Now the negotiating begins in earnest to try to settle the country around a new devolution settlement. Of course that settlement has to be fair to England as well as to Scotland. Today I want to ask how the main parties think the money will be managed for Scotland.
During the campaign the Better Together parties appeared to offer more tax raising powers and more borrowing rights for Scotland. The three leaders – and Mr Brown – also clearly promised to keep the Barnett formula so Scotland can carry on spending more per head than the rest of the UK. How do these three things gel? What do they mean for English taxpayers?
Under the current dispensation Scotland can raise additional Income Tax by imposing a 3p in the pound surcharge and spend that. It has chosen not to do so. It can borrow an additional £2.2bn for additional capital spending, with permitted annual increments of £240 million.
The Liberal Democrats and Conservatives offered to Scotland control over all its Income Tax. Labour offered control over three quarters of standard rate Income tax. Presumably the grant will be reduced by the amount Income Tax raises in Scotland on the handover of the tax raising power. Presumably this will be projected forward, so if Scotland enjoys a windfall of extra Income Tax or if it changes rates to raise more Income Tax it will benefit from that. Presumably also if Scottish Income Tax falls short of expectations English taxpayers would not have to make good the shortfall in order to fulfil the Barnett pledge – or would England be required to take the risk of tax revenue shortfall? We need clarity on this important detail. From the English viewpoint we would expect Scotland to spend less if it raises less in Income Tax, and would not wish to top up the UK grant to them if their Income tax receipts fell short.
The current borrowing powers allowing up to £2.2 bn extra are in the present public spending and borrowing figures for the UK. If Scotland is to be given wider powers to borrow against its own Income tax revenue this will have a knock on effect on the rest of the UK. Will England have to borrow less if Scotland decides to borrow more? Or will the UK government automatically increase the annual UK borrowing total if Scotland does decide to borrow more?
Meanwhile, the English government will also expect similar powers. We will wish to set and control our own Income tax, and will expect a proportionate borrowing limit for our capital projects.
What are your thoughts on what would be a fair financial settlement for England and Scotland?