All the parties are promising further devolution of fiscal powers to Scotland in the event of a No vote. So what might that mean in practice?
Last week an ambitious timetable was agreed by Labour, the Conservatives and the Liberal Democrats for the transfer of further powers to Scotland if there is a No vote in the independence referendum.
The parties are now left with the tricky task of deciding what these powers will be. In the last two years, each party has produced a set of proposals for a future devolution package. Predictably, each came to rather different conclusions.
The Institute for Government has published a paper comparing these different proposals (alongside other possible devolution models), and analysing their implications for government.
Labour’s proposals on fiscal powers are cautious. They propose extending the model being implemented under the Scotland Act 2012 so that the element of each rate of income tax under devolved control would rise from 10p to 15p. They also recommend a new power to increase (but not decrease) the ‘higher’ and ‘additional’ rates of income tax. The Conservatives' tax proposals are bolder - devolving income tax almost entirely, and air passenger duty too. The Liberal Democrats go furthest, adding inheritance and capital gains tax on top of the Conservative package.
On the spending side, the debate centres on the largest remaining 'reserved' area of public services – welfare and benefits. The Conservatives and Labour both recommend devolving attendance allowance and housing benefit, because they relate closely to powers already held by Holyrood (housing policy and social care). The Liberal Democrats had not previously committed to significant welfare devolution but now favour devolving the Work Programme, as do Labour.
These changes would bring with them a number of implementation challenges both for Whitehall and the Scottish Government. To understand the possible effects, we looked at how the Scotland Act 2012 is being implemented at present.
For HMRC, the challenges so far have been technical, focusing on how to identify Scottish taxpayers in the income tax system. Meanwhile, in Edinburgh a new collection body – Revenue Scotland – has been established to collect the other minor taxes devolved in 2012 (stamp duty and landfill tax).
Future governance challenges depend on which parties’ proposals are adopted in a shared plan for further devolution. Labour’s proposals for additional income tax rate-setting power could presumably be administered by HMRC simply by extending the mechanisms that are already being created. However the more extensive Conservative and Liberal Democrat proposals raise bigger questions – for instance would HMRC continue to administer income tax if there are different rates and thresholds applying in Scotland? And if other fiscal levers such as capital gains tax are devolved in their entirety, would these come under the control of Revenue Scotland and what additional capacity would be required to administer this system?
Fiscal devolution also creates new tasks for the Treasury, some of which are more political than technical. For instance, by how much should Scotland’s block grant funding be reduced to reflect the enhanced revenue-raising ability of the Scottish Government? Even for the fairly small-scale fiscal devolution so far, these negotiations have run into some difficulties. With more extensive fiscal powers the process becomes more complex, especially if more volatile tax bases such as capital gains are devolved. The Treasury also oversees the new borrowing powers of the Scottish Government, which may increase further as the devolved administration grows more financially self-sustaining.
Welfare policy remains predominantly a non-devolved matter, although the welfare reform agenda has led to some small welfare powers being transferred to Edinburgh. Significant further devolution of welfare powers will affect DWP more directly. For example, the unionist parties are considering devolving housing benefit, which is one of six benefits being rolled into the new Universal Credit. Disentangling the housing benefit element of Universal Credit is likely to be administratively complex and difficult to deliver, especially given the tight timetable that the parties have set themselves for agreeing on the new plan.
The big political question now is whether the unionist parties can reach a credible compromise position that they can all live with, and that goes far enough to satisfy the desire of Scotland's voters for a more powerful parliament. But the outcome of these discussions is equally important in another sense - political agreement won't automatically make for easy implementation or good government. It has taken years of work by independent experts and civil servants to plan and implement the changes in the 2012 Scotland Act. Will the compromise position at which the unionist parties arrive make for good policy as well as good politics? As with everything in the Scottish independence debate, the answer to that question is far from clear.
Joe Randall is a co-author of Governing after the referendum, published by the Institute for Government
