Scotland’s fiscal framework: questions of constraint

25 Aug 15

Holyrood’s finance committee has put forward its own thoughts on a fiscal framework for an increasingly devolved Scotland. The report raises important questions for both London and Edinburgh.

Earlier this year, the finance committee of the Scottish Parliament took evidence on their inquiry into Scotland’s fiscal framework. The inquiry was a result of the Smith Commission recommendation that the “devolution of further responsibility for taxation and public spending, including elements of the welfare system, should be accompanied by an updated fiscal framework for Scotland, consistent with the overall UK fiscal framework.”

Having completed its evidence gathering, at the end of June the committee published its report, which contains a number of points that require clarification and further consideration by the two governments. One of the key concerns raised is whether the UK Government’s Command Paper places a greater level of constraint on the Scottish Government’s fiscal flexibility than the Smith Commission recommendations. 

The Smith Commission calls for a fiscal framework for Scotland, consistent with the overall UK fiscal framework. The command paper on the other hand states that a fiscal framework needs to be established so that actions across authorities in the union will deliver the fiscal mandate set by the UK Government. To further this objective the UK Government’s Command Paper does not expand on the borrowing powers already available to the Scottish Government under the Scotland Act 2012. This includes set limits for current and capital borrowing, which most commentators agree is insufficient to provide the Scottish Government with the fiscal flexibility it requires.

Like the Smith Commission, the committee and Scottish Government are supportive of enhanced borrowing powers that are supported by a prudential borrowing framework.  This will allow the Scottish Government to have policy flexibility in the areas of capital investment supported by borrowing and also borrowing for preventative spend. The committee are also supportive of agreement of a debt rule within the fiscal framework proposals.

This would mean as well as, for example, a duty to produce a balanced current budget, there would be a fiscal rule on the level of spending out of current budgets that is committed to servicing debt. This would provide for a level of consistency with the UK Government framework and allow for prudent fiscal management in Scotland. 

Consistency can be viewed as being steady, reliable and uniform. Translating that into the consistency of any proposed Scottish Fiscal Framework with the overall UK fiscal framework would mean that it promotes a similar approach, i.e. it provides for a prudent approach to longer-term fiscal management. At the same time the Scottish Government want to ensure that as far a possible it allows them discretion over fiscal policy matters.  To put in place a fiscal framework that delivers the objectives of a different parliament within the union seem to fall short of delivering fiscal policy flexibility

These are important matters for Scotland as the fiscal framework is what underpins further devolution of powers. The Vow from the UK Government and the context in which it was given is seen by many as a commitment to a significant degree of fiscal autonomy for Scotland therefore agreement of the committee’s conclusions and recommendations for the fiscal framework is going to be a test of whether the future relationship will be one of co-operation or one of central government constraint.

Did you enjoy this article?