I have sought before to explain how the Barnett formula works. It is the way of determining increases in Scotland’s bloc grant money each year, based on the increases in England for similar programmes. Those who think the debate is simply whether you are pro or anti Barnett are misjudging the issue.
The bigger issue is what is the base grant? Someone has to decide which items of spending are devolved to Scotland that need bloc grant. They now also will need to decide what reduction you make to the bloc grant to allow for Scotland directly setting her own tax rates and collecting her own revenues for some taxes. Is the own tax simply going to be a general deduction from bloc grant expenditure? Are some items of spending going to be taken from the bloc grant and allocated to own taxation? Those methods produce different answers.
Presumably a fair settlement for the Union as a whole has to allow Scotland to spend extra if she raises extra from setting higher or lower tax rates that raise more revenue.If this does not happen what is the point of more fiscal independence. I have no problem with Scotland wishing to raise more tax to spend more. It will be an interesting experiment. Conversely Scotland will have to accept that if she chooses to raise or lower rates in ways which cut the revenue, that should mean Scotland spends less. England will not accept an asymmetric system, where England pays what Scotland does not raise.
The disadvantage of hypothecating particular spending to Scottish tax is they will then lose their right to more money from England to support those services, which they enjoy at the moment. The advantage is the other services will be fully underwritten by the rest of the UK. There is a justice in some part of the Scottish budget giving Scotland full control over both the spend and the amount of tax they collect to pay for that part.
The other route is to deduct the present amount of tax revenue raised in Scotland from the taxes that are being devolved, and to increase that amount annually by the amount those tax revenues go up in the rest of the UK – a new Barnet formula for revenue.This works fine unless and until the rest of the UK changes the rates or does something structural to the tax, when the grant deduction would need to be recalculated somehow. There might be other indices which could be used to approximate the tax revenue assumed in the calculation – e.g. some factor of GDP growth which was based on the past buoyancy of that tax.
Your thoughts would be appreciated.
May 21, 2015
You say: “I have no problem with Scotland wishing to raise more tax to spend more. It will be an interesting experiment.”
Well yes but it may be, but alas one conducted at the expense of the Scottish people. They will destroy or export jobs and probably raise less revenue. Governments like to talk of investing and spending when so very often what we get is absurd and pointless waste or worse still them doing active harm or preventing & killing fair competition from the unsubsidised but more efficient private sector.
May 21, 2015
Meanwhile with have yet more warning/threats over the damage of leaving the EU (this time from Airbus) the BBC think mood music has already started. Also I see Cameron about to waffle on about forcing employers to advertise in the UK & not just abroad for workers. Sure perhaps on an obscure unseen web site or a tiny card in a small shop window? Perhaps saying applicants will benefit from speak fluent Hungarian, Rumanian or Polish?
The employers will employ what suits them best. Forcing them to advertise in England as well will just make them go through the motions to comply legally & will waste a few English people’s time applying.
Cameron clearly thinks he can get away with this meaningless tinkering and a few small changes to benefits. It is totally pathetic to think that silly fig leaves like this are sufficient. Is he going to attempt to negotiate something real or not?
May 21, 2015
Not.
May 21, 2015
He could deal welfare himself, this is the start of the con, like the: I will not pay the extra £1.7 billion to the EU and then does. His response is pitiful. Immigration numbers the size of Nottingham in one year alone! It has 100 schools. Is Cameron going to match public services required for his continued mass immigration policy? Another response: we need to build more houses. No we did not. This is not housing crises it is an immigration crisis which he has let the EU have control! He is tinkering around the edges to create an illusion he is doing something.
First action, sack May and apologise for her reappointment for failing to sort out the Home Office and those lost to the system as well as failing to provide proper border controls. You might recall Johnson wanted to give all illegal immigrants an amnesty. That would stop people from here- not. Second action, sack Johnson.
His first response is to blame the Lib Dems!
May 21, 2015
Also, another attempt at the migration issue – seizing the wages of illegal foreign workers.
When are they going to get it – the problem is not a few chinese and indians living in squalid conditions in takeaways – it’s MASS MIGRATION from the EU.
For heaven’s sake, someone burst that bloody bubble.
May 22, 2015
Just more silly PR gimmicks and nonsense they are pathetic.
May 21, 2015
It didn’t take Cameron long to revert to type .
Look at the composition of the cabinet ; all arts and letters graduates , not a single person with a mathematics , engineering or hard science background .
Nobody could accuse Cameron of breaking the continuity at DECC ; Millstone , Huhne , Davey and now Amber Rudd .
I am horrified at the prospect of Amber Rudd signing the execution warrant for British Industry in Paris later this year and getting off the plane Chamberlain style with those immortal words “Britain is Leading the World” .
Why no Owen Patterson ?
All that guff about the Lib Dem’s holding the Conservatives back is shown up for what it is . Farrage is almost certainly right – nothing much will change .
Do you folk who voted Conservative feel two weeks ago feel dirty or used yet ?
May 21, 2015
All the tinkering the Cameron Conservatives are doing to limit immigration within our country (or rather pretend to limit immigration) just highlights their inability to limit immigration at our borders.
May 21, 2015
Some of this tinkering is probably illegal. I seem to remember Osborne writing about profits made here but being taxed in another EU country having those taxes transferred here somehow. I can’t see the EU having that, somehow.
May 21, 2015
All these threats are not real. I saw a Deutsche Bank press release, widely headlined amongst the financial newspapers, saying they are considering pulling out of the UK if we leave the EU. So I did far more than most thinking journalists appear to – I went to the Deutsche Bank website, and quickly discovered that they operate in 37 countries around the globe that are not EU.
https://www.db.com/en/content/company/Global-Network.htm
So I wondered, what would stop DB from operating in a 38th country, bearing in mind they already have offices and people here, and we have a far larger economy than, for example, New Zealand, Vietnam, South Africa or Thailand, where they are currently present.
Total garbage and EU propaganda!
May 22, 2015
You aren’t supposed to think thoughts like that.
May 21, 2015
Cameron couldn’t negotiate himself out of the proverbial paper bag for sure.
May 21, 2015
One can of course be quite sure that after the loopy left SNP have made a complete mess of the Scottish economy it will certainly all be blamed on the English and Westminster.
May 21, 2015
They have a long track record of doing this. Never underestimate the SNP’s ability to cultivate a grievance against the English.
The key will be to frame the settlement in such a way as that door is closed.
May 21, 2015
Do not forget the give away vow made by the LibLabCon cartel at the instruction of Gordon Brown! Why would SNP not take advantage of half-wit negotiators? It worked last time.
May 21, 2015
Thoughts !! You wouldn’t post most of them.
I’m sick to the back teeth hearing what Scotland wants (demands) They constantly blame Conservative England for all that is wrong in their bleak and desolate land.
They constantly demand ‘freedom’ and when they got the chance to vote for freedom they bottled it.
Give them FULL fiscal autonomy. End Barnett and watch how they get on. It’s all an interim measure until the SNP clean up in the 2016 ‘Scottish parliament’ elections. When hopefully they’ll demand another independence referendum and this time get it right.
May 21, 2015
I wouldn’t mind if it was “Conservative England” as you say, OA, but it’s not – it’s the “Conservative UK Govt” who cares nothing for England or the English voters who put them in power.
Sick of them.
May 21, 2015
Whereupon the newly sovereign Scottish government would give the government of the continuing UK notice to vacate all of its installations in Scottish territory, military and otherwise, notwithstanding any agreement which had been made prior to independence; and would start looking to see what alternative alliances it could make with foreign powers which were not necessarily friendly to England; and would in due course decide that after all it didn’t want to share the same Head of State as England but instead would become a republic; and would operate an open-doors immigration policy ostensibly to boost the population of Scotland, but in the full knowledge that most of the immigrants would just pass through and head off straight for England; and would give the euro a bridgehead on the same island as England; and moreover would encourage not only Wales and Northern Ireland to detach themselves from England but parts of England to detach themselves from England … and the inhabitants of whatever remained of England or of the UK would be wondering how all this had come about.
May 21, 2015
Couldn’t have put it better Denis.
May 21, 2015
Agree lets give them what they wish for. If it comes to them leaving I worry that the Westminster lot will give them a soft deal- not sure the Politicians and Civil Service are bright enough to think of the English first and last, If the Scots are given a second referendum and decided to go then the English should be given one as well as to how the Scots go – the English people need to agree the departure package.
May 21, 2015
As a quick off-topic comment, JR, with your permission – I was appalled to see Osborne repeating Hague’s mantra “In Europe but not run by Europe” in a speech last night. It’s as if we were still in 1997, and all the debate over nearly two decades has had no effect at all. Osborne is no fool and he knows very well that this slogan is nonsense, and the fact that he has deployed it can only mean that the government is not willing to permit, let alone lead, a serious, well-informed national debate on EU membership. I suppose that as somebody who wants us to leave the EU I could welcome my opponents resorting to such silliness; and I would do, if I thought that the mass media would rip it apart and expose its silliness, but I know that will not be the case.
May 21, 2015
It is the same waffle as the criminal Sir Mike Rake who comes out with ….we must stay in the EU. Although it is none of his business how we are governed he is entitled to his opinion which he should keep to himself.
People must start informing the British public of the irrelevance of the EU now as most of our laws are made in CODEX which has its headquarters in Rome (I think). These laws are then handed down to the EU and all countries. This organisation is now the deliverer of rules and we DO NOT SIT ON ITS TOP TABLE. Norway, Iceland etc. do. We must leave the EU and take our place at the top table and therefore be able to INFLUENCE the making of the laws we have to obey. At the moment we have absolutely NO influence with only 8% of the vote.
May 21, 2015
Surely, “In Europe but not run by Europe” is precisely the situation we would find ourselves in if we left the EU?
May 21, 2015
Not exactly, then it would be:
“In Europe …”
(because we cannot tow the UK away from the continent of Europe to some other part of the world, however desirable or undesirable that may be it is still beyond human powers)
“… but not run by the European Union”
(an international organisation established through treaties agreed between most although not all of the sovereign states in Europe, but with some of those involved in its leadership harbouring ambitions to expand it beyond the normally recognised geographical limits of Europe and turn it into a sovereign federation superior to its members).
However obviously “In Europe but not run by the European Union” may not have the same appeal as the shorter but fundamentally inaccurate slogan preferred by those who control the Tory party and wish to sucker its members and supporters into voting the way that they want.
May 21, 2015
Exactly
May 21, 2015
Words do matter. The pro-EU faction don’t just accidentally misuse the term Europe when they really mean the EU.
We should counter this by saying “In Europe but not the Union” or maybe “In Europe but not the Empire”.
May 21, 2015
Osborne is no fool you say – so why do we have such an absurdly complex and counterproductive tax system after 5 years of him. Even an absurd 12% stamp duty/turnover taxes and a idiotic new and complex IHT proposal, after his ratting on the £1m threshold. A daft workplace pension scheme and yet a cash in as much as you like of your pension at 55 policy. No fool? Well, not much evidence for that so far.
You will be telling me John Major was no fool next!
May 22, 2015
Maybe that absurd complexity is not the product of foolishness but is quite deliberate?
May 21, 2015
Seems to me all far to complicated, we have formula money , block grant money, UK paid for services, (Pension funding, NHS funding ) etc etc. English offices and employment subsidies for their own people.
Time to get it all very simple, they have a Parliament, they elect their own politicians to stand in that Parliament, they want to be in control of their own destiny, Wales now making similar noises, Northern Ireland want more.
The one common factor, they all blame Westminster for their problems, and hide behind that quote. time after time after time.
Solution, let them run their own financial affairs, and let them sink or swim dependent upon their own decisions.
Devolution for all on exactly the same basis (includes England), all that needs to be agreed is how much they pay for the UK national debt, and what are going to be joint UK responsibilities.
Let us face facts, the Devolution cat is out of the bag, you are never going to put it back, so time for them all to go on their own, they already elect their own politicians, so let them have the responsibility of running their own show, but do remind them that borrowing in our (English) name is not an option.
Time for their politicians to run their own show, and be responsible to their own constituents.
Only then can their constituents see what their own politicians are made of.
Never know they may develop a system that is so good and simple, we can copy it in England.
May 21, 2015
The country is in the slow process of federalisation, which will eventually see the Commons become the English Parliament and the Lords disbanded in favour of an elected UK Senate responsible for defence, foreign affairs, currency control etc.
The election of 56 SNP MPs is a clear step along this path and the convoluted options to placate them and Ms Sturgeon and prevent the English being ripped off are doomed. Currently the only logical option is to give the Scottish Parliament full control of income and expenditure and abolish the Barnett formula, which even the designer confirmed shortly before his death that it was never meant to be a long term arrangement.
May 22, 2015
I would prefer to see the sovereign, federal, UK Parliament remain bicameral while the four devolved Parliaments were unicameral. I’m not enamoured with these various solutions which try to take the bodies that we already have and somehow warp them into fitting new requirements, when the first simple and straightforward step should be to grant to the English the equivalent of what the Scots have had for fifteen years, a new, separate, and separately elected, devolved Parliament and government for the whole of England.
May 21, 2015
Bang on Alan. However, how many pen-pushers would be out of a job if you created a simple system that worked?!
Additionally, in order to overhaul the system and change stuff some people might actually have to do some thinking and some work. Far simpler just to tack on ANOTHER makeshift plaster.
May 21, 2015
Alan, by sensible suggestion. MPs have messed up the union in stupid give aways and a squabble amongst themselves. Time for true devolution, them go. What did MPs think when they started devolution to Wales, Scroland and Ireland? A bit the EU, they knew it would ultimately either be in or out. There is no half way measure. They presumed it would be in by stealth and deceit to the public. Too many layers of political bureaucrats. It is too costly to the taxpayers. We are small country requiring small government.
May 21, 2015
Well done for trying to tackle this.
You don’t mention the fact that altering one tax will have an effect on others e.g. raising Corporation Tax could increase the income tax take, raising VAT could decrease income tax as the black economy increases.
Therefore you need to lay down some more fundamental principles-Scots either spend what they raise in totality, no less no more, or they don’t have the chance to vary taxes.
May 21, 2015
What is absolutely unfair and indefensible is that the English pay for Scottish socialism. They receive vastly more money than they raise and the only reason we are saddled with this ridiculous system is to buy Scottish votes to prop up Labour (or in years past, Conservative) governments by allowing a far larger representation in Westminster than their population justifies. The policy of bribery has failed utterly. They now have their own ruling party who don’t agree with English politicians on anything. Fine, their choice.
Any and all grants should cease immediately. Tax should be entirely their responsibility as should their share of the national debt. If they want to spend they have to pay. A simple rule that should be so obvious that even politicians could understand it. It wouldn’t hurt if the same principle were extended to Westminster too instead of running huge deficits worse than Greece.
Reply They do not spend more than they raise if you include oil tax as mainly Scottish tax revenue – subject of course to the fact that the whole UK spends more than it raises and borrows a lot.
May 21, 2015
Really JR? Oil tax is UK revenue and it will remain so until Scotland becomes independent. Even then some of the oil comes from English waters.
Reply All revenue is UK revenue until Scotland becomes independent, but to the SNP oil tax is Scotland’s revenue as they look forward to independence.
May 21, 2015
Little of the oil comes from what would become English waters, or more accurately what would remain the waters of the continuing UK.
May 22, 2015
But why was the nautical boundary between England and Scotland moved 50 minutes North in the sixties
May 22, 2015
There’s more than one boundary according to UK law, but it makes little difference to the allocation of oil reserves.
http://www.bbc.co.uk/news/uk-scotland-scotland-politics-20042070
“The interesting thing is, from the economic point of view, it does not make much difference because there are just a handful of fields, and not very important ones now, between the median line and the line north of Berwick.
“Although lawyers could have a long debate about it, in terms of economics, it does not make all that much difference.”
If Scotland were to get a “geographical share” based on the median line it would mean about 90% of the UK’s oil resources would be under Scottish jurisdiction.”
There’s a reason why the North Sea oil industry is centred on Aberdeen, 57° North, rather than Newcastle, 55° North, or even Edinburgh, 56° North:
http://en.wikipedia.org/wiki/North_Sea_oil#/media/File:North_Sea_OilandGas_Fields.jpg
May 21, 2015
The Scots have been doing their version of accounts called GERS. http://www.gov.scot/Resource/0047/00472877.pdf
Table E.6: Net Fiscal Balance: Scotland and UK 2009-10 to 2013-14, sums it up.
May 22, 2015
As far as I’m aware the UK government doesn’t dispute the validity of the GERS numbers, at least not to any material extent, and in fact they explicitly relied on those numbers when they compiled their analysis of the Scotland’s economic and fiscal performance in September 2013, as you can see here:
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/236579/scotland_analysis_macroeconomic_and_fiscal_performance.pdf
On page 7:
“In the event of independence, the allocation of North Sea oil and gas revenues would be subject to negotiation. On the basis of a geographical apportionment, Scotland’s notional fiscal balance for the period since devolution is very similar to the UK’s public finances over the same period.12”
and that reference 12 is to the GERS.
That is why the main argument deployed was that outside the UK Scotland would be more vulnerable to economic shocks, rather than claiming that Scotland constantly relies on subsidies from the rest of the UK.
Of course that Table E.6 only runs up to 2013-14, and presumably with the collapse in the oil price and therefore in oil revenues the 2014-15 numbers “Including North Sea (geographical share)” will tend to converge on those “Excluding North Sea”.
May 21, 2015
Oil revenue is diminishing so that soon it will hardly worth mentioning.
May 21, 2015
“a far larger representation in Westminster than their population justifies.”
Wrong. 59 MPs instead of the 57 calculated on the basis of the same electoral quota, ie the average number of electors per MP, used in England, as has been required since the establishment of the Scottish Parliament.
May 21, 2015
Thought the Gov was going to put no tax increases into law? Would that be countered in Scotland if its true?
Experiment..yes, and thats the trouble all the time.
Reply If Income tax is devolved then the no tax rise pledge is an England/Wales/Ni pledge, not a Scottish one.
May 21, 2015
Reply to reply. The Scots like to think it is all Scottish Oil but, given the angle of the Border, a large minority of it would be in English water should the SNP get their Independence. Please let that be soon!
We should scrap the Barnett Formula now or else it should come out of Foreign Aide.
May 22, 2015
About 10%.
May 21, 2015
This becomes quite crazy… the Scots voted as part of the UK for no tax rises but now they will get tax rises? We are starting to stare down the rabbit hole where voting in Scotland for Westminster MPs becomes meaningless, because manifestos of the Westminster parties don’t mean anything to them… and they won’t bother, which will become yet another source of angst in Scotland.
May 21, 2015
There are multiple categories of state expenditure in Scotland.
There’s the expenditure direct by the UK government for UK-wide purposes, of which the most obvious is defence. But I suppose that potentially some of the UK government expenditure for UK-wide purposes could be mediated through the Scottish government, and maybe even Scottish local councils and other bodies within Scotland, and the latter could receive the funds direct from the UK government or via the Scottish government. Logically all of the state expenditure which was identified as being for UK-wide purposes should be funded by UK-wide tax revenues, and as things stand also to some extent by UK-wide borrowing, which could include borrowing from the Bank of England through QE as it has been practised in the UK.
Then there’s the expenditure by the UK government for purely Scottish purposes, and once again potentially some of that could be direct, some could be mediated through the Scottish government and some through Scottish local councils or other bodies within Scotland funded either directly or via the Scottish government, and again the source of that funding from the UK government would be UK-wide taxation and borrowing.
And then there’s expenditure by the Scottish government for purely Scottish purposes, either direct or through lower level bodies, funded by the tax revenues raised by the Scottish government across Scotland supplemented by borrowings of the Scottish government on its own account, which of course is potentially a problem for the rest of the UK, and then expenditure by Scottish local councils for local purposes, and by other Scottish bodies for specifically Scottish purposes, to be funded by a combination of grants and maybe loans from the Scottish government and their own local or special revenues, with or without scope for borrowing on their own accounts.
And then on top of that there’s the unnecessary and undesirable interference from a collection of foreign powers in the form of the EU, whose budget is part funded by the UK government using UK-wide revenues and borrowings but then disburses some of that money in Scotland by different routes.
So it’s all hellishly complicated, but nevertheless I guess that a sensible internal UK system could be devised and made to work if there was enough goodwill.
However goodwill is now in short supply, with the separatist SNP wanting to make sure that whatever arrangements are put in place can then be held not to work to the satisfaction of the Scottish people to advance their cause, and with an increasingly resentful attitude on the part of people in the rest of the UK but especially in England, some of whom quite irrationally blame the Scots for the total lack of respect shown to the English by the obstinate UK politicians who they themselves elect.
May 21, 2015
The Inland Revenue gets it wrong,often, with even simple calculations for the most humble individual tax payer. And equally frequently fails to detect its error. Computers and credit card sized calculators flatter us that we are all financial whizz kids thus compounding the impact on our technologically enhanced inflated egos.
The LESS than average voter needs to be able to determine if a politician is speaking with a forked-tongue, as it were, in an argument about say Scottish taxation consequences.
I recall JR, you and an SNPer both via video link a little time ago courtesy of a TV programme, exchanging arguments about Scottish/English taxation issues. Interesting. You both appeared to know your onions, and the tale got more complicated by the second, but I guess the viewers at home chomping perhaps on bacon sandwiches with their pet dogs making a performance at their knees and a toddler pulling the canine’s tail did not have time to judge the SNPer to be deafening him with financial gobbledegook.
The SNP case, in my opinion, was first based on portraying Tories as the epitome, the very model of an ancient Sassenach and now the Labourite as some kind of a Red Sassenach.
Spectres of the past used improperly and most certainly dishonourably by the Politics of Envy and Hatred can be exorcised by opening ones eyes, simply.
Keep all devolved powers and consequences as clear as 2+2=4
May 21, 2015
I see that silly Scottish woman is bleating about us paying a subsidy to keep Longannet power station open now they’ve managed to destabilise the grid
Will this be the sign of things to come. Every problem to be financed by England.
May 22, 2015
I see that the Scottish Longannet and English coal stations Ferrybridge are being closed, while the profits of Scottish and Southern have leapt, despite them losing customers- 9.1 to 8.58m. The chairman of SSE, which is keen to develop its large wind generation capacity, is Lord Smith. He also sits on the Green Investment Bank, which lends large amounts to convert coal stations to wood burning. A government scientific advisor has said he would be surprised if they saved any CO2. (see link to C.Booker article yesterday).
Lord Smith was chosen by Eural McCameron to advise on the Scottish question. He is ideally suited to be independent, as he has had jobs with RBS, BoS, Morgan Grenfell, and MFI., while being Chancellor of the University of Strathclyde, which charges English but not Scottish and EU students. He also own a Scottish island. (re Wiki)
Ever get the feeling we are being taken for mugs?
May 21, 2015
The fiscal contortions the British establishment are engaged in to make their asymmetrical devolution limp along for another year of so, has its heart their failure to constitutionally recognise England.
The British establishments physiological hang up about England has condemned the Union they claim to value.
May 21, 2015
The logic in the blog this am is very well put but the extensions make implementation a convoluted affair . The tax and regulatory system is already a feature of many volumes and I , for one , have not the time or inclination to get my head around it .
The simple truth is, if Scotland is allowed to go ahead with control over its tax and welfare programmes and the consequences make it unfair to the rest of us , we have to create an equalising result ; frankly I don’t see this as practical without letting them “go”.
Barnett is only part of the problem ; the heart of the difference lies in the basic dislike the Scots have for England . It goes back to the very origins of the Union and the fact that Scotland never wanted to be a part of it . There is no doubt that the present position is not liveable with and the imposition of a majority strength over Scotland is only bound to deepen the feelings of the SNP further .”Olf Albion” makes it blunt and true in his response .
May 21, 2015
The basic dislike that Scots have for other Scots is far stronger Bert. And the longer that this ridiculous farce continues the more polarised politics will become up here. It’s embarrassing to admit this but I can’t stand the sight of SNP socialists. There is no compromise possible now.
However, the Conservative Party and UKIP will pick up larger numbers of votes in Scotland from now on as the election has just proved.
May 21, 2015
Sturgeon and co have already stated that they may be reluctant to pay any national debt or to contribute toward defence. Seems to me they want their cake and eat it too. Why not give them what they want? Take away Trident, that would leave them with a lot less jobs and tax revenue, let them have full fiscal responsibility and but don’t cover any debts they may incur, take away the Barnett Formula and then wait and see if the decisions they have to make regarding raising money make them less popular with the people that voted them in. Many vote SNP but don’t want independence. A nonsense! If Sturgeon had to make some unpalatable decisions then the popularity of the SNP might just diminish. Without them going this problem is just going to continue until they achieve what they want.
I also see today in the Scottish newspapers that Sturgeon wants to be able to veto the block on subsidies for onshore wind farms. Great – that’s all we need. If she wants the rest of the UK to stomp up the money for subsidies (most of which are already paid for in Scotland due to the fact they are obsessed with wind) and ‘community benefit’ or bribes by the developers for local projects then Scotland should be made to pay for the subsidies themselves. All they go on about is selling energy to England at way above wholesale prices. Why should they be able to do this? For the majority of Scots the SNP are bad news but hopefully by giving them what they want when they are not independent will make them less popular.
May 21, 2015
As we can’t even agree here on the exact tax position the parts of the UK contribute and spend, could our host obtain definitive figures from either the OBR or the Commons Library.
For each country we need to know :
how much tax is raised inc separate figures for oil taxes on the part of the N Sea in each country
how much is spent in each country
how much is borrowed pa per head of population
Cost per head of defense and foreign affairs
aything else needed to work out the relative consequenced of all devolution options.
.
May 21, 2015
Government should allocate the same per capita spending throughout the UK. After all, at a given level of income, the collection of tax is the same throughout the UK at present, apart of course for Non-Doms.
If Scotland, in a state of semi independence wishes to spend more money in specific areas, such as heath, welfare, and education, then they should be free to do so by imposing a Scottish only tax to cover it. My one caveat is that the benefit of such extra tax should only go to citizens of Scotland. Being anti English but pro European in education for example is an absolute no no.
The case for the Barnet formula died years ago, even according to Joel Barnet it’s creator.
It should therefore be scrapped so that everyone in the UK operates from the same base line. Should the UK government, decide to fund or support a particular project in any part of the UK, it should be free to do so, as in the past. A semi independent Scotland could raise it’s own tax to do likewise. The ultimate test of Scottish tax raising will be the acceptance of the Scots, who are free to change their government at elections to the Scottish Parliament.
Full financial autonomy for Scotland can only come with full independence, and they would have to find a currency specific to themselves. They have just indicated that they do not want this.
We should not be offering the Scots financial privileges over and above what is on offer to the Northern Irish, Welsh, and English as a bribe to stay in the UK.
May 21, 2015
All English people should be worth the same funding. I suggest Londoner level funding be rolled out across the whole of England.
May 21, 2015
Surely, the quantity of subsidy afforded to Scotland will depend on whether the remainder of the UK, mainly England, wish them to remain in the UK. if they continue to bellyache about the UK, and in any way try to disrupt the working of parliament then it should be pointed out that the Barnet formula, is as described, a formula, and could be changed, downwards. If the Scots are prepared to honour their commitments to the UK parliament, and people, and accept the Union for a generation, as accepted when the referendum went against them – then leave things as they are. No need to rock the boat.
May 21, 2015
John, my compliments to you on ‘trying to square the circle’. I thought that Cameron’s hasty ‘vow’ had already fixed this (continuation of the present Barnett formula) in aspec. I am certain that Cameron’s election style over the SNP has stirred up resentment on both sides of the border which I suspect he will live to regret.
May 21, 2015
John, if Scotland want to be responsible for local raising and spending, then they take full responsibility and release all financial benefits and obligations from the rest of the UK. Exactly like Canada, New Zealand or any other member of the Commonwealth. That is what financial independence means. It would compromise Scotland’s independence for another country to subsidise their budget.
May 21, 2015
Surely the fundamental thing here must be that if the Scotch are going to spend more, the they should bear the pain of it and the cost should fall squarely on their electorate and not on that of the UK as a whole. Nothing else matters.
But, as others have said, when the Scotch mess up their economy they will inevitably blame Westminster and the only solution to this is full devolution; then it will be clear they can only blame themselves. I cannot see what is wrong with devolution; for the rest of the UK the only reasons against it are emotional, not logical.
May 21, 2015
You may feel rather emotional as thousands of ‘New Scots’ pour over the border en-route for London and the Home counties.
May 21, 2015
Thanks for a stimulating blog and thread.
My only comment would be to note the cost of actually running the Scottish government and civil service. Once Scottish devolution starts to accelerate, I would bet that the core functionaries who run Scotland will covertly rush to protect their own positions. For instance, do their civil servants continue to contribute to and withdraw from pooled pension funds? Do SNP MPs have access to pensions underwritten primarily by English taxpayers?
Thus, although the debate may be framed in terms of health and education, there will be other things taking place below the horizon. In Greece, the loans they receive have been, so I understand, first used to prop up the Greek politicians and bureaucracy. I would imagine a similar Scottish phenomenon.
Regarding education, note the senior academic from Scotland who lamented the dangers to Scottish research of being cut off from the ESRC, AHRB and other research councils. The anti-nationalists realise the dangers of being locked out of UK resources. The blinkered nationalists don’t see this.
May 21, 2015
Really I would prefer not to be experimented on by a far-left self-proclaimed regional government Dr Redwood.
A Conservative national government has just been elected and that is the only government that I recognise. I do not accept the authority of an insurgent group of extremists in Scotland whose intention is the destruction of my country. The legitimate government is at Westminster, elected by the British people and this government has a responsibility to hold the nation together and not to cede power to an unrepresentative faction within the UK as a whole.
The SNP have created massive resentment in England, much of it justified. Eventually, the Scottish ‘parliament’ will be dissolved but until that happens these questions of finance will become ever more confusing, complicated and unworkable.
May 21, 2015
“…a single country with a single currency is a transfer union, switching money from rich parts to poorer parts, and insuring parts of the country against economic adversity.”
That’s a JR quote from a recent posting BTW. If we keep this in mind it helps us get a proper perspective on what is “fair” and what isn’t. In any currency union there is a tendency of money to gravitate to the wealthy areas. In the USA, a successful currency union, the wealthy areas (apparently New Jersey is the wealthiest) will have an unemployment rate of a couple of percentage points lower than their national average (of about 5.5%) whereas the poorer areas will have an unemployment rate a couple of percentage points higher. We could look a typical income levels in these regions. They’d be higher in the wealthy areas and lower, by a certain amount, in the poorer areas.
In an unsuccessful currency union, like euroland, there is still that same tendency for money to gravitate to the wealthy areas. Bavaria, in Germany, Luxembourg, Monaco (outside the EU) are probably amongst the wealthiest. There is a lot more than a couple of percentage points of difference between unemployment rates in Luxembourg and Greece. That’s because there are hardly any direct fiscal transfers.
So, all we need to do, to judge on the fairness, or otherwise, of the system of fiscal transfers is to establish an index based on unemployment levels, income levels etc in the UK too. Leaving Scotland to one side for a moment, we could look at the situation in Northern Ireland. I don’t believe there is the slightest evidence that people in Northern Ireland are, on the whole, any more or less industrious than people in the South of England. But, we know from our experience that levels of employment and income levels in Northern Ireland are much lower there.
That’s because there are, I would argue, insufficient fiscal transfers. If the fiscal transfers were increased, the differences would be smaller. It is probably being too idealistic to ever expect that unemployment rates would ever be equalised in NI and the SE of England but we could set a rate difference of, say, 2-3% which we might consider reasonable.
So if the difference was more than that, or the difference based on some other index, then we could increase fiscal transfers. An, vice versa of course.
That’s how it should work in Scotland too. Of course if it proves impossible to negotiate a workable formula, the Scots would have the choice of full independence. They shouldn’t make the same mistake the Republic of Ireland made though. For many years, after they gained independence, they crippled themselves economically by using the pound or tying their pound to the UK pound. They’d have done much better by having their own fully floating currency.
May 22, 2015
The world is constantly changing, and previously reliable sources of prosperity can quite suddenly disappear, and if the government of a country wishes to hold the country and its people together by willing consent rather than by force then it must not only act to counter the impoverishment of people in certain areas or in certain classes but also be seen by them to be making genuine, well-intentioned attempts to do so. Tory governments may have made genuine attempts to do that in the UK but without being seen to be doing it or to even want to do it, after all its members casually talk about (disobliging comments on people from various parts of the Uk that I do not recognise as Tory views ed), while the Labour party has unscrupulously taken every opportunity to stir up dissatisfaction and disaffection wherever it can, even when genuine efforts are being made to address the problems. There is in my view an ingrained lack of patriotism in both parties, their narrow party interests and the even more narrow personal interests of their leading members are seen as being far more important than the interests of the country as a whole.
May 22, 2015
“(disobliging comments on people from various parts of the Uk that I do not recognise as Tory views ed)”
But quite often in comments on the Conservative Home website, JR.
May 22, 2015
Denis,
Yes I think you’re right. The Conservative and Unionist Party has morphed into an English Nationalist Party. Many Conservative party members, including, I would suggest some MPs, view the Scots, rather than just the SNP as the political enemy. That’s really not acceptable in any supposedly Unionist Party. We saw that particularly after the 2010 election when the democratic legitimacy of Scottish Labour MPs was questioned.
The post war Conservative government was generally progressive in its outlook. It pursued a policy of economic growth first and foremost and didn’t revert to pre-war failed neo-liberal policies once hostilities ended. Consequently the UK enjoyed very low levels of unemployment. It was hardly ever more than about 2%. Not in Northern Ireland though.
Governments, of both parties, were asleep to the problems there. Religious discrimination was rife. Economic performance was poor. That could and should have been rectified at an early stage. If it had, the bill would have been much less than it turned out to be once hostilities openly erupted in 1968.
The situation today is not quite so bad but nevertheless unemployment rates, particularly among the young, in Northern Ireland are worryingly high. One simple way of ensuring fiscal transfers in any currency Union is to move government out of the Capital city into the regions. According to ONS there are approximately 75,000 civil service jobs in London. How many of them really need to be there? With modern communications office jobs can be done just about anywhere and there’s no reason that many of them couldn’t be done in the economic regional blackspots.
Then there’s other government spending on education and health too which could be gradually shifted out of London and into the regions. Is there any reason why we couldn’t have a world class hospital in, or close to, West Belfast?
Reply There has been a large move of government activity from London and SE to other parts of the country. High public sector dependence is a characteristic of the Celtic economies. The last 7 years have seen higher pubic spending and higher borrowing than in the golden years of your memories.
May 21, 2015
Surprise Surprise, Immigration is up again, 318,000 net and rising.
Today we have DC running around, talking the talk, but failing to face up to the reality of how to effectively control it. I suppose it gives the press something to report and film. Stocking fillers of no discernible value.
I have said before that excessive immigration is just a symptom of belonging to the EU and having no useful control of our borders. Such membership negates the means of control, it also has the added value of making DC and the government look stupid.
The effective solution is to reclaim our sovereignty, sold by successive governments for a few pieces of silver. They cannot even point to an advantageous trade surplus, we are in arrears to the EU. Leaving the EU and joining EFTA/EEA would lose us nothing trade wise. In fact it would be a positive gain in our trade with the rest of the World because we would be free to draw up our own agreements. It would also give us our country back in just about every way you expect a sovereign country to have control, it’s borders being but one aspect of a nation state.
May 21, 2015
Are you so sure “we would be free to draw up our own agreements”? The new government, even once outside the EU, would likely sign to a TTIP-type agreement, and this would be mainly designed, not by the government, but by corporations, with little input from Parliament.
However, I agree that staying within the EU is not a solution as TTIP is the brainchild of the cooperation EU-USA (following the failure of the previous attempt, the MAI (multi-lateral agreement on investment).
May 21, 2015
You all miss the point – they are not immigrants. Under the EU they have freedom of transfer to live anywhere within the EU as EU citizens!
We cannot ‘block’ our borders against them!
May 22, 2015
Malleable Iron Dave has made another big promise today.
May 21, 2015
Just wondering if the Contract For Difference strike /price difference will be considered a subsidy. This is one way Cameron could get around this problem if he isn’t serious about turning our energy policy into one of pure common sense. I know there will be many disappointed Tory supporters if he reneges on his promise to get rid of onshore wind. The CDF prices are still way above market prices for energy so must be considered a subsidy whichever way you look at it. Hope we don’t get let down.
May 21, 2015
This is very complex and its easy to highlight problems and offer no solutions.
I would worry that with their left tendency they may wish to raise tax rates on the better off and thus reduce tax reciepts but claim it has increased them. The Lawson 88 budget where 60% was reduced to 40% higher rate and brought in more due to increase in effort. How could a reduction in effort and therefore decline in tax base be “proved” when it goes the other way.
Also the state funded HMRC at Cumbernald. That is a huge employer. Should this not be moved back into England / Wales / Northern Ireland as I’ve no wish to outsource potential employment to a devolved region.
It’s also high time that Falmouth is set up as the new Trident base. I accept that there is complexities around this.
Some sort of splitting needs locking in at current ratios for what becomes their tax and spend and the UK funding and taxation should ebb and flow as a whole in proportion the the day od the split but their area of devolved fiscality (Is that a word?) should find its own level. If they over spend its up to them to borrow and finace it themselves. It should not be a more “centre right” UK that underwrites a socialist regime.
Of course socialists love other peoples money tho….
May 22, 2015
“Also the state funded HMRC at Cumbernald. That is a huge employer. Should this not be moved back into England / Wales / Northern Ireland as I’ve no wish to outsource potential employment to a devolved region.”
Well, it’s Her Majesty’s HMRC, as the Head of State of the whole United Kingdom not just England/Wales/Northern Ireland, and I don’t think she’d be particularly pleased to see you objecting to it being based in Scotland.
May 21, 2015
I have Just read that the Barnett formula was only a temporary measure , but has lasted 36 years , yet all 3 party leaders signed up for its continuation .
May 21, 2015
If Sturgeon wants full fiscal autonomy, then call her bluff and give it to her. Let’s see how she gets on.
But at the same time, ‘full fiscal autonomy’ means no money from the rest of the UK at all.
May 23, 2015
” ‘full fiscal autonomy’ means no money from the rest of the UK at all.”
What about the proceeds of QE? If we consider that to be a way of the BoE funding the Treasury by the direct issuing of cash, as many do, why would, or should, the Scots be excluded from having their share too? The name of the BoE isn’t to be taken too literally!
May 21, 2015
“The other route is to deduct the present amount of tax revenue raised in Scotland from the taxes that are being devolved, and to increase that amount annually by the amount those tax revenues go up in the rest of the UK – a new Barnet formula for revenue.This works fine unless and until the rest of the UK changes the rates or does something structural to the tax, when the grant deduction would need to be recalculated somehow.”
I like this idea where by the second part of the above would mean a delayed consequential payment or deduction when the and if the change to the UK rate is made. The calculation made would need to be after a year at least and then adjustments made perhaps over a period of say 3 years to allow for fluctuations. So the consequential payments or deductions delayed and spread to lessen immediate impact and give accuracy.
An index of past performance on tax I don;t think would be satisfactory, it’s a dynamic economy and could throw up large anomalies in future.
One area it is open to issue could be as an example Scotland raising the additional rate tax resulting in higher revenues from investment vehicles or less from greater offshore investment which could be part of the bloc taxation. With Scotland accounting for under 10% I suppose it’s not a major hit either way once amalgamated to the bloc areas of taxation?
May 21, 2015
The Barnett formula was a cludge of a compromise. Rather than attempt a more complicated compromise, and have a festering sore point between england and scotland for the next 30 years, I would give them full fiscal independence to raise and spend taxes, with the caveat that they cannot expect thevrest of the UK to bail then out when the next downturn in the economy hits. Insist the experiment will have a lifetime of a decade before they can re integrate back into the union fiscal revenue funds. I have yet to hear how anyone could divide up the bloc grant that comes from the communal pit of collected tax and differentiate this from Scottish raised tax. Any attempt to divide this up will likely involve compromises that make the Barnet formula look like a beacon of reasonableness!
May 21, 2015
I for one have no helpful thoughts. It seems to me that what is proposed by the Smith Commission following the promises made to Scotland shortly before the referendum will result in a ludicrously complex fudge which will satisfy no one and serve no purpose except (possibly) to postpone the end of the Union until David Cameron is no longer Prime Minister.
Either give Scotland no more tax raising (and tax regime competing) powers and reduce the block grant to a level which is not manifestly over-generous to Scotland (take away the Union bribe) or give Scotland full fiscal autonomy and no external grant or transitional funding. The cracks in the Union will not be repaired by accounting dodges and wheezes or even more opaque fiscal arrangements than we have already and the more these are attempted the bigger the mess we will all get into. We are in a constitutional and fiscal hole,.The least our government should do is stop digging.
May 21, 2015
Dr JR, let us start with the premise that if it wasn’t for Lynton Crosby, Cameron would never have obtained an outright majority, or even been leader of the largest party in the Parliament following the GE. In essence, Cameron’s government is Crosby’s creation and arguably Crosby is the most influential, but not powerful, man in the UK. Power has of course been devolved to Cameron through the electoral process managed by Crosby.
As Crosby is an Australian who has operated within the highest level of the Australian polity, it makes sense for the British political elite to spend as much time as possible looking at the structure of the Australian tax system, together with the disbursements made by the federal government to the Australian states and territories. Australia is relevant in this regard because its tax regime is similar to the UK in terms of the categories of tax, and the Commonwealth has progressively withdrawn the taxing powers of the states, formerly colonies, to replace them with the equivalent of a block grant. This block grant is funded by the Oz equivalent of VAT, the Goods and Services Tax. All revenue from the GST is paid out to the states. The states are also allowed to levy their own stamp duty on property transactions at rates they determine as well as charging royalties on mineral revenue from mining and quarrying. The states are not allowed to impose income taxes, corporate taxes, and capital taxes. Thus there is no race to the bottom with states competing for business investment and settlement at ever lower tax rates.
Before Cameron races off to Scotland yet again with ever greater offers to appease Sturgeon and her SNP constituency, he should have in mind a blueprint that works and which he should be able to use as an authority in his own negotiations. Lynton Crosby will no doubt be able to offer a compelling briefing paper. At present the bribes offered to Scotland are self-defeating for the Union, as they continue to validate votes for the SNP as a source of ever greater largesse for the Scottish voter. This must stop.
Reply The most powerful adviser to the PM is Mr Osborne, not Mr Crosby. Mr Crosby does not try to make the Uk into another Australia.
May 22, 2015
If you’re going to look to Australia for guidance then I’d suggest looking at their immigration policy, which makes a fixed number of immigration places available each year with a points system for their allocation, rather than the UK policy of waiting to see who turns up and then letting them all in regardless of whether we want that many immigrants or we want those particular immigrants.
May 22, 2015
‘Mr Crosby does not try to make the Uk into another Australia. ‘
Reply to reply. But the fundamental problem remains unresolved – that the UK has become a part-federation by virtue of Tony Blair’s partial devolution. There are three options:
1) Revert to the former unitary state as suggested by Max Dunbar
2) Do nothing and muddle through
3) Federate the UK and introduce an English parliament.
Adopting 3) enables constitutional equality between the four components of the Union, and the vast intellectual energy being expended on budgetary solutions to the current clearly unsatisfactory set up will no longer be needed. If Australia is an inappropriate blueprint (they do speak a form of English so the docs are easy to read), for competent linguists federal Germany and federal Spain will do just as well. Both these EU nations have well defined models of federal-state relations.
The priority is surely to determine which constitutional model the UK should follow, adopt it and everything will be resolved, for better or for worse. In the current situation the SNP are going to exploit every grievance they can devise on the basis of every anomaly they can discover. Massive energy will be wasted countering their arguments. Until the foundations of the UK are sound, the house cannot be rebuilt.
Reply That is precisely what the main parties are arguing about in the new Parliament. IT will not however be possible to impose a rational blueprint which simply solves it , as it will evolve under various political pressures.
May 24, 2015
Thank you for your reply, Dr JR. One hopes that Cameron, as chief salesman of the UK, has a clear idea of where to head, constitutionally. In view of his propensity for tactical thinking, it is hard to imagine that he will grasp and implement a strategic concept.
However, given the similarity between the SNP’s campaign to extract a better deal from the UK, and the UK’s own objective of obtaining a better deal within the EU (Cameron will not seriously countenance Brexit), it is possible that Mr Cameron’s meetings with M/s Sturgeon could trigger the required epiphany.
May 22, 2015
Off subject slightly, it looks as though the weekly meeting for a pint in the out of town boozer is going to become another fond memory, as England and Wales are being pushed to follow Scotland and lower the limit to 50mg. This would mean even one pint could result in the harshest punishment in Europe, which has graduated fines. The Police Federation’s Mrs Martin thinks that women drivers are confused about how much they can drink and therefore the limit should be lowered for all so that, presumably they would not drink at all. The rate of conviction for men has continued to fall but why not stop them from having a pint too?
You have to agree that the statistics show the nature of the problem. DfT stats show that in 2014 there were 165,708 accidents with injury and 52% were breathalized, of which 1.7% failed. The figures do not indicate which person caused the accident and it seems to be assumed that it is always the one who has had the drink and is driving. If a drunken pedestrian falls in the path of a car and the driver has had two pints, then it is the fault of the driver.
Country and town pubs are closing anyway, so why not encourage the end of this dangerous pleasure and live our lives like like good Presbyterians. And while we are at it why not address the problem of the other 98.3% and ban tired, drugged, old, and stupid drivers, along with anyone with poor eyesight, slow reactions and poor spacial skills.
You know it makes sense. Accidents don’t just happen and one death is too many.
May 24, 2015
The key objective must be to introduce a system that is as transparent, fair and simple as possible.
At one extreme, all taxes could be devolved. The UK government would maintain two sets of accounts – one covering UK-wide expenditures and the other covering expenditures relating to devolved activities. The UK government would then levy a precept on Scotland to pay for Scotland’s contribution to UK-wide government activities as a simple percentage of GDP.
If we then moved to a federal UK, the UK government would then only need to maintain one set of accounts – the other set would be the accounts of the English, Welsh and Northern Irish devolved governments. The UK government would then also levy a percentage of GDP against the other devolved governments.
The other approach would be to hypothecate taxes – e.g. corporation tax, financial taxes etc being levied by the UK government, with income and property taxes levied by the devolved governments. If the tax base for the UK government was too narrow, it could raise levies on the devolved governments. If the UK tax base was too wide then block grants could be provided to the devolved governments (e.g. per head of population, adjusted for GDP per head to assist poorer areas).
My preference would be for ‘too wide’ rather than too narrow, as this then gives the opportunity to distribute income across a currency union. As a business owner, I would also prefer that VAT and corporation tax remain set by the UK to avoid the need to operate different systems in different locations.