In the panic engendered by opinion polls that showed the referendum on Scottish independence would be a close-run thing, politicians of all the main UK parties made a “vow” to give Scotland greater autonomy if self-rule was rejected. When the September 18 vote went against secession, the task of delivering this promise of more devolution was delegated to the businessman Lord Smith of Kelvin, with a deadline to report by the end of this month.
A likely package would give the Scottish parliament control over the rates of income tax levied in Scotland, assign the country a statistical share of aggregate value added tax revenue, and make some minor adjustments to welfare provision and some other fiscal and regulatory powers. These measures would be sold as giving Scotland control of more than half the revenues needed to fund expenditures. At present Scotland’s fiscal resources are almost entirely derived from a block grant provided by the UK Treasury.
But revenue assignment gives no authority over VAT revenues, and the Scottish government gained the power to vary income tax in 1999; indeed, the “tartan tax” was approved in a separate vote in the 1997 referendum on devolution. But it has never even come close to using that power. When the UK government embarked on a spending spree from 2000 to 2006 – during these years public expenditure in Scotland increased by almost 50 per cent in real terms – it might have been a sensible decision to cut income tax instead. But the suspicion that the consequence might have been a reduction in subventions from Westminster meant the idea was dismissed. Despite continuous complaint about centrally imposed austerity in the years that followed, the possibility of raising extra revenue through additional income tax to make such “cuts” unnecessary has not been debated. In fact, the administrative procedures necessary to implement such a policy were allowed to lapse.