Give Scotland ‘devo max’

It is highly likely that the Scottish people will wake up after the votes have been counted in September’s referendum with their status as citizens of the United Kingdom confirmed. That outcome would please the government.

However, what would follow could be a constitutional shambles. The Scottish government would surely demand that more powers are devolved to Scotland – more spending decisions and more control of key areas of economic and social policy.

And, if there is a Labour majority in the UK parliament, why would the government refuse such demands? A group of 59 Scottish MPs – the vast majority socialist of one description or another – can act like MPs from eighteenth century rotten boroughs, using their numbers to impose measures on England and Wales that have no effect on Scotland.

At the same time, a socialist government in Scotland will run its own affairs in more and more areas of economic and social life.

In itself more devolution is no bad thing. Indeed, the coalition government should have engineered such a transfer of powers, but in an organised way that was accompanied by constitutional reform.

An historic opportunity was missed by the coalition in not offering the Scots the option of ‘devo max’ in the forthcoming referendum. That would have allowed the Scottish people to have voted for complete transfer of fiscal and tax raising powers to Scotland over nearly all areas of government spending.

At the same time, a coherent constitutional settlement could have been offered that ensured a ‘Rest of UK’ (rUK in civil service language) parliament was formed that included MPs only from England, Wales and Northern Ireland.

An rUK-Scottish inter-governmental body could have been established to deal with foreign policy, defence, monetary policy, and so on, which would be the responsibilities remaining with the Union. Interestingly, in fact, in the last poll conducted before the option was ruled out by the coalition, devo max was the favoured option.

In many senses, devo max would take us back to the Union that we enjoyed from 1707 to the turn of the twentieth century – in those days the government did not spend much money other than on foreign policy and defence.

What would be so good about the arrangement? Not surprisingly, the economic evidence suggests that simply delegating decision making about how centrally allocated money is spent – as happens in the UK at the moment – does not improve the efficiency of government. However, the dynamics would be entirely different if Scotland were responsible for both raising and spending, say, 85 per cent of all taxes levied on the Scots, with only a small supplementary tax determined jointly by Scotland and rUK for funding defence and other joint functions.

Evidence produced by the OECD suggests that a 10 percentage point increase in the proportion of tax revenue raised by decentralised units of government increases government efficiency by 10 percentage points. Fiscal decentralisation also delivers stronger economic growth.

The reasons for this are very clear. Perhaps, most importantly, the people of Scotland, if they raised all their own taxes, would have an incentive to increase the efficiency of spending and also reduce spending because they would feel the benefits in terms of lower taxes. They would have an incentive to reform welfare because the people of Scotland would be paying the bills and not the people of England.

There would be more possibilities for experimentation with models that were appropriate in the Scottish context. Of course, devo max would have to be accompanied by strong balanced budget requirements and a strict ‘no bail-out’ rule when it came to government borrowing.

Only 5.3 million people live in Scotland and 70 per cent of the population lives in the central belt that includes Glasgow and Edinburgh. When the welfare state is being funded by people living next door to the beneficiaries the incentives for reform will become that much greater.

Arguably, David Cameron also made a huge political mistake in preventing a referendum on the devo max option. The Labour Party won no elections in the ‘Rest of UK’ between 1950 and 1997.

With proper Scottish fiscal accountability, devo max could lead to Scotland rediscovering its classical liberal roots as well as a more market and business friendly government in the rUK.

Instead, we could be left with Scotland running its own affairs and its socialist members of parliament running England’s affairs too.

This article was originally published by the Daily Telegraph.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

2 thoughts on “Give Scotland ‘devo max’”

  1. Posted 07/02/2014 at 01:48 | Permalink

    A nice mixture of facile analysis and fantasy, with a dose of patronising Tory claptrap thrown in for good measure.

    That the British parties made a massive blunder in rejecting the opportunity offered by the Scottish Government to put a “more powers” option on the referendum ballot now seems obvious. so obvious that even the British parties in Scotland have twigged and are now frantically trying to pretend that a No vote is actually a vote for “more powers”. Obviously, they lie. But that is all we expect from them.

    However, it is not as simple as Philip Booth supposes. I’m not sure that anybody in the British parties thought about it very deeply. When Alex Salmond made the offer of a “second question” he was reasonably confident that he could depend on the very knne-jerk reaction that he got. But he also knew that, supposing somebody on the British nationalist side had applied a modicum of intellectual rigour, they would surely have seen that they had a serious problem.

    Had the British parties, decided to accept the chance to put a devo-whatever option on the ballot they would then have been obliged to come up with a set of proposals that offered the people of Scotland something close tp what they want in terms of more powers for the Scottish Parliament. The problem lies in the fact that the unionists have absolutely no intention of delivering such powers.

    Deceiving the people of Scotland about what a No vote means is one thing. Reneging on a commitment which has been given the support of a significant majority of the electorate is quite another. One way or another, there was never any real possibility of the British parties coming up with a “more powers” option to put to a vote. all exactly as Salmond calculated. Because, despite the myths peddled by the mainstream media, we know that he never wanted a “second question”.

    Which brings us to the fantasy. The first part of this is the quaint notion that there will be further devolution in the event of a No vote. You’d be hard-pressed to find anybody in Scotland who believes that fairy-tale. It simply isn’t going to happen.

    Even more quaint is the notion of a large contingent of Scottish socialist MPs at Westminster. Only a Tory could come up with that kind of drivel. For a start, the majority of those 59 MPs from constituencies in Scotland represent British Labour. They are not Scottish MPs. They are British MPs. And only someone seriously detached from reality would call them socialists.

    What Mr Booth forgets is that these are the people fronting Better Together – an organisation which is basically Tory money funding a British Labour campaign. These are people who have spent years, in some cases decades, fighting to prevent the Scottish Parliament gaining more powers. Their overriding imperative is the preservation of the British state and the structures of power and privilege from which they and their clients benefit. It is pure fantasy to imagine that these people would voluntarily devolve more powers to the Scottish Parliament once the people of Scotland have forfeited the leverage of the independence option.

    And the condescension? It’s right there in the title of the article. The assumption that ultimate power resides with the British state and that the people of Scotland must be content with whatever the British state deigns to allow them. It is this denial of the sovereignty of the people of Scotland that makes the union intolerable.

    Power devolved is power retained. Real power is not given, it is taken. Only the people of Scotland have the right to decide what powers their parliament should have. So long as British politicians usurp that right there will be an independence movement in Scotland. We will bring Scotland’s government home. All of it. Not merely the bits that are grudgingly and gracelessly “given” by the British state.

  2. Posted 07/02/2014 at 12:41 | Permalink

    Apologies for the daunting lump of text that my earlier comment has been reduced to by the formatting having been stripped out.

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