The Scottish independence referendum and its aftermath: Will there still be a United Kingdom in 2016?

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1 The Scottish independence referendum and its aftermath: Will there still be a United Kingdom in 2016? Presentation by Alan Trench Aberystwyth University, 22 November 2012

2 4 possible outcomes from the Scottish debates Status quo (including Scotland Act 2012) Limited tax devolution, no significant change in functions (tax devolution claimed to be 30%) Enhanced devolution Significant fiscal responsibility 50%+ of devolved spending New functions: some social security & welfare benefits, broadcasting, immigration, others?

3 4 possible outcomes from the debates cont d Devolution Max devolution of everything save defence, foreign affairs, currency Full fiscal autonomy: all taxes in Scotland set & collected by Scottish authorities End to UK-wide welfare state welfare benefits (save pensions?) devolved Micro-economic and regulatory (BIS) functions? EU business?

4 4 possible outcomes from the debates cont d Independence: Scotland an independent state outside UK Social union with rump-uk (cultural one too?) Monetary union European Union member Border protection issues (price of a common travel area?) Defence issues: NATO and nukes

5 Referendum options SNP seemed to favour including a third option (some form of enhanced devolution) Bitterly resisted by Unionist parties Edinburgh Agreement: must be a single question, and a single poll So no enhanced devolution option Excluded middle strategy from Unionist side And probably a negative campaign Problem: this isn t what the people of Scotland seem to want The settled will appears to be for much greater devolution, within the Union

6 * May 97 * Sept 97 * 1999 * 2000 * 2001 * 2002 * 2003 * 2004 * 2005 * 2006 * 2007 * 2009 * 2010 Constitutional Preferences In Scotland, remain part of UK with its own elected Parliament which has some taxation powers be independent, separate from UK and EU or separate from UK but part of EU remain part of the UK without an elected parliament remain part of the UK with its own elected Parliament which has no taxation powers

7 Who ought to have the most say over how Scotland is run? (%) Scottish Parl't/Govt UK Government Local Councils European Union

8 Who has the most say over how Scotland is run? (%) Scottish Parl't/Govt UK Government Local Councils European Union

9 Discrepancy between where Scots want the power to lie, and where they perceive it to lie Upper Line: The Scottish Government Ought To have the most say Lower Line: The Scottish Government Does have the most say * 2000 * 2001 * 2003 * 2004 * 2005 * 2006 * 2007 * 2009 * 2010

10 Scottish Constitutional Positions and Perceptions

11 What does the Scottish public want? From Scottish Social Attitudes 2010: Who ought to make important decisions about Scottish Parliament UK Government at Westminster Local councils in Scotland Health service Schools Welfare benefits Level of taxes European Union Defence & foreign affairs

12 So... The choice at the referendum doesn t reflect what the people of Scotland want Forcing Scottish voters to choose between two options they don t much want is a high-risk strategy for supporters of the Union And it s therefore quite plausible that independence will win at a referendum despite only getting around 1/3 of support in most opinion polls

13 If a vote for Scottish independence Obviously, it will start a process leading to independence Complex negotiations, with I-day not before October 2017 And a major, consequential, restructuring of the British state Remainder-UK s place on the international stage Nuclear weapons? SSNs impossible without Clyde bases UN P5 and batting above our weight Within ruk: what future for financial redistribution? How important is London/SE money for Wales? Don t forget EU referendum very likely, in 2015 Parliament

14 If a No vote, what happens the other side of a referendum? Unionist parties all committed (in different ways & to different degrees) to more devolution for Scotland Lib Dems: Home Rule & Community Rule Commission reported October 2012 Labour: Devolution commission established September 2012 Conservatives: diffuse offer of something more. Cameron hints at income tax. No process Plus other initiatives: civil society led by SCVO, Devo Plus group

15 What happens the other side of a referendum? II Calls for a UK constitutional convention, and a refounding moment for the Union Scottish Conservatives (R Davidson/D Cameron) Commons Political and Constitutional Reform Committee Carwyn Jones Problematic: Delay threatens UK legitimacy in Scotland if nothing worse Value of the Union different in different parts of UK. Single Commission risks undermining Union by framing a single conception of what it s about Look at Kilbrandon (4½ years, 3 different sets of recommendations)

16 Better approaches to process? A lead from political parties rather than a formal convention A policy approach that works from point of view not just of Scottish voters and parties, but also UK Government (both politically and administratively), and for other parts of the UK Realise that delay itself is damaging: what the public wants has been stable for a decade or more, but hasn t happened in Scotland or Wales while the English are getting increasingly uneasy

17 Devo max s demise Devo max superficially attractive To save the union (John Major, George Foulkes) To the SNP by a) giving Scotland great deal of autonomy now, while also b) paving the way for statehood later on No-one willing to campaign for it at referendum Practical problems with fiscal autonomy Means treating Scottish companies like foreign ones Funding old age pensions? Would offer nothing to Wales or N Ireland indeed, be harmful (as would undermine ideas of social solidarity and financial redistribution across UK)

18 Enhanced devolution and fiscal powers UK fiscally highly centralised and always has been Deciding what taxes to devolve not straightforward. Considerations include Scope for overspills losing revenue because activities move across a border Relation to devolved functions especially when looking at tax as a policy instrument more than source of revenue Stability of tax as a revenue source (devolved functions are both pro- and counter-cyclical in cost; they go up when times are good and bad!)

19 Enhanced devolution and fiscal powers 2 What taxes to devolve? Personal income tax widely accepted (implications) Land taxes can and should be (Calman, Holtham, Silk) but that implies change to how several work (local taxation, CGT) Corporation tax sought by Scottish Govt and others VAT can t be devolved (EU rules about a single rate) though sales taxes often are regional-level taxes Policy arguments for alcohol and tobacco duties are strong, but excise taxes not suitable for devolution National Insurance really two taxes a payroll tax for employers and supplemental income tax for employees Fuel duties and VED not suitable for devolution highly mobile

20 All figures million, for Overall current revenues (excl North Sea) Personal income tax United Kingdom Scotland Northern Ireland Revenue As % of overall revenues Revenue As % of overall revenues Revenue 520,656 43,466 12, , , , VAT 85, , , Corporation tax 32, , , , , Employee s NI contributions Employers NI contributions 44, , Fuel duties 24, , Alcohol & tobacco 16, , duties Local taxation (council tax and NDR) As % of overall current revenue 46, , As % of overall revenues

21 My recipe for fiscal devolution Devolve all personal income tax Assign 10 points of VAT (of the 20 currently charged) Also devolve land taxes (including full devolution of council tax and non domestic rate CGT too, in principle) Consumption taxes for alcohol and tobacco, to be devolved when reconstructed Do not devolve corporation tax (admin and compliance costs, volatility) Volatility also rules out assigning North Sea revenues A relatively stable, non fiscally dysfunctional package

22 My recipe for fiscal devolution II That package of devolved taxes accounts for around 50% of Scottish devolved spending at present and puts 60% directly into Scottish hands Can t say what it means for Wales no data Two further big questions: Are big (expensive) further services to be devolved? How to calculate an equalising block grant?

23 Welfare devolution A significant attraction of enhanced devolution for unionist parties: if Scotland appears to bear burden of higher spending on welfare (or other functions), that reduces antagonism in England toward Scottish special treatment But politically, if welfare is predominantly funded at UK level, the Union is likely (and entitled) to expect a political dividend from that

24 Different models for welfare devolution 1. Hand over whole system in Scotland to Scottish Parliament means fragmentation of UK-level welfare system How to fund that? Needs full fiscal autonomy 2. Devolution of small benefits (AA, CTB) which have caused interface problems (compatible with structure of Universal Credit?) 3. Allow Scottish Parliament freedom to provide benefits which might overlap with UK ones, paid for from Scottish resources and administered by Scottish Govt ( parallel track approach) 4. General power for Scottish Parliament to top up strands of UC from devolved resources, administered by single agency as at present? ( Piggy-back approach)

25 Devolving extra functions What Scots appear to want is for things to feel different especially for tax and welfare, but not just that Immigration: how? Fresh Talent not a conspicuous success Broadcasting: Scottish Broadcasting Commission presented obvious (and unionist!) model effectively, of executive but not legislative devolution, so making broadcasting more Scottish without altering its general UK-wide framework (not a million miles from S4C) EU business?

26 Enhanced devolution: administrative implications Any of these will require extensive changes HM Revenue & Customs becoming a 3 government agency, not just UK Govt one Possibly something similar for Benefits Agency. Power to appoint to BA board? Plus interministerial liaison, and restraints on what changes UK Govt can introduce, how and when

27 English questions The English are getting uneasy about devolution, and increasingly conscious of their own political nationhood Question is what that means, and how to give effect to it English uncertainty about what they want is an opportunity not a threat Regionalisation is not the answer: it failed in the mid- 00s, and doesn t respond to the national aspect Localisation might be part of an answer, but no more than part

28 English answers English votes for English laws might be part of the answer And politically likely, along lines of Conservative Democracy Task Force paper (only at Cttee and Report stages so rebuttable, but at cost of losing a bill or serious delay) But much harder work than people realise, given Whitehall organisation and how departments use legislative slots So would need to be accompanied by some restructuring in Whitehall to create wholly English ministries, at least for health, education and local govt And change to the financial system so devolved funding was no longer driven by English spending choices

29 The UK in 10 years time If there is still a UK, likely to significantly more decentralised for Wales, England and N Ireland as well as Scotland That will imply fiscal devolution and policy differentiation as well as constitutional matters And significant differences in how the welfare state works For such a Union to survive, the centre will need to be more active, engaged and assertive in relation to territory of the state Which does not necessarily mean recentralisation: this is not a zero-sum game What s needed is more devolution, AND more Union

30 Read more on the Devolution Matters blog:

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