own lives, rather than the other way round. This notion has been developed as a ‘claim of right’, an assertion given moral and theological weight from within our Christian tradition (in association with others in a plural environment) by the Rev Dr Ian Fraser, among others, in recent Scottish history. The principle of establishing processes that are open to shaping by citizen’s assemblies and popular participation is an important one for us, rooted in the notion of ‘radical democracy’ moving beyond merely liberative democracy to the capacity to embrace difference and antagonism in public life/policy in ways that enable dominant power relations to be challenged by those otherwise marginalized by lack of resources, education or status in society. We recognize that this principle is more relevant in terms of the outcomes of the deployment of specific powers (judging them morally and practically in terms of their impact on the poorest and weakest, recasting them to give such people a real stake in determining better outcomes, along lines suggested by Scotland’s Poverty Truth Commission). Nevertheless, it is important to bear it in mind in formulating the settlement of powers within national institutions.

5. Specific Proposals For Devolved Powers and Their Grounding. The Following Would Be A Good Basis For Establishing the Kind Of Principles Enumerated Above:

* Power over all franchise and electoral law residing in Scotland: This would would allow 16-18 year‐olds to vote in the 2016 Holyrood election, allow Scotland to develop and deploy a fairer electoral system, and create conditions for a proper power of public recall.

* Comprehensive economic powers: This would need to include borrowing as well as taxation. The aim would be the capacity to deliver social, environmental and financial security and measures of redistribution.

* Full control over employment law and employment rights, including industrial relations and health and safety legislation.

* The welfare system: This would enable Scotland to create a fabric of social security and comprehensive welfare suitable for a modern society, and appropriate to the needs of disabled and sick people and the most vulnerable.

* Energy powers: This would involve control over industrial emissions standards, the generation of community renewables, energy efficiency and the proper assertion of public purpose over power companies.

* Transport policy: To enable the creation of a community owned and oriented integrated and environmentally sustainable public transport system in Scotland.

* Full powers over human rights and equalities law: This would enable Scotland to retain the Human Rights Act if it was scrapped by the United Kingdom Parliament, and also full consonance with European and international instruments.

* The right to refuse participation in illegally and morally flawed international wars and conflicts, and to refuse the stationing of weapons of mass destruction on Scottish soil.

* The right, as part of family of nations, to retain membership of the European Union if the majority of those voting in a referendum on the topic in Scotland so determine.

6. Constitutional Consultation:

a. In view of the complexity of these issues and the need for public and civic participation, we would favour thoughtful proposals for a proper constitutional convention for Scotland, and for the other nations of the United Kingdom. http://www.ekklesia.co.uk/sites/ekklesia.co.uk/files/submission_to_the_smith_commission_0.pdf

November 2014; Simon Barrow’s blog › The Smith Commission: what We 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.

Richard Murphy of Tax Research (http://www.taxresearch.org.uk/Blog/2014/11/27/scotlands-tax-solution-is-…) is among those who have made a powerful case that the tax solution proposed by Smith is the worst possible for everyone involved, and essentially part of a two-pronged trap set by the UK government. 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 of 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

November 2014; Scotland’s Tax Solution Is The Worst Possible For Everyone

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.

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. http://www.taxresearch.org.uk/Blog/2014/11/27/scotlands-tax-solution-is-the-worst-possible-for-everyone/

Categories
Smith Report

Scottish devolution: The Release of the Smith Commission report and Comments as they happened

1. 08.00 Good morning. At 08.30, Lord Smith of Kelvin will unveil a new devolution deal to Scotland that will grant Holyrood powers over income tax and welfare spending. The cross-party commission was set up after the unionist parties promised greater powers for Scotland in the event of a no vote in the independence referendum, in a pledge known as ‘The Vow’. The deal is being hailed as the biggest transfer of powers to Scotland since the Scottish Parliament was set up 15 years ago. It has been drawn up in little over two months. The deal includes:

a.. Full control in Scotland over income tax rates and bands, but not the personal allowance threshold.

b. More control over welfare, including the rate of Disability Living Allowance ands its successor PIP, Attendance Allowance and Carer’s Allowance. Scottish ministers will have the power to top up Universal Credit to effectively abolish the “bedroom tax”.

c. Control over Scottish Parliament elections will be devolved, allowing SNP ministers to press ahead with plans to give 16 and 17 year olds the vote.

2. 08.10 The devolution of income tax goes beyond what Labour intended. Gordon Brown warned the devolution of income tax would be a “trap” because it would force Scottish MPs to surrender significant voting rights in Westminster over budgets – putting the Union itself at risk. Under the deal, however, we expect Scottish MPs to retain votes over budget votes. Asked why the reversal in position, Jim Murphy, running to lead Scottish Labour, said this morning: “I’ve changed my mind.” “I listened to the people of Scotland in the referendum, who wanted real change but in the United Kingdom. We changed our mind, and reflected on the wishes of the people of Scotland. “I think this morning very many of those Yes voters who are not dyed-in-the-wool SNP people, they will be pretty satisfied with this deal. “But the second thing is that important parts of pooling and sharing of resources within the UK remain, the Barnett formula will remain, issues about the state pension will remain, and the ability to deal with a downturn in the economy will remain by Universal Credit and things like that remaining part of the UK. “So I think it’s a remarkable deal and a best of both worlds deal: really strong devolution but Scotland remaining part of the UK.”

3. 08.20 Gordon Brown has issued a statement, saying: “The Vow to deliver a stronger Scottish Parliament within the UK has been kept, as promised, and the timetable for draft laws to be published in January will now be honoured, as promised.” He says that the Smith Commission has ruled that income tax is a “shared UK tax” and that a reserve power to levy a UK-wide income tax has been retained. “The Commission has rightly REJECTED the Conservative proposal ​from the day after the referendum for excluding Scottish MPs from voting on Budget income tax decisions. It has rightly ​recommended that the whole of the House of Commons, including Scottish representatives, will ​always ​vote on​ every aspect of UK Budget tax decisions.”

4. 08.30 Lord Forsyth, John Major’s Scottish Secretary, has attacked the reforms to income tax as “piecemeal” that will be easily avoided, as the wealthy can take their income as dividends. “This is why it’s mad to rely on income tax as your main source of revenue. If the proposals are that dividends in income should be not taxed, they can change to have most of their income in dividends and avoid the Scottish rate of tax. I think we could end up if people think more powers to the Scottish parliament means more money… this has not been thought through,” he told Newsnight last night. “The Labour party’s idea that we should have a constitutional convention for the whole of the United Kingdom, and not do this piecemeal reform as a panic measure to the rise of the nationalists and the result of the referendum.”

5. 08.40 Boris & Co: Now give powers for England. Local government leaders including Boris Johnson, the Mayor of London, have called for negotiation similar to that in Scotland to agree a comparable package for English local government. The letter, entitled What is good enough for Scotland, says:

a. We leaders and supporters of local government in England of all parties and types of local government congratulate Scotland on the measure of devolution they have worked for and that is now proposed by the Smith Commission. We call upon central Government and party leaders to recognise that local government should be the vehicle for devolution in England and to now negotiate with us using a similar non-party Commission to agree a comparable package of measures for local government in England which can appear in the Manifestos and be enacted after the General Election:

Signatories include:

Sir Richard Lees, Leader Manchester City Council
Boris Johnson, Mayor of London
Jim O’Neill, Author RSA Cities Report
George Ferguson ,Mayor of Bristol
Cllr David Hodge, Chair County Councils Network .
Graham Allen MP ,Chair of Parliament’s Political and Constitutional Reform Select
Cllr Dave Sparks ,Chair of the Local Government Association
Cllr Ken Browse, Chairman, National Association of Local Councils
Cllr Marianne Overton ,Leader LGA Independent Group
Cllr Neil Clarke, Chairman of the District Councils Network
Cllr Gerald Vernon-Jackson, Leader LibDem group LGA
Cllr Julie Dore ,Leader of Sheffield City Council,
Clive Betts MP ,Chair of Parliament’s Local Govt Committee
Cllr Nick Forbes, Leader Newcastle City Council,
Cllr Albert Bore ,Leader Birmingham City Council,
Joe Anderson Mayor of Liverpool,
Cllr Jon Collins Leader Nottingham City Council,
Cllr Ruth Dombey,Vice Chair London Councils
Cllr Keith Wakefield, Leader Leeds City Council
Jules Pipe,Chair London Boroughs Association

6. 09.00 Lord Smith of Kelvin begins the press conference. He praises political leaders for coming together after the “bruising” referendum. The Scottish Parliament will be “stronger” with “more tools to pursue its tools and objectives”, he says, after the biggest transfer of powers since it was created. It will be “more accountable” because more spending will be funded from tax within Scotland. Specific mentions;

a. New borrowing powers alongside tax raising and the Barnett Formula block grant.

b. The Parliament will get the first ten per cent of VAT.

c. Receipt of Air Passenger Duty.

d. Control over how elections are run.

e. The number of msp’s to be elected to parliament and how they are to be disqualified.

f. Power to give 16 and 17 year olds a vote.

g. Scotland will get power over disability and care benefits.

h. Control of unemployment programmes, welfare subsidies, cold weather, winter fuel & funeral payments and the maternity grant.

i. power to create new benefits.

j. The Scottish Government will be given a bigger role in EU negotiations.

k. Urging the Scottish people to be “patient” for the delivery of the new powers. he said:

l. “Change of this magnitude cannot be rushed through.” He says inter-governmental working “needs to be improved”.

m. David Cameron and Nicola Sturgeon must meet to discuss outcomes soon after after 25 January 2015.

n. The Speakers of the Commons and the Scottish Parliament should meet to discuss how public understanding of the new settlement can be improved.

o. Some believe the commission has gone too far, others not enough,” he said, “but my work is done – responsibility now passes to the Scottish Government.”

7. 09.15 Comments were received from:

a. John Swinney, the Scottish finance minister and Deputy First Minister, said the proposals lack the job creation powers, welfare powers, control over personal allowance or national insurance that will allow Scotland to succeed. “I regret these powers have not been delivered.” He said they recognised the Smith Commission could not grant independence but they hoped it would allow Scotland to succeed economically. They say this does not happen. “We welcome the new powers – as we support all progress for Scotland – and pledge to use them when they are in place in the best interests of the Scottish people. We also welcome the acknowledgement of the ‘sovereign right’ of the people of Scotland, and our ability to proceed to independence if we so choose. “But the proposals clearly do not reflect the full wishes of the people of Scotland, and also fall far short of the rhetoric from the No campaign during the referendum. Then, Gordon Brown promised ‘nothing less than a modern form of Scottish Home Rule’ and ‘as close to a federal state’ as the UK can be. That was the context for the “extensive new powers” promised in the Vow. Regrettably, the Westminster parties were not prepared to deliver the powerhouse parliament the people of Scotland were promised – under these proposals, less than 30 per cent of our taxes will be set in Scotland and less than 20 per cent of welfare spending will be devolved to Scotland. That isn’t Home Rule – it’s continued Westminster rule.” “Most significantly, the proposals do not include the job-creating powers that Scotland so badly needs to get more people into work and grow the economy, or welfare powers to tackle in-work poverty.” That claim is based on these two sentences in the report:

i. “Reflecting the sovereign right of the people of Scotland to determine the form of government best suited to their needs, as expressed in the referendum on 18 September 2014, and in the context of Scotland remaining within the UK, an enhanced devolution settlement for Scotland will be durable, responsive and democratic.”

ii. “It is agreed that nothing in this report prevents Scotland becoming an independent country in the future should the people of Scotland so choose.”

b. Iain Gray, for Labour, says the vow has been kept. “This is a good day for Scotland.”

c. Annabel Ewing, the former Scottish Tory leader, says the Scottish Parliament will have to “look people in the eye” over how taxpayers’ money is spent.

d. Michael Moore, the former Scottish secretary, says the deal is “Home Rule for Scotland” and a “transformation of the United Kingdom”. “We are creating a Scottish welfare system,” he says.

8. 09.30 On Twitter, ‘betrayal’ is now trending in Glasgow, which voted yes. A sample of some reaction from separatists;

a. The SNP should NOT accept this deal. Barnett Formula IS being cut. That is NOT acceptable. It’s a betrayal. https://twitter.com/hashtag/BETRAYAL?src=hash

b. These banners are all over the east end of Glasgow. Telling labour that they won’t forget https://twitter.com/hashtag/indyref?src=hash

9. 09.40 John Redwood, the standard bearer for the Tory right, warns Scottish MPs voting on English income tax will be “unjust”. He wants a new settlement where the Speaker will declare which issues are English only. “I’m here to speak for England, and what we need is the ability to make a decision on behalf of England, just based on the votes of the English MPs at Westminster. Or in some cases we may be doing it with Wales and Northern Ireland if the issues are not devolved there, but not with Scotland, because the issues have been devolved to the Scottish Parliament. “Now that Scotland is going to get this mighty power to choose the tax rates and the bands for income tax, [it’s important] that Scottish MPs don’t come to Westminster and then impose an income tax rate or income tax band on England that we don’t want. It would be quite unjust if Scottish MPs were still able to vote on our income tax when they could not vote on their own income tax, and when Scotland had her right to choose her own income tax without us.”

10. 09.50 Nick Clegg says the parties have over-delivered on The Vow. “Call it Vow Max, Vow Plus Plus,” he tells his weekly radio show on LBC. “Because what you have got in the Smith Commission, which I think is truly remarkable, is the devolution over money so that Scotland now will be responsible for the majority of the money that it spends which is a good thing. “This is not asking more of English tax-payers. It is saying that if the Scottish people and the Scottish politicians they elect want to do more things, on welfare for instance, they have got the freedom to raise it for them themselves and they will have, basically, a new welfare system for them to manage themselves in Scotland. They will have to fund it but they will be allowed to take responsibility for it. “That is basically Home Rule and that is something that Liberals down the ages have argued for over a long period of time. We also need Home Rule for Sheffield for Liverpool for Newcastle… we need devolution, decentralisation across the country.”

11. 10.00 A re-cap from the report – in full here – on what the deal proposes: https://www.smith-commission.scot/wp-content/uploads/2014/11/The_Smith_Commission_Report-1.pdf

– Scotland can set the rates and thresholds of income tax, but the personal allowance will remain set in Westminster. All the revenue will stay in Scotland. It will be administered by HMRC, with any extra costs footed in Scotland.

– Scotland will take the first 10 percentage points (i.e. half) of VAT receipts.

– Scotland will have have the power to borrow on the international markets, within a “prudential borrowing regime consistent with a sustainable overall UK framework.”

– Scotland will have control on air passenger duty from Scottish airports, and can scrap it.

– Power over the running of Scottish Parliament elections, including spending and the age of the franchise and the number of MSPs.

– Consultation with Scottish ministers on negotiations with the European Union, and allowing Scottish Government ministers to speak on behalf of all of the UK at the Council of Ministers in Europe.

– The Crown Estate i.e. Government land will transfer to the Scottish Parliament. This includes the seabed, rural estates, stretches of coast line and mineral and fishing rights. But it will not cover “critical national infrastructure” covering defence, oil and gas.

– The Scottish Government will have a role in reviewing the BBC’s charter and the BBC – vilified in the referendum campaign by nationalists – will have to answer to the Scottish Parliament’s committees.

– Scotland will have a greater say over running the Maritime and Coastguard Agency, the Northern Lighthouse Board, Ofcom and Ofgem.

– the ability to top-up benefits payments to cancel out the so-called Bedroom Tax.

– Benefits for carers, the disabled and the ill; cold weather, funeral payments, maternity grants and winter fuel payments.

– The right to create new benefit payments.

– The running of back-to-work schemes for the unemployed.

– The report calls for “serious consideration” to devolving control over abortion and call for immediate consideration.

– It calls for a discussion around the devolution of medical rules on embryology, surrogates and medicines.

– Tribunals will transfer to Scotland, except the Special Immigration Appeals Commission and the Proscribed Organisations Appeals Commission.

– Transport will be devolved, including the power to set speed limits, and allowing the state to bid for rail franchises.

– The level of so-called Green Levies on fuel bills will remain in Westminster, but how they are raised will be devolved.

– Scotland will take control of onshore oil and gas licencing, but off-shore will remain a UK-wide issue.

– Scottish ministers can request competition authorities investigate issue in Scotland.

– Scotland takes control of consumer advocacy, and will have the power to prevent the spread of payday loan shops and fixed odds betting terminals.

Powers explicitly staying with Westminster are:

– The Barnett Formula, setting the block grant from Westminster, will remain.

– The state pension, including the pension age.

– National Insurance, Inheritance Tax, Capital Gains Tax, Corporation tax, fuel duty, oil and gas receipts remain controlled by Westminster.

– Universal Credit, the new DWP system for delivering working age benefits, including the rates and sanctions regime

– Housing benefit, maternity pay, statutory sick pay, bereavement allowance and child benefit.

– the National Minimum Wage.

– The Equality Act will remain UK wide, but Scotland will be able to set new rules such as gender quotas.

– The Treasury retains overall responsibility to manage risks and shocks to the economy, including a power to levy UK-wide taxes if required.

12. 10.50 David Cameron welcomed the Smith Commission, and says the case for English votes for English laws is now “unanswerable”. He will unveil proposals before Christmas. “I’m delighted with what’s been announced. We are keeping our promises and we’re keeping our United Kingdom together. I always said that a ‘no’ vote didn’t mean no change. Indeed, we made a vow of further devolution to Scotland. And today we show how we’re keeping that vow and we’ll continue to keep that promise. “The Scottish Parliament is going to have much more responsibility in terms of spending money. But it will also have to be accountable for how it raises taxes to fund that spending. And I think that’s a good thing. “I think the report today also makes the case for English votes for English laws unanswerable and we’ll be taking action on that shortly. And I think, taken together, this extra devolution for Scotland and dealing with the all the issues in our United Kingdom will make our United Kingdom stronger. So it’s a good day for the UK.”

13. 10.58 On Twitter, the Smith Commission becomes #smithscommission;

a. This Charming Mandate For Radical Change #smithscommission — Robert Hutton (@RobDotHutton) https://twitter.com/hashtag/smithscommission?src=hash

b. heaven knows i’m miserable vow. #smithscommission euan mccolm (@euanmccolm) https://twitter.com/hashtag/smithscommission?src=hash

c. Please please please let me get greater fiscal autonomy #smithscommission — Steve Van Riel (@steve_vr) https://twitter.com/hashtag/smithscommission?src=hash

14. 11.04 Jim Murphy, the Labour leadership front runner, says the deal means the SNP will no longer be able to blame London for failing to deliver. “The Vow made during the referendum campaign has not only been delivered – it has been exceeded. “This huge package of new powers is a good deal for Scotland. More decisions about Scotland will be taken here in Scotland, without losing the financial security that comes with the Barnett formula. “The days of political parties in Scotland promising the earth but blaming someone else for their failure to deliver are well and truly over. There will be no hiding place for those parties which preach social justice but duck for cover when called to act.”

15. 11.15 In the Commons, MPS are discussing the Smith Commission;

a. Alistair Carmichael, the Scottish Secretary, says the measures “will be implemented without hesitation, without reservation and without equivocation”. He says “work starts today” to turn recommendations into draft legislation by Burns Night in January 2015. “For the first time over 50 percent of the money spent by the Scottish Government will be raised by the Scottish Government,” he says.

b. Alistair Darling, the former Chancellor, says devolution must do nothing “that undermines the integrity of the United Kingdom.

c. Stewart Hosie, the SNP Deputy Leader, says the SNP “won’t stand in the way” of the package but says it has not turned the Scottish Parliament into a “powerhouse”, and says the Scottish voters have been let down.

d. Carmichael chided Stewart Hosie’s tone and said he should have failed to welcome the deal. “He predictably and depressingly seeks to claim this is not the fulfilled.” He waved a copy of today’s Record, which declared: “The Vow Delivered”. He demanded the SNP respected the outcome of the referendum for a generation. He went on to say, “Britain needs federalism,” but held back from saying that’s what the report achieved.

f. Redwood demanded English MPs have control over English taxes. Carmichael dodged the question a little, and said that the Smith Commission ruled that income tax is a UK-wide tax. MPs shouted “Rubbish!”.

g. Carmichael is asked if the UK Treasury will have to undewrite Scotland’s extra borrowing. He responded; “Scotland will be liable for any debts it incurs under its new borrowing powers”. (How that works in theory and practice is not clear since the UK retains responsiblity for overall fiscal framework.)

h. Carmichael is asked whether Scottish control of income tax could trigger a low-tax race between England and Scotland. “That is indeed one of the possible consequences,” he responded.

i. Pete Wishart (SNP, Perth) said the package is disappointing.

j. Carmichael said Wishart just wanted independence. “He lost. It’s about time he and his party came to terms with that loss. For him and his party to try and get independence by the back door does not respect the views of the Scottish people as expressed in the referendum. He has a duty to speak for the 60.91 per cent of his own constituents who rejected independence.”

k. Philip Davies asks “how those people who wanted the status quo should have voted in the independence referendum.” Carmichael said it was clear that a “vote for no was not a vote for no change”.

l. Chi Onwurah, Labour MP for Newcastle, asked about air passenger duty and the competition from Scottish airports v northern English airports. Carmichael said it was for her and her city to propose the new powers they wanted.

m. Asked about English votes for English laws, he said: “I am confident that England will get what England wants, when England decides what it is it wants.”

17. 12.00 Update on borrowing: the PM was asked about this at the Liason Committee last week. He said borrowing would be capped at £2.2 billion and the UK is the lender of last resort. http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/liaison/evidence-from-the-prime-minister-2014-15/oral/15649.html

18. 12.20 Elsewhere in the world, the price of Brent Crude has fallen to the lowest level in four years as Opec meets. http://www.bbc.co.uk/news/business-30223721 The Yes campaign’s finances were built on assumptions of oil at $113 a barrel. It’s now $75.75. Under the Smith Commission, oil revenues will not be devolved – to SNP chagrin.

19. 12.40 A number of aspects outstanding will be clarified in time by Westminster;

a. What English votes for English laws really mean – and whether MPs from north of the border will be barred from voting on income tax bands and rates in the rest of the UK.

b. Details are due to be set out by Mr Cameron before Christmas but the PM’s official spokesman said that the principle would be that the differentiation would apply to “all financial matters”.

c. Some elements of income tax would remain UK-wide, he pointed out, such as the allowance thresholds and how income was defined – and there would “continue to be a UK Budget”.

d. Asked specifically if MPs from north of the border would be excluded from voting, for example, on a change to income tax bands or rates in the rest of the UK, he declined to give detail of specific plans.

e. But he added: “Where you see significant areas of devolution, there is an important principle there in terms of English votes for English laws.

f. The Prime Minister was pretty clear when he was in front of the select committee that he thinks he is going to bring forward proposals which are going to reflect that because that is the fair thing to do.”

20. Ed Miliband insisted the settlement meant Scottish MPs WILL vote on English budgets. “The system of tax reliefs remains at a UK level, other aspects of the income tax system remain at the UK level. “I think it’s part of the integrity of the UK that it continues to be the place that Scottish MPs vote on the budget. The Smith Commission itself recognises that in their report.

21. 13.30 Other matters arising;

a. Nicola Sturgeon ‘wants to impose stealth tartan tax’. http://www.telegraph.co.uk/news/uknews/scotland/11263852/Nicola-Sturgeon-wants-to-impose-stealth-tartan-tax.html

b. Nicola Sturgeon attacks Scotland powers deal agreed by SNP. http://www.telegraph.co.uk/news/politics/SNP/11259179/Nicola-Sturgeon-attacks-Scotland-powers-deal-agreed-by-SNP.html

c. Ed Miliband trys to win back Yes voters in Scotland. http://www.telegraph.co.uk/news/politics/ed-miliband/11260800/Ed-Miliband-attempts-to-win-back-Yes-voters-in-Scotland.html

22. 13.30 Labour are concerned about regional airports in the north of England, and tax competition from lower levels of air passenger duty in Scotland.Is a tax race brewing? Balls and Umunna have written to their Tory counterparts;

a. All of our parties support the Smith Commission conclusions and its principle that implementation should “not cause detriment to the UK as a whole nor to any of its constituent parts.” and ”cause neither the UK Government nor the Scottish Government to gain or lose financially simply as a consequence of devolving a specific power”

b. It is important that, in implementing the Smith recommendations in relation to Air Passenger Duty, this principle is upheld. This means ensuring that English Regional Airports are not disadvantaged.

c. English Regional airports cannot be faced with continuing uncertainty and risk through not knowing whether they will be significantly disadvantaged should a future Scottish Government introduce changes to Air Passenger Duty.

d. It is therefore imperative that the UK Treasury leads work across Government – and working with the Scottish Government – on a mechanism to ensure that English airports, particularly in the North of England, are not disadvantaged. http://www.telegraph.co.uk/news/uknews/scotland/scottish-politics/11257164/Scottish-devolution-Smith-Commission-report-as-it-happened.html