Smith devolution plans ‘could leave Scotland worse off than Greece’

26 May 15

The Smith Commission plans for further fiscal devolution, due for implementation in legislation to be outlined in tomorrow’s Queen’s Speech, could leave Scotland in a worse economic state than Greece, according to two leading Scottish independent economists.

In a published report today for the Jimmy Reid Foundation, Jim and Margaret Cuthbert argue that Scotland lacks the economic powers, the earnings base and the fiscal diversity to make a success of the Smith plan to pass control over income tax to Holyrood.

‘A Scottish Government operating under the proposed reforms will find itself severely constrained in its freedom of action, with the danger of Scotland finding itself locked into a self-perpetuating cycle of economic decline,”’ their paper warns.

‘The perversity of the way the Smith reforms are being implemented means that Scotland could well find itself in a position rather like Greece – locked into a cycle of relative decline within a malfunctioning monetary union,’ it adds.

‘Indeed, in certain important respects, Scotland’s position would be worse than that of Greece. Scotland is a resource rich country, but barred from controlling or accessing much of its own resources, and Scotland does not have anything like the range of economic and taxation powers possessed by Greece.’

The paper builds on the Cuthberts’ previous warning about ‘gearing’ – the potentially adverse effect on Scottish spending programmes of changes made by the rest of the UK to budgets for reserved matters like defence.

But it also argues that devolving income tax will leave Scotland worse off, both because its income tax base is adrift from that of the rest of the UK and because Holyrood will continue to lack both the powers needed to grow its economy and a sufficiently diverse range of tax powers. 

‘One major tax lever is not enough,’ the paper says. ‘Scotland needs more economic powers: growing the economy, and the tax base, are essential.

‘As long as the UK remains a monetary union, proper mechanisms will be required for determining what fiscal transfers may be necessary, and for overseeing such transfers,’ it adds.

‘Westminster as presently constituted is inherently not suited to carrying out this role.’

  • Keith Aitken
    Keith Aitken

    covers Scottish affairs for Public Finance from Edinburgh. He was formerly economics editor and chief leader writer on The Scotsman and now has a busy freelance career as a writer, broadcaster and event chair.

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