Scotland’s funding

With the sound and fury of the election now behind us, the next big issue on the horizon is the referendum bill which will shortly be introduced into the Scottish Parliament, proposing to give people in Scotland the choice of what our constitutional future should be. I, and my colleagues in the SNP, strongly believe that the full powers of independence are what Scotland needs if we are to grow our economy, fundamentally address some of the social problems prevalent across the country and stand up for Scottish interests in Europe and the wider world.

As a firm believer in democracy it is of course right that the people of Scotland should be given the right to decide for themselves what future they want. However, the London parties have signalled their intention to conspire to block such a referendum taking place. As well as being fundamentally undemocratic, this raises serious questions about what alternative Scotland is likely to see.

Scotland’s tax revenues currently travel south to the Treasury before a certain amount, determined by the Barnett Formula, is returned to the Scottish Government to spend on devolved matters as it sees fit. This amount rises and falls based on spending decisions in England on those services that are devolved to Scotland north of the border. While I would certainly not describe this situation as satisfactory, especially as projects are often classified as being of “national” importance in order to avoid Scotland receiving its share of spending that takes place south of the border, it does at least have the virtue of stability.

In the Calman Report, the union parties’ alternative to the National Conversation that the Scottish Government held, a proposed replacement to the Barnett formula was made that would see up to 10p of income tax and certain other taxes devolved to Scottish control with a reduction in the Barnett Formula’s block grant to compensate for this. However, while this may seem at first glance like a sensible way of making the Scottish Government more accountable for its spending, in reality it is the worst of all words and would be a disaster for Scotland.

Any fluctuation in income tax revenues would have to be met with immediate cuts in Scotland in advance of the final revenues being known. That would send Scotland into a vicious cycle of having to make cuts or raise taxes which would in turn lead to a further fall in income tax receipts and necessitate another round of cuts or tax increases. Scarcely any wonder that the proposals have been described by some members of the expert panel that drew them up as “seriously flawed, if not illiterate”!

The only sensible alternative to the Barnett Formula that has been proposed is for the introduction of fiscal autonomy, whereby Scotland keeps control of all tax revenues generated north of the border and, as long as Scotland remains in the Union, the Scottish Government pays a certain amount to the UK Treasury for shared services such as the armed forces. This is manifestly a far fairer solution. It would give the Scottish Government the control over the financial levers it needs in order to drive Scotland’s economic recovery and to build for the future.

Economists and leading business people have reached the conclusion that this is the best option when any consideration of a replacement to the Barnett Formula is being made. If our proposed referendum on independence is blocked by the other parties, then fiscal autonomy is the only acceptable alternative to the Barnett Formula for Scotland.