Deconstructing Devolution

The revelation this week – the day after an austere Scottish budget was announced – that the SNP administration has surrendered its income-tax varying power may well have gone over the heads of most of the millions of voters gearing up to give their verdict on the nationalists’ first term in office.

But it is sure to thicken the election plot next Spring. The effect of the move, made within months of the SNP’s victory in 2007 (and the refusal of the executive to reverse it since then) is that whoever wins in May will have its tax-varying hands tied until the 2013-14 financial year – almost halfway through the next parliament.

The reason this week’s revelation was made was a (supposed) concern on the part of the Scottish Secretary, Lib Dem coalition minister (and Edinburgh constituency MP) Michael Moore, of the impact of the unavailability of this policy tool on the Holyrood parties’ election strategies and policy programmes.

Not that the Scottish people can have much faith in those anyway. But the independence referendum promise is a whole other story, for another blog, on another day.

Remember, the power to raise or lower by 3p in the pound the income tax paid by Scottish taxpayers to fund Scottish services was deemed such a significant aspect of the devolution project as to be the subject of a second question on the referendum ballot paper in 1998.

Alex Salmond prominently (and successfully) campaigned for a Yes-Yes vote in those heady days, yet within a decade – and within a year of coming to power himself – that part of the will of the Scottish people has been dismissed as “unusable and expensive”; in other words, not worth the hassle.

To retain the power to invoke the Scottish Variable Rate (as it’s formally known), the Scottish Government would have been obliged to make an annual contribution to HMRC, funding that would have escalated as the agency underwent a major IT upgrade in recent years. The SNP saw this as Westminster funding by stealth.

Thus, part of the justification given by John Swinney, Salmond’s predecessor as SNP leader and now his right-hand man as Finance Minister, is that because neither his party nor any of its rivals had any declared intention to vary income tax in Scotland, the responsible move was to block this drain on the Holyrood budget.

Predictably, Swinney didn’t hesitate to turn the argument to his advantage by stating that what Scotland needed was not a costly and limited tax power but full fiscal responsibility, either on the lines recommended by the Calman Commission last year or via his party’s holy grail, independence.

But this presents two ironies: first, introducing either system would induce further costs, either by funding HMRC’s conversion to Calman’s vision or by creating a whole new tax-collecting infrastructure in Edinburgh; second, independence would require the agreement of the Scottish people through a referendum, and the SNP don’t appear to put much stall on half of what they said last time.

More fundamentally, however, there is only so long for which the Scottish Government can go on blaming Westminster for Scotland’s financial ills, especially now they have wilfully and short-sightedly given up the single major lever of fiscal autonomy offered by devolution.

Of course, the grand strategy hiding behind all of this, from the SNP’s point of view, is to deconstruct and thus devalue New Labour’s devolution success story and undermine Calman’s vision for its evolution.

The party has calculated that if it is to have any chance of forcing a referendum after the next election (an election it is widely expected to lose anyway), it will have to water down the starkness of the choice that is put to the Scottish people, and Calman has already muscled his way into that equation.

The real danger for the nationalists is that his appealing “devolution plus” compromise option may pull a core of electors reluctantly flirting with independence back from the brink, shifting the independence horizon even farther out of sight.