Professor Iain McLean says that everyone needs to be part of a National Conversation – not just the Scots

Choosing scotland’s Future, the National Conversation document issued by the Scottish Government, is notable for what it doesn’t say. The Barnett Formula and the West Lothian Question are like two mad people in the attic: everyone can hear their creaks and groans but nobody wants to talk about them. The ‘National Conversation’ document is no exception. It has some sensible comments about fiscal autonomy and possible transfers of taxing and spending powers; but the word ‘Barnett’ never appears in its 59 pages. The words West Lothian Question appear just once, to remark that the UK Government’s Green Paper The governance of Britain does not discuss it. Fair comment – but neither does Choosing scotland’s Future.

You can’t have a grown-up conversation if you refuse to talk about embarrassing Uncles Tam and Joel. Tam Dalyell was not mad, of course, when he raised the West Lothian Question; nor was Chief Secretary Joel Barnett when he applied his eponymous formula to the block grant for Scotland. They are both serious issues. I think the WLQ is nearly insoluble, and the Barnett Formula is utterly indefensible. Tam and Joel are on my side. Tam Dalyell asked the WLQ as a rhetorical device, to show that devolution was difficult. Joel (Lord) Barnett now frequently disowns ‘his’ formula.

One attraction of Scottish independence is that it lets the people of the attic go. An independent Scotland would have to be fiscally responsible a sovereign state can spend only what it raises in taxes and borrowing. The failure of Scottish politicians to respect that rule from 1690 to 1707 led to the Union, as after the Darien disaster it was fiscally impossible for Scotland to continue as an independent state. Aligning the pleasure of spending with the pain of taxing is a good discipline. This is one of the better arguments for independence, although not one you hear very often.

Independence would, of course, bring oil revenues, which could be a mixed blessing. Not all the entitlement to North Sea oil taxation would come to Scotland. It would flow only until production started to decline sharply (or the oil price came down). The Government’s idea of not only funding current services from tax receipts, but also setting up an oil fund to pay for long-term post-oil projects, may be over-ambitious. It would be easier to judge that if we had the edition of GERS (Government Expenditure and Revenue in scotland) that was due in December, but its publication has been delayed by six months. Luckily, its numbers are National Statistics. This means that they are guaranteed to be proof against political interference. As Irene in 44 scotland street says of her husband, the put-upon Stuart, ‘Of course he can’t tell a lie. He’s a statistician in the Scottish Executive’.

Choosing scotland’s Future also discusses fiscal autonomy short of independence. So have some of the unionist parties. Notably, Labour leader Wendy Alexander has linked fiscal autonomy with English resentment at perceived Scottish privileges.

A beneficial by-product of strengthening the [financial] accountability of the Parliament through greater autonomy would be to address some of the concerns elsewhere in the UK around relative spending levels. In short, the grant element would be smaller and so less contentious. Fiscal autonomy takes two forms. Taxation is devolved if the subnational government has both the power to set the rate and the right to collect the tax. It is assigned if the national government hands over an agreed proportion of the takings to the subnational government, for the latter to pay for devolved services.

As Choosing scotland’s Future states: Full fiscal autonomy would involve complete responsibility for every form of taxation in Scotland, and, within the United Kingdom, would need to be complemented by a mechanism for Scotland to contribute from its total tax revenues an equitable charge towards the provision of common United Kingdom services.

This could, it continues, include the devolution of oil taxation, and of social security. The latter paragraph implies that a Scottish Government might set more generous benefit rates than at present. To balance the books, it would more likely have to set less generous rates than now.

Scotland already has one devolved tax: the Scottish Variable Rate of Income Tax – that is the unused power to raise or lower the standard rate of income tax by up to 3p in the pound. Some other taxes could easily be devolved: oil and excise taxes come to mind. Two either could not or should not: the power to vary VAT rates would probably fall foul of EU rules. Varying Corporation Tax rates, floated in Choosing scotland’s Future, is a seriously bad idea. Northern Ireland wants to do it too. The result would be quite predictable. It has happened before in Ulster. Companies with no particular connection to Scotland or Northern Ireland would simply incorporate there for the tax benefits.

Tax devolution has two advantages. First, it would bring fiscal responsibility, at least at the margin. Scottish politicians could not add a present to the Christmas tree all parties offer at every election without being challenged to say what tax would go up, or what other service would be cut. Choosing scotland’s Future is a bit Christmassy. It repeatedly hints that with either independence or devolved tax, the Scots would pay less and get more. More likely, they would pay more and get less.

Secondly, tax devolution would reduce or eliminate the Treasury block grant, and with it, some of the welling English resentment against Scotland that people in Scotland must learn to take seriously. Scotland is richer than all the northern English regions (and Wales), yet it gets not less but more public spending per head than any of them.

Assigning taxes wouldn’t bring as much fiscal responsibility as tax devolution, but it would bring some. It would encourage the devolved government to make more tax effort. If it ensures that the economy on its patch grows, then it gets more tax revenue, and can spend more (if it wishes to) on the services financed by the assigned taxes.

If the UK continues, there will have to be equalisation grants and/or payments for common services. If most taxes are devolved, Scotland will have to pay the UK for its population share of defence, foreign affairs, and macro-economic management. If there is tax devolution all round, then Scotland, as one of the two rich nations in the UK, must also expect to pay equalisation grants to the two poor ones, Wales and Northern Ireland.

The fourth option is needs assessment. The Barnett Formula has nothing to do with needs (nor tax resources, nor costs of delivering public services). It is a convergent population-based formula, designed in the 1970s (not by Joel Barnett) as a temporary device to bring Scotland’s and Northern Ireland’s overspending down. The Treasury worked on a Needs Assessment to supersede Barnett, but this was stopped when devolution was abandoned in 1979. It is possible to do a needs assessment well. They do it badly in England, for the block grant to local authorities. They do it well in Australia. The Commonwealth Grants Commission, which is independent of the national government and all the States and Territories, has public and transparent discussions of what is a need (e.g., remoteness) and what is a choice (e.g., segregated schools). A UK Grants Commission would fund for the former but not the latter.

Where does the WLQ come in? At the moment, MPs can argue that all public expenditure (and therefore, all Bills, even if they appear to be England-only) has a Scottish dimension, because any change in spending in England gives rise to a ‘Barnett consequential’. Under any of the four options just discussed, this link would disappear. If the Union continues, some Scots MPs must remain to vote on public goods and common services, and to discuss tax devolution or assignment. Current suggestions at Westminster include cutting their numbers (neat, but unlikely to be adopted by any major party), and restricting their rights to speak and vote on matters that the Speaker certifies to be ‘English’ (likely to be proposed, but far from neat).

The Government wants us to join a National Conversation. The unionist parties propose a Scottish Constitutional Commission. Fine, let’s have both, although people like me may have to give the same evidence twice. Both need to hear – as Wendy Alexander pointed out when she proposed her commission – from Scots furth of Scotland, and from the English. This debate must not be a private matter just for Scots who live in Scotland. Come on Alex, Wendy, Annabel, Nicol – you might persuade people like me to come home.

Iain McLean is Professor of Politics, Oxford University. he was born and brought up in Edinburgh, where he was educated at the Royal high on Regent Road, in the same class as Robin Cook and Brian Lang. His books include The Fiscal Crisis of the UK (Palgrave, 2005); state of the Union with Alistair McMillan (oxford, 2005) and Adam smith: Radical and Egalitarian (Edinburgh University Press, 2006).

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