By George Kerevan

ON TUESDAY we got Labour’s Mark III devolution plan – or Mark IV if you include the abortive 1979 version. My point is not to denigrate Labour’s efforts. In fact, I think these latest fiscal proposals should be examined seriously and on merit. I merely observe that this is Labour’s latest offering – which suggests dissention and irresolution in its ranks.

First we had the 1998 blueprint that set up a Scottish Parliament with the right – so far unused – to vary the standard rate of income tax by 3p up or down. In retrospect, this fiscal power was a non-starter. Raising the rate would only lead to the UK Treasury cutting its block grant to Holyrood. Lower taxes might grow the Scottish economy but there was nothing in the rules to guarantee the UK Treasury would hand over any revenues gained thereby.

Following the SNP’s victory in 2007, the Calman Commission was hastily convened, resulting in the 2012 Scotland Act. Under this complicated reform, Holyrood can’t avoid setting an income tax rate. Effectively, the Scottish Parliament will set up to 10 percentage points (plus or minus) of the 20 per cent, 40 per cent and 45 per cent tax bands. Holyrood isn’t allowed to interfere with thresholds, and it must apply the same percentage change to all bands, so no soaking the rich while cutting taxes for the poor.

Calman comes into force in 2016. For my money, it has serious deficiencies beyond the lack of control over business taxes to promote growth. Under Calman, only 35 per cent of Scottish public spending is funded from cash raised directly by the Scottish Parliament. That leaves Scotland a financial ward of the UK Treasury and at the mercy of Westminster’s obsession with austerity.

Calman was supposed to lay the devolution ghost, especially calls for full fiscal autonomy. But then came the referendum. Hence Labour’s new proposals, which are contingent on Ed Miliband winning next year’s UK general election. They boil down to an extension of Calman. Instead of varying the tax bands by 10 percentage points, Holyrood will get to vary them by 15 points. Corporation Tax, VAT and Air Passenger Duty remain at Westminster.

This represents a significant watering down from the interim proposals that came from Labour’s Fiscal Commission last April. The earlier version gave Scotland full control over income tax, including rates, thresholds and bands. In the new iteration, Holyrood would raise only 40 per cent of its own needs – a very modest upgrade of the 35 per cent provided by the 2012 Act.

Labour’s internal wrangling over just how much of income tax to devolve to Holyrood should be a warning: it guarantees alterations to the existing Barnett Formula, which shares out public funds between the UK nations. Carwyn Jones, Labour First Minister in Wales, claims the existing settlement is over-generous to Scotland. He wants a new assessment of the social needs on which the Barnett payout is based. He says Wales is due another £300 million per annum – money that will certainly be deducted from Holyrood.

This brings us to the central theoretical weakness of Labour’s approach to fiscal devolution: its view that the Union is the best guarantor that resources can be pooled to insure against economic and social stress in different parts of these islands, and safeguard the welfare state.

I still think there is opportunism in the continuing opposition of its Westminster backbenchers to devolution and independence. Nevertheless, there are enlightened people in the Labour Party who – post the triumph of neo-liberalism and post the 2008 meltdown – believe the Union can be made into a progressive force. If we are generous, you can see this vision in Labour’s fiscal proposals. Hence the disavowal of devolved business taxes, lest they eat into economic solidarity between the constituent nations of the UK. If you accept this premise, then full fiscal autonomy (aka devo-max) is out because you need to pool taxes.

However, there is no evidence the Union acts as this social shield. Gordon Brown, as chancellor, connived in the de-industrialisation of Scotland and the north of England while he pandered to the City bankers. Since 2010, cuts to public sector employment have been far higher (as a proportion of the regional total) in Scotland and the English north than in London or the south-east.

The welfare state is already being dismantled south of the Border. The English NHS has switched to contracting out everything from mental health services to diagnostics such as blood tests. Around 70 per cent of NHS contracts now go to private operators. The result is a potential for conflicts of interest that makes the banking sector look virginal. Circle Health, a private care firm, has already won £1.4 billion of English NHS contracts. Amazingly, Circle Health is owned by hedge funds whose investors are big Tory party donors.

Scottish Labour’s notion of how the Union works is a mixture of fantasy and nostalgia. If Labour is elected at the next Westminster elections, its parliamentary leadership will capitulate to the City bankers and metropolitan elite – as it always does. By then it will be impossible to reverse English NHS contracts. The next Westminster parliament – even under Labour – faces another £25bn in cuts to balance the books.

Tinkering with the existing 2012 Scotland Act – all Labour is now suggesting – adds little to the powers Holyrood inherits anyway in 2016.

Labour’s justification for being so pusillanimous is that we must not imperil the social union through tax competition. But if the welfare state model is already in crisis south of the Border, a better approach is to let Scotland – independent or with full fiscal autonomy – create a new model of social democracy. A model that will actually reinforce and reinvigorate progressive opinion throughout the British Isles.

Come 18 September, the choice is clear. Gamble on Labour finding the will and money to build Jerusalem – which it’s never done before. Or rely on independent Scotland’s natural social democratic majority to safeguard the welfare state.


Courtesy of George Kerevan and the Scotsman

Comments  

 
#
mealer
2014-03-22 06:20

I doubt if Labours offer is anything like good enough for most devo maxers.Or for most Labour voters for that matter.But there’s six months to go.Six months for Labour to convince Scots that Tory policies are good for them.
For NO to win,they will have to offer FFA and they will have to convince Scots that it will be delivered.Even with a compliant Scottish media that will be extremely difficult to pull off when there’s no support for it in Westminster.
 
 
#
NkosiEcosse
2014-03-22 07:24

Very simple George, vote yes get the prize, vote no get oblivion
 
 
#
UpSpake
2014-03-22 07:37

1. Calman can come into force for all it likes in 2016, but won’t Scotland be independent from September 19, 2014. We vote for Independence, it’s a done deal.
We might not celebrate actual independence until sometime later, according to some but Calman would be dead in the water so why even give it print time ?.
Labour in Scotland are just a joke and Labour down south, just as you say, pandering to the City and the spivves.
Labour has absolutely nothing to offer Scotland and they know it. They by their visceral hatred of the SNP and the fact that their socialist clothes were stolen by Salmond et al, irks them into voting down anything the SNP propose.
Destructive politics and getting Scotland no-where. We are left with the SNP for better or worst, and their marketing arm – Yes Scotland and what a mess they are making of things.
 
 
#
Muscleguy
2014-03-22 08:46

@NikosiEcosse and UpSpake

We haven’t won the referendum yet and it is still entirely possible that even if we do that just to spite us rUK decline to not implement the Scotland Act. So the Holyrood Finance ministry may have to work to implement it’s partial tax devolution for a few months at the same time as working towards full independence and a currency union.

I can see the Treasury in Westminster wetting themselves over that.

So don’t be too sanguine that voting Yes will let us avoid this stuff.
 
 
#
Breeks
2014-03-22 09:49

It’s not a fantasy. It’s Labour’s version of chaos theory.

Labour flaps it’s wings like a butterfly then sits on its arse waiting for the tornado to sweep them back to power.

Er, sorry Mr Kerevan, you are absolutely right. It is a fantasy.
 
 
#
west_lothian_questioner
2014-03-22 14:51

It’s clearer and clearer every time one of them opens their mouth to spout.. if we vote NO, we’ll get nothing.. or.. nothing good at any rate.
 
 
#
Dundonian West
2014-03-22 15:25

OT.Foodbank VIDEO.Maryhill.The reality of continuing Westminster governance.
Watch and weep,feel angry or both.
“My five minute student documentary looks at the volunteers and users of Maryhill Foodbank in Glasgow as welfare cuts and the recession hit those most vulnerable in society the hardest.”
www.youtube.com/…/
 
 
#
proudscot
2014-03-22 17:30

Lamont’s Labour Group in Holyrood have a fantasy that they are an effective opposition. Even more fantastical is the prospect of them representing a credible alternative Scottish Government.
 
 
#
Aplinal
2014-03-22 20:40

Thank you George. A couple of points.

Did you manage to see Reform Scotland’s take on this. they are claiming after analysing the figures than Labour’s proposals do not amount to 40% as they claim, but in fact only 26%.

Secondly, Lamont has said on a number of occasions that the aim of Labour is to ensure that more wealthy areas support poorer areas. Fine in principle, but in their commission report they state clearly that Scotland is the third richest regain of the UK, behind only London and the SE England. So a Labour in power we can expect MORE funding to be taken from Scotland to support other areas. Not so much Devo-more, but Devo-minus

Only a fool would actually support this dog’s dinner.
 
 
#
staypos+ve
2014-03-23 21:22

I recall the issue of the potential requirement for National companies with Head Office Payroll Departments based in England paying Scottish based employees to have a two tear system was deemed a reason why Independence would not work!
Well blow me down it’s expected to be entirely possible under SLAB’s new devolution proposals.
 
 
#
staypos+ve
2014-03-24 21:41

Osbourne’s new budget pension rules will mean that in an enhanced devolved Scotland tax raising powers could mean that those fortunate to have the opportunity to take the big cash lumpsum on retirement could then, under Slab if ever re-elected. be taxed at a higher rate than south of the border. Another advantage for Better Together to sell as a reason for remaining part of the union.
 

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