Lords tell government to think again on Scotland’s fiscal deal

20 Nov 15

A House of Lords committee has called for the Scotland Bill, the UK government’s flagship measure to extend Scottish devolution, to be shelved until the financial arrangements underpinning it have been clarified, fleshed out and rewritten.

In a scathing report, issued less than two weeks after the Bill cleared its Commons stages, Lord Hollick’s economic affairs committee scorned its fiscal dimension as a product of “undue haste” and said it would be wrong to proceed with a measure that could have a profound impact on the public finances of Scotland and the rest of the UK while remaining “in the dark” about its detail.

It comes in a week when first minister Nicola Sturgeon and finance secretary Swinney stepped up their warnings to Westminster that the Holyrood Parliament will not grant the Bill the legislative consent it needs to pass into law unless a durably fair fiscal settlement is agreed.

Several authoritative Scottish economists have predicted that the fiscal outline currently on offer in an increasingly embattled negotiation between the two governments could leave Scotland hundreds of millions of pounds out of pocket.

The Lords’ objections will strengthen the Scottish Government’s hand in the negotiations and make it harder for their opponents to accuse them of obstruction, though not all of the issues raised by Hollick make comfortable reading for the Scottish Government.

In particular, the committee wants the Barnett Formula for calculating Scotland’s block grant share of UK spending – which is due to shrink under the Bill’s transfer of tax powers to Scotland – to be scrapped altogether, and replaced with a needs-based calculation.

The report calls for Holyrood’s new borrowing powers to be simplified, with a limit set on debt; for the abandonment as unworkable of the “no detriment” principle in the bill, designed to ensure that no part of the UK is worse off as a result of the reforms; for more clarity around funding allocations to the devolved parliaments; and for joint fiscal scrutiny by the UK and devolved parliaments.

“It is crucial that what is proposed is stable and sustainable,” Hollick said.

“Parliament is being asked to pass the bill before we are told full details about the fiscal arrangements that will underpin this new era of devolution – that cannot be right.

"We are calling for the progress of the bill to be halted until the details are agreed and published.”

The report received a mixed response from the respective governments. A UK government spokesman called it “constructive” but also made clear that retention of the Barnett Formula had been a Conservative manifesto commitment.

Swinney agreed that a fair fiscal settlement was essential to the Bill achieving its declared aim of enacting the spirit and letter of the Smith Commission scheme for further devolution, but said he did not accept many of the Lords conclusions, including the call to scrap Barnett.

He also said he would be against the Lords delaying the measure, because he wanted Holyrood to pass judgment on it ahead of next May’s Scottish Parliament elections. But he insisted: “The fiscal framework has to be fair to the people of Scotland and consistent with the Smith Commission report before I will recommend to [the Scottish] Parliament that it gives its legislative consent.”

  • 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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