Professor Anton Muscatelli, principal and vice-chancellor of the University of Glasgow, assured attendees at a Stevenson Trust lecture last week that the fiscal framework for devolution is a good deal for both the Scottish and UK governments. Muscatelli explained the framework options both parties had available to them and outlined his preferred fiscal arrangement as well as the consequences each would have for devolved budgets.
Professor Muscatelli said; “The past year has seen a huge amount of political debate and intense negotiations on something that few people might otherwise have been concerned about. Yet getting the fiscal framework of the Scotland Bill wrong would, in my view, have been disastrous for public services in Scotland. At worst it could have cost up to £7 billion over the coming decade.”
“I believe that the deal now secured is a good one for both the UK and Scottish taxpayers. It will ensure a sound basis for the future funding of the things that we all rely upon, such as the NHS, schools and the police.”
“The UK and Scottish Governments were right to take time to work through the detail. They were right to look at every aspect of a deal that will now make the Scottish Parliament one of the most powerful devolved institutions in the world. And they were right to ensure that the Fiscal Framework gives clarity to the Scottish Parliament for the next parliamentary term.”
Professor Muscatelli gave evidence as an economist to the House of Commons Scottish Affairs Committee on this issue last month. He highlighted in his remarks that the grant the Scottish Government receives from the UK Government will be cut to ensure that tax rises in England does not unfairly lead to higher spending in Scotland.
He told audience members, ‘The Smith commission agreement provided the framework for the negotiations between the UK and the Scottish governments on fiscal matters. This agreement stated that the Barnett formula would still determine the block grant and that the Scottish Government’s budget could not be worse off as a result of powers being devolved. The tax-payer fairness principle was also stressed, this ensures that an increase in investment by the central government that comes from raising a devolved tax does not imply more money for the Scottish Government. ‘
Professor Muscatelli also said in his lecture, “The Smith Commission no-detriment clauses are complex and required much detailed and technical discussion. It is a very good outcome to see a considered resolution by the two Governments which addresses these formal requirements without exposing Scotland to unacceptable additional demographic risks.”
Proffesor Muscatelli also commented on the VAT assignment the Scottish Government is getting from the UK Government and questioned how to accurately identify the amount of VAT is raised in Scotland: “Living Cost and Food surveys are limited in scope and might not capture positive effects of tourism on Scottish VAT receipts.” Scottish government spending.
The principal and vice-chancellor also outlined the principles that should govern the fiscal framework. He stressed the need for transparency as the block grant adjustment’s impact “is difficult to explain (…) to the general public.” He remarked that the asymmetry of power between the Treasury and Holyrood could be compensated by a fiscal arbitration mechanism that “would not be impossible to design and would not be expensive to set up”. He also thinks the stability of the framework over time is a key issue.
Lectures from the Stevenson Trust in the next months will focus on issues ranging from the Holyrood elections in May to the EU referendum in June. Speakers will include Professor John Curtice, a political scientist at Strathclyde and chair of the British Polling Council.