Think there's a better way to run Scotland's finances? There is...

Or, it could allow power currently centralised in Edinburgh to be dispersed to local authorities so that they can better cater for local needs, including by creating elected mayoralties in Scotland’s cities, at least. That, too, could dramatically improve people’s lives, given the scope of responsibility that local government has over the things that really matter to people.

In the area of tax and finance, though, there is really very little wriggle room. The current Finance Secretary, John Swinney, is one of devolution’s best-regarded Ministers, with good reason. Kate Forbes, for whom he is covering while she is on maternity leave, is the shining star of the new generation of MSPs.

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However, talented and serious as these two people are, they operate within the fiscal straight-jacket of the Barnett Formula’s block grant. Yes, the Scottish Government has some limited power over some limited taxes – primarily income tax – but there is limited incentive to use it in a radical way.

The UK Government, depending on its ideological perspective, might reduce income tax in order to promote economic growth, or increase income tax in order to enhance the government’s bank balance. However, it is far from clear that any attempt by the Scottish Government to pull this lever would make any net difference, or whether the Westminster grant would in effect equalise the annual amount available to spend.

This promotes poor behaviour from both government and opposition in Scotland. In the case of the Scottish government, particularly when it is in ideological and constitutional opposition to its UK counterpart, the incentive is to use financial powers for a political purpose rather than for a financial purpose. So, for instance, the SNP can ensure that those on higher incomes pay a slightly greater proportion of their earnings in tax, or that its public sector pay deals are slightly more generous than those agreed by Westminster.

These decisions impact many, many individuals, sometimes positively and sometimes negatively, but in the round the Scottish government’s financial powers are largely for show, rather than for dough. The Scottish Government wants to portray a Scotland of Scandinavian high taxes and social democracy, rather than a Scotland of Anglo-Saxon free market liberalism.

Our current fiscal structure also allows the Scottish Government to lay the blame at London’s door for pretty much anything it so chooses. We can’t invest more into ‘our NHS’ because London has cut our funding. Again. This narrative plays well to the audience with whom it needs to play well.

Higher earners face paying more tax (Image: NQ)
There is plenty in this for unionists, too. They get to tell the world that Scotland puts a great deal less into the British pot than we get back out of it, and that an independent Scotland would be unviable. And, of course, they are able to ask why a Scottish government which has the full power to run public services is presiding over ones which are failing to deliver adequately, whether that be health, transport or education.

Yes, the Barnett Formula offers something to everyone, and that was shown again yesterday on Scotland’s Budget day. A penny on the high rate, a penny on the top rate. Enough to make clear that Scotland and England are different, but not enough to generate any kind of damaging change in behaviour from the highest earners.

And on the unionist side, you guessed it, concern over the growing gap in taxes between workers in Scotland and workers in England, with a healthy dose of praise for the UK’s propping up of Scottish spending.

Everyone’s a winner. Except, that is, the Scottish people. We are the losers in this financial system, because this financial system disincentives sensible financial decision-making and prudent action by government, not just when it comes to tax and spend, but also in the area of public services.

Read more: 'The SNP will raise your taxes. We should thank them,' Rebecca McQuillan

There is another way. There always is. In this case, the other way is to cut the cord by scrapping the Barnett Formula and making the Scottish Government responsible for raising the money it spends.

I should say, without fear of self-contradiction, that this would be exceptionally painful in the short term. Scotland presently spends more than it raises, and even if the spike in oil revenues masks that deficit, the long-term trend is clear. Fiscal responsibility, therefore, would require tough choices in the form of either substantial tax rises, substantial spending reductions, or both.

This pain is real. It is fewer potholes being filled, less fibre broadband cables being laid, fewer books in schools, lower pay for public service workers, and so on.

That short-term pain, though, would be necessary in order to achieve the long-term gain of a government, of any political colour, which would have no choice but to act prudently and responsibly. Which would have to tax strategically for dough, not politically for show. Which would be forced into reform, particularly of social security and health, which based on their current models are plainly unaffordable in the long term.

There would no longer be a finger of blame to point to; nationalists could not blame the UK government for underfunding Scotland, nor could unionists claim the Scottish government is propped up by British taxpayers.

Scottish governments would sink or swim, and so they should. That is, after all, how a normal government works. That is what nationalists say they want. It is what unionists say they want. And it is the only basis on which a grown-up Scotland, whether inside the UK or out, can proceed.