Smith Agreement "best of both worlds" for Scotland
10 March 2015
In a report published on Tuesday 10 March, the Scottish Affairs Committee says the Smith Agreement represents the best of both worlds for Scotland and its people, giving much greater fiscal autonomy and accountability, but maintaining a good degree of protection within the wider UK economy from fiscal risks and shocks.
- Report: The Implementation of the Smith Agreement
- Report: The Implementation of the Smith Agreement (PDF, 470 KB)
- Inquiry: The Smith Commission: Proposals for further Devolution to Scotland
- Scottish Affairs Committee
The Committee welcomes Lord Smith’s statement that "all five parties signed up to every word that is in that document."
The Scottish Government is calling for full fiscal autonomy, but the Committee concludes:
- Fiscal autonomy would deliver additional powers but would expose Scotland to greater risks.
- Under full fiscal autonomy Scotland would not only lose £8 billion in additional funds that are delivered via the Barnett formula and block grant but would replace the security of Barnett with volatile oil revenues which are not within the Scottish Government’s control. The recent collapse in the oil price would have been disastrous for a Scotland with full fiscal autonomy.
- The majority of the people of Scotland voted to retain the safety net of the UK’s broad tax base, and the Smith Agreement respects that decision.
- Full fiscal autonomy would expose Scotland to increased financial risk and an immediate hole in its budget of £6.5 billion – equivalent to over half of Scotland’s spend on healthcare.
- For the first time “the majority of the money spent by the Scottish Parliament will come directly from revenues raised in Scotland”, making it more fiscally accountable.
- Significant powers over welfare will be devolved including the hugely important power to increase every each and every benefit by as much as desired.
- Scotland will continue to benefit from pooling risk and resources across the wider tax base of the whole of the United Kingdom, protecting it from shocks in Scottish revenues or expenditure.
The Committee also found that: "the idea that the draft clauses contain twelve vetoes is a ludicrous one."
Consultation between governments
The Committee says the Scottish Government has sought to conflate the need for consultation between governments, a basic requirement for good governance within a framework of devolved and central government, with the idea that the UK Government could impose restrictions. It accepts the Secretary of State’s view: "There are no such vetoes."
The Committee says that regrettably, the UK Government has failed to rebut these claims with sufficient vigour. It calls on both Governments to do better and work together constructively and in good faith to deliver a new devolution settlement for Scotland that is transparent, robust and fair to both sides.
In this context, the Committee recognised the potential complexity of implementing these proposals, particularly the "no detriment" clause and the consequential scope for the politics of grievance. The mechanism for compensatory payments will need to be proportionate, fair and based on independently verified data.
Ian Davidson MP, Chair of the Committee, said:
"This transfer of powers and resources to the Scottish Parliament is very welcome, and strikes the right balance between our twin desires: for both further devolution and financial security, while also respecting the Referendum decision.
Now we need to hear what should be done with these new powers, particularly the opportunity to increase, by any amount, each and every benefit and to change all tax rates and bands."