Caledonian consensus

6 Mar 09
IAIN MACWHIRTER | The Scottish Labour Party has come into line with the other major parties in support of borrowing and tax-raising powers for Holyrood.

The Scottish Labour Party has come into line with the other major parties in support of borrowing and tax-raising powers for Holyrood. It’s now only Gordon Brown who has yet to be convinced

The middle of a massive debt crisis might not seem the most obvious moment to call for more borrowing, but in the Scottish Parliament there has been something of a breakthrough in the long-running debate about fiscal autonomy and the Barnett Formula. Labour has apparently accepted the case for giving the Scottish Government borrowing powers — to take on a ‘national debt’. At present, the Scottish Government is allowed to spend only what it receives in the block grant from London.

I say ‘apparently’ because, while the Scottish Labour Party has conceded the case for borrowing in its evidence to the Calman Commission on reforming the constitution, Prime Minister Gordon Brown still sounds unconvinced. At a meeting with the leaders of the devolved administrations last month, he repeatedly challenged Alex Salmond over the idea, insisting that the first minister had no idea how he would pay back any money borrowed in this way.

Despite the UK government’s own mounting debts, Brown does have a point. If Holyrood is to have powers to borrow from the private markets to finance projects such as the new Forth road bridge, how can it be sure it can repay these loans, given that it has no powers to raise revenue?

All the Scottish parties have rejected using the existing powers to vary the basic rate of income tax by three pence in the pound. The Scottish Government couldn’t simply demand more from the much-maligned Barnett Formula on Scottish spending.

The Scottish National Party’s answer to this is, of course, fiscal autonomy, and ultimately independence. As Finance Secretary John Swinney told the Lords committee on the Barnett Formula recently, the solution to the anomalies of borrowing is to give the Scottish Parliament a full range of tax-raising powers. Being compelled to raise the money they spend is, the nationalists argue, the best way to ensure that ministers are accountable and responsible in spending decisions.

As it happens, the Scottish Labour Party has also made clear in its evidence to the Calman Commission that it is not opposed in principle to tax powers for the Scottish Parliament. This means that all the parties in the Scottish Parliament appear to be moving toward a new consensus on the constitution around the idea of ‘devolution max’.

The SNP has begun to realise that it is unlikely to win an early referendum on independence, and that it would be better to join the campaign for a kind of federalism, short of full independence, where the Scottish Parliament has a wide range of economic powers.

Against the background of deepening economic crisis, this consensus in Scotland might not seem earth-shattering, but it is highly significant.

Twenty years on from the Scottish Constitutional Convention that began the move towards the creation of the Scottish Parliament, the UK constitution could be in line for another radical shake-up. Conservative leader David Cameron has made it clear that, if elected, he will negotiate with Salmond about further reform, perhaps in exchange for abolishing the Barnett Formula and reducing Scottish representation in Westminster. Labour, the Liberal Democrats, the SNP and even the Scottish Conservatives are stumbling to a new form of asymmetrical federalism that would leave foreign affairs, monetary policy and currency questions with Westminster.

Of course, there are questions about this. How could the Scottish Government exercise economic autonomy when decisions on interest rates, currency and suchlike are made in Westminster? What Scottish representation would remain in the House of Commons? What would be done with oil revenues?

Moreover, while Labour in Scotland appears to be moving towards federalism, it has not reconciled the party in Westminster, or, more importantly, its leader, Gordon Brown.

It is not clear what freedom, if any, the Scottish Labour Party has to develop its own policy on the constitution. When Wendy Alexander, the former leader of the Scottish Labour MSPs, called for a referendum on independence, she was firmly slapped down by the prime minister.

However, it is the Calman Commission that is central to this process. The SNP has now agreed to make submissions to the commission, which it originally disowned on the grounds that it was not going to consider full independence. The Scottish LibDems are hinting that, if Labour doesn’t produce on fiscal powers, it might reconsider its opposition to co-operating with the SNP government.

Calman reports in the summer, by which time we might be in a very different constitutional world. That is, if the world hasn’t come to an end in the meantime.

Iain Macwhirter is political commentator on the Sunday Herald

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