Assessing the financial impact of the Scotland Bill : problems of Scottish Government accounting

Midwinter, Arthur (2011) Assessing the financial impact of the Scotland Bill : problems of Scottish Government accounting. Fraser of Allander Economic Commentary, 35 (1). pp. 42-45. ISSN 2046-5378

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Abstract

The Scotland Bill contains proposals based on the Calman Report to remedy the major financial weakness of the 1997 devolution settlement – namely its limited tax-raising powers. The new funding model will combine Block Grant with new tax revenues from a Scottish Income Tax, a Scottish Land Transaction Tax and a Scottish Landfill Tax. However, it has been heavily criticised by the Scottish Government for having a "long-term deflationary bias". This is a strong attack on a model intended to maintain stability and promote accountability in devolution finance. The current approach is embedded in the UK fiscal framework, in which the UK Government has responsibility for the planning and control of the public finances, and resource allocation to UK Departments and Devolved Administrations. The Scottish Budget therefore benefits from "an automatic macroeconomic stabilisation level and a public expenditure per capita substantially above the UK average". The UK Budget process provides a high degree of stability. It operates through incremental change, in which the major part of the new budget is the existing baseline, and decisions are made around the margins of this budget base. In the case of the Scottish Budget, incremental adjustments are made through the Barnett Formula which delivers the same per capita increase/decrease as comparable UK programmes, and has delivered "stability and predictability" since devolution.

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