Shortly after the 2014 independence referendum, the cross-party Smith Commission recommended major new tax and spending powers be transferred to Holyrood. As a result, from a Parliament where only around a fraction of its budget was linked to taxes raised in Scotland in 1999, taxes linked to the Scottish Budget are on track to rise to over £20 billion within the next few years.
Last week, Finance Secretary Kate Forbes agreed with the Chief Secretary to the Treasury Simon Clark the terms for a review into the operation of these powers.
Whilst the initial focus is on technical issues – the so-called block grant adjustments that are crucial to how much the Scottish Budget increases or decreases each year – a broader discussion of Scotland’s devolved fiscal powers has been negotiated. In principle, this is welcome. How useful this exercise is in practice will depend on the extent to which discussions get beyond usual constitutional arguments to focus on how to improve the operation of the existing settlement.
There are areas where it should be possible to agree reforms that allow for greater flexibility in the day-to-day running of the Scottish Budget. This includes a modest extension to the Parliament’s borrowing powers to cope with the risks the Scottish Government now faces in managing a budget that is harder to predict and subject to greater variability.
But the review will also provide an opportunity to reflect upon whether the wider progress that had hoped would follow the transfer of new fiscal powers – in parliamentary scrutiny and wider public discourse – have come to fruition. One of the key motivations for the Smith reforms was the hope that it would open-up a more vibrant debate about the type of Scotland that we want to build.
It was argued that with more powers, debates could not only cover a broader set of public services and welfare responsibilities, but for the first time, could include a more informed discussion about who should pay for any new investment (and how much). Lord Smith argued that for this to happen, there needed to be an improvement in public understanding of budget issues and an increase in the capacity of Holyrood to hold government to account.
In a new report with colleagues from Strathclyde and the Scottish Parliament’s research team, we looked to see whether these changes had taken place. We found that whilst debates around Scotland’s Budget had become ‘broader’ this has been the expense of ‘depth’. Questions on the prioritisation of public services and their long-term sustainability have – as one MSP told us – become more ‘superficial’.
In a survey of over 1,000 adults, we found that many people are still unsure about who is responsible for what. One in in 4 of our respondents still believe the UK Government is ‘only’ responsible for income tax, despite Holyrood having implemented a new Scottish-specific income tax system for the last five years.
Growth in parliamentary resources, as well as the development of a wider think-tank community, have lagged the growth of new powers. Only 14% of MSPs surveyed believed that there was sufficient time and resources to effectively scrutinise decision-making. The complexity of the framework too seems to put off journalists and commentators from delving into important budget debates.
Understanding of budget issues might be worthy but not headline grabbing. But if we are to make the right choices on how to tackle inequalities, grow our economy and move to net zero, the strength of our public and parliamentary discourse on budget issues will be crucial. Any review should not be a ‘closed-shop’ for politicians to agree what happens next. We also need a debate about the reforms we need to make here in Scotland to manage these relatively new responsibilities most effectively.
Graeme Roy is professor of economics at the University of Glasgow’s Adam Smith Business School.
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