Category Archives: Whitehall

What follows the referendum: the process of negotiating Scottish independence, or of delivering Devo More

Back in May, I gave a lecture at the University of Ulster’s Belfast campus about what might follow the vote in the Scottish referendum. I’m afraid I’ve only now had the chance to tidy that up for wider reading. It’s available on the Social Science Research Network here, or can be downloaded directly HERE. The lecture as a whole is somewhat lengthy (around 10,000 words), so this post picks out the key points.

Perhaps the most important and novel part of the lecture is the second one, where I map out what would follow a Yes vote – the sort of steps needed, particularly on the rUK side to tackle the many uncertainties that will follow. This is a separate issue from that of the strengths of each party in the negotiation, discussed HERE earlier in the week.  This would call for a great deal of imaginative thinking, in the midst of a first-order constitutional crisis. In particular, it seems to me that:

  • The negotiating process needs to move with all due speed, to preserve the democratic legitimacy of both rUK as well as an independent Scotland. There is no good reason for rUK to seek to prolong the process, and plenty of reasons for it not to.
  • The 2015 UK General election presents grave problems for that – the time lost to campaigning in an election and briefing a possible incoming new government means it will be impossible to make a proper start in negotiations before June 2015, since even provisional agreements reached under the present government might lack support from the new one.
  • One option – which appears to be gaining some support, particularly among Conservatives – is to postpone the 2015 election. But the present government has already been in office for 4½ years, and has no mandate to negotiate something so important to rUK as Scottish independence.
  • A better option would therefore be to hold a general election early, before the end of 2014, so there was both certainty about the composition of the UK/rUK Government and that government had a political mandate for independence negotiations. This would need approval by a two-thirds majority in the Commons, under the Fixed-term Parliaments Act 2011.
  • Those negotiations will not be quick or straightforward – not just because of the difficulty or complexity of the issues to be considered, or how trade-offs might be made between issues, but because they are a matter for parliaments as well as governments. Parliaments will need to approve legislation giving effect to the final outcome, and in Westminster’s case also to authorise much of the necessary preparation on the Scottish side. There will need to be close co-operation between governments and their parliaments, both to ensure proper democratic control and accountability in the process and to simplify the process of approving the agreement at the end of it.
  • A special UK Parliamentary committee, probably mostly meeting in private to preserve the confidentiality of proceedings and negotiating positions, would be an important way of helping to accomplish that.
  • There would also be problems about the involvement of Scottish MPs and ministers in the independence process on the UK/rUK side. It would be contrary to the interests of the people of rUK for MPs sitting for Scottish seats to be involved in that process; as those negotiations affect first and foremost the people of England, Wales and Northern Ireland, only their representatives should be involved – whether in negotiating teams, Cabinet or Cabinet committees when considering independence-related matters, or when those are considered in Parliament. This is the West Lothian question on steroids.
  • The need to ensure a broad consensus of support within rUK for the agreement also means that the Opposition – whoever it may be at the time – will need to be involved in the process. In particular, figures from the Opposition should be included in the rUK negotiating team, and party leaderships kept abreast of all issues under consideration. Again, while this complicates the process of the negotiations, it will simplify the process of approving and implementing an independence agreement.

Much of this sits oddly with usual British constitutional practice. But a Yes vote would trigger extraordinary times, and a need for extraordinary measures to cope with an unprecedented and very difficult situation. (Observant readers may note the considerable overlap between these recommendations and those of the Lords Constitution Committee’s report on Scottish independence: constitutional implications of the referendum - which was published after I gave the lecture.  I do differ with the committee’s conclusions about the compostion of hte UK negotiating team and timing of the 2016 election, however.)
As far as a No vote is concerned, the lecture maps out the programme that was clearly being advanced by the Unionist parties in May, and advanced by the IPPR’s Devo More project: separate party policies, cross-party agreement on the key elements of that, early consideration of them following the referendum and implementation through endorsement in the 2015 election manifestoes. That process would clearly need to include the SNP as well as the pro-union parties, unless the SNP chose not to take part. Since I gave the lecture, the Scottish Conservatives have published their proposals in the form of the Strathclyde Commission report (and I have amended the text to reflect that). Subsequent developments have hardened the commitment of the parties both to the need for joint action and a clear timetable, as well as a Scottish-focussed process to agree the main features of ‘enhanced devolution’.
None of this is about simply ‘giving Scotland more powers’. It is about getting devolution right, so that it enables Scottish voters to have what they have wanted for more than a decade: extensive self-government within the Union. That will benefit other parts of the UK too, and not just by achieving a greater degree of constitutional stability. It will ensure that if Scottish taxpayers choose to spend more on devolved Scottish services, they bear the fiscal consequences of that; this would not be at the expense of taxpayers outwith Scotland.
There is, however, a clear need for that to be followed by a wider process covering the whole UK, and the best way to achieve that would be through a conference of members of the UK’s parliaments and legislatures; MPs, MSPs, AMs and MLAs. This is the idea underpinning the Strathclyde Commission’s recommendation for a ‘committee of the parliaments and assemblies’ . Through their election, these figures all clearly have a mandate and authority that other methods of selection would not give them.
Whatever happens on 18 September takes the UK into new and uncharted constitutional waters. It is important that everyone understands what is likely to follow, and what the world is likely to look like in a few months’ time.

This post also appears on the UK Constitutional Law Association blog, here

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Negotiations after a Scottish referendum Yes vote

In just over a week’s time, Scottish voters will choose whether Scotland should become an independent country outside the United Kingdom, or remain a devolved part of the UK. It’s a big decision, but they should not think that the referendum vote is the end of the matter. In reality, it is only the beginning. The pro-union parties have long made it clear that a No vote will start the process of delivering a form of enhanced devolution; a Yes vote will trigger a process leading to independence, about which there are few other certainties.

Much of the campaign in the last few weeks has been about creating a different sort of politics, and a different approach to social policy, within Scotland. But at least as important for Scotland as an independent state is the nature of its relations with the remaining part of the United Kingdom (rUK) – its much larger southerly neighbour, its main economic and trading partner, with which the Scottish Government aspires to share a currency, ‘social union’ and much more. All those plans are predicated on a close and amicable relationship with rUK, with Scotland able to enjoy the continuing benefit of a number of services that the UK presently offers to all its citizens.  The question is: can that vision actually be delivered? Even if that model t is the interests of an independent Scotland, why is it in the interests of rUK, if Scotland chooses a future outside it? If it is not, why should rUK comply with independent Scottish wishes – why is it in rUK’s interests to do so?  And, given the differences in interest in securing that outcome, how might an independent Scotland make it happen?

If there is a Yes vote, there will be a complex and messy set of negotiations between referendum day and independence day. Before those negotiations can start, and certainly before the Scottish Government can talk to any entity outside the United Kingdom, a paving bill permitting it to do so would need to be passed by Westminster. At the end, following those negotiations, both UK and Scottish Parliaments will need to approve the resulting deal. Not all the issues that need to be resolved between rUK and an independent Scotland (iScotland) will be resolved by independence day. Indeed, if the Czech-Slovak parallels are anything to go by (and that was a much simpler case), they will not be fully resolved for at least two decades. That does not mean Scotland cannot become ‘independent’, but that independence will indeed be a process not an event, with many issues falling to be resolved only months or years later. However, for an independent Scotland to start functioning as an independent state, some key top-order issues have to be resolved. Prominent among these are:

  • the currency the new state will use, and who bears the risks associated with that
  • the borders of the new state – particularly its maritime borders, which will affect oil and gas reserves unless a distinct arrangement is made for these.
  • the arrangements for movement of persons between rUK and the new state, both at the border and more generally
  • whether, when and on what terms the new state will be or become a member of the European Union
  • the division of the UK’s current National Debt
  • the division of other UK assets and liabilities – ranging from defence infrastructure to museum and gallery collections
  • what happens to the existing UK nuclear bases on the Clyde
  • if rUK is to continue to administer welfare and pensions payments in Scotland for some transitional period, the basis on which it will do so
  • the means by which outstanding issues are resolved, and what happens if the parties cannot reach agreement by negotiation.

A good deal could be said (and has been) about the merits of each individual issue, and many others besides. (For example, how will benefits or pensions be paid to Scottish claimants or recipients the month after independence? If, as is proposed, rUK continues to provide that service to Scottish citizens, why should it do so?) But resolving each of them, and the relationship between them, which will shape the overall nature of an independent Scottish state, will largely depend on the negotiations with rUK. That is key to the ‘velvet divorce’ the Yes side has suggested would be part of independence. However, successful negotiations depend on each side being able to reach agreement, because each has something the other wants. So how likely is an independent Scotland to secure what it wants from those negotiations? What does it have that rUK would be likely to want? And what does an independent Scotland have that rUK wants?

The common response from the Yes side is to talk about a Scottish ‘mandate’ for independence.  But that is largely irrelevant here, at least on the rUK side. So is referring to Article 30 of the 2012 Edinburgh Agreement which has led to the referendum, and commits the two governments ‘to continue to work together constructively in the light of the outcome, whatever it is, in the best interests of the people of Scotland and of the rest of the United Kingdom.’ A mandate authorises the iScottish side to negotiate; Article 30 means holding negotiations about independence in good faith, and ensuring independence happens – not the terms on which it does so.

If the parties get to a negotiating table, the list of what iScotland has that rUK wants is short. One is continued membership of the United Kingdom – but that is lost if there is a Yes vote. The legitimacy of a UK including Scotland is ended, with no way back.  The obligations of the UK Government toward its citizens living in Scotland are not ended immediately, but they are attenuated, and as Scottish voters will no longer elect MPs, there is no political advantage in being helpful to them.  The act of having a mandate to negotiate means one key potential negotiating point is completely exhausted from the outset.  That card cannot be played again.

A second is that rUK would not want iScotland becoming a failed state. A failed state on the northern border would pose an unacceptable level of risk, in security and other terms. But even if an independent Scotland were significantly less prosperous, inclusive or happy than it is within the UK, that is a far cry from being a failed state. Indeed, the threshold of failing in the way that Afghanistan or Somalia failed is so high that it is almost impossible to imagine what would undermine iScotland so gravely as to make it a failed state. That is therefore not a strong negotiating point.

Third, there is Trident, while the UK/rUK remains committed to nuclear weapons. The thinking until now has been that the Clyde bases were crucial to that, and that might be a strong card. But it is a weaker card if there is a realistic prospect of relocating them elsewhere, as Hugh Chalmers and Malcolm Chalmers of RUSI have recently suggested. In any case, the commitment of the SNP and the wider pro-independence coalition to a Scotland free of nuclear weapons means the Scottish Government has little or no scope to make an offer to rUK for nuclear weapons bases – whether by lease, some sort of carve-out to mean they would not strictly speaking be on Scottish soil, or some other means. The pro-independence side has little room for manoeuvre here, given the commitments of its supporters. All that might be for discussion is the length of the ‘withdrawal period’, suggested in the Scottish Government’s independence white paper as four years (by the 2020 Scottish Parliament elections). There have been suggestions that this might be stretched (and Chalmers and Chalmers suggest removal before 2028 would be very difficult technically). However, any lease less than about 50 years is of limited value if rUK wishes to commission a successor to Trident based in Scotland – with a shorter arrangement, the bases would need to be moved mid-term at considerable cost and with operational implications. So that negotiating point is worth little too, even if rUK is determined to remain a top-tier nuclear power (and is worthless if rUK gives up on that aspiration).

As for other issues like a common travel zone, these are much more marginal to rUK – and much more important to iScotland. The desire to have an arrangement that minimises the border and its impact is much stronger for iScotland than rUK.

On the other hand, what does Scotland want or need? Its desire to ‘share the pound’ has been clearly ruled out by the UK Government. What is important for Scottish voters to realise is that a currency union transfers a disproportionate degree of risk to rUK. It is very hard for rUK politicians to justify taking on those risks for what would be another country. There might be a huge advantage to iScotland from a currency union – but what does it offer rUK? The convenience factor of lower transaction costs is of very limited importance for rUK and its citizens and businesses.  The January announcement means there will be no negotiation about this – but even if there were, what does iScotland have to offer to compensate rUK for the potentially huge risks it would incur?

Similarly, free movement across the border, a ‘social union’ or access to the BBC may have strong attractions for iScotland, but what do they offer rUK? An open border needs to be structured in such a way that it does not cause any security threat to rUK – which means at least some control over iScotland’s immigration policy. A key element to making an open border work would also be the nature of citizenship of UK citizens living in Scotland or with Scottish connections – something on which the white paper is strikingly silent. A further issue, given English concerns about immigration, it would also have to include limits on the rights of people immigrating to Scotland to move to rUK – so it would not be as open as the UK-Irish border is, or the UK is to people from other EU member states. Similarly, why should Scotland get access to the services of the BBC?  If it wishes to have the BBC (and the white paper makes a set of detailed criticisms of it), it will need to pay rUK for doing so – and why should rUK offer the full range of BBC services to Scottish listeners and viewers for less than those in rUK?  And Scottish residents would also have to fund the proposed Scottish Broadcasting Service as well.  Deals may be done, but on what terms?  The question in such cases is what does iScotland have to offer rUK for making a concession which matters a great deal to iScotland but just not very much to rUK?

The problem with all these issues is the asymmetry.  They simply matter much more to iScotland, and its citizens, than they do to rUK.  No amount of wishful thinking can change that.  Something has to be put into the balance to switch the way rUK calculates its benefit and disadvantage from making such concessions to iScotland.  This is aggravated by the way almost all ‘default options’ will be to rUK’s benefit and iScotland’s disbenefit.  By seceding from the UK, iScotland has to make a case to change the loss of much of what it presently enjoys through the UK which appeals to more than emotion.

One negotiating point iScotland would not have – or which can only be used at hugely disproportionate cost – is not taking a share of the UK’s current National Debt. There is scope for negotiations about the size of that share, how it is calculated and how it is offset against other UK assets. But threatening to repudiate a share of the UK National Debt – as various pro-independence hot-heads, and more recently John Swinney – have threatened is about as counter-productive as one can imagine. If iScotland acts unilaterally, it will make itself an international pariah. If it is able to borrow on the global markets at all, repudiation of debt will mean it incurs a very hefty premium on its interest rates. An ongoing dispute with rUK will impede or completely block negotiations about membership of the European Union, as well as international organisations like NATO. There will be sour, damaging relations with rUK for bilateral matters as well.

By contrast, rUK could be a valuable ally for iScotland in securing membership of such bodies as the EU and NATO. There would be three options for rUK; actively to assist and persuade, to remain impartial and do nothing, or actively to obstruct iScotland. It can be helpful, unhelpful, or sit on its hands.  Each of those positions would have a material impact – active assistance and a ‘velvet divorce’ would make iScotland’s passage to statehood hugely easier, active opposition would make it much harder (but without triggering the real threat to rUK of a failed state).

About the only card left for Scotland is to string out the negotiating process so that rUK makes concessions out of exhaustion and frustration.  But this would mean abandoning the May 2016 target for independence (problematic though that is in any case), souring relations with rUK, and undermining democracy in both rUK and iScotland.  If Scots want to be in a different state, that wish should be implemented as swiftly as practicable – not postponed to suit the convenience of the Scottish Government.

It may be a bitter truth for advocates of independence, but an independent Scotland would remain heavily dependent on rUK in a large number of ways. These ways are important for iScotland, but not particularly so for its much larger neighbour. To secure an advantageous ongoing arrangement, it has to be able to make convincing proposals to rUK that deliver things rUK wants or needs – and the list of those, once there has been a Yes vote, is small. The upsides of a velvet divorce for Scotland are huge, and the downsides of the opposite – a grinding-wheel divorce? – even larger. But once a divorce is happening, its nature simply does not matter much to rUK. If there are independence negotiations, iScotland will essentially be a supplicant to rUK, so weak that it largely has to accept what rUK offers.  Scottish voters need to bear that in mind when they head to the poll.

UPDATE, 13 September: There is a relationship between what is discussed in this post and the discussion in my Belfast Lecture and post above about the impact of a Yes vote on rUK, and the framework for any negotiations.  The fact of the Yes vote will have a considerable, adverse impact on rUK – disrupting a variety of institutions and other arrangements. So in addition to there being little reason to be accommodating to iScotland at rUK’s expense, there will be positive reasons not to.  This is not simply petulance, but an understandable reaction to the damaging effects of a Yes vote on England, Wales and Northern Ireland.  A rupture of that scale has inevitable consequences.

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Guardian ‘Comment is Free’ piece on ‘What happens after a Scottish independence Yes vote?’

Drawing on my Belfast lecture, I’ve a piece in the Guardian‘s ‘Comment is Free’ section on what would happen following a Yes vote in September’s Scottish independence referendum.  I argue that the difficulties with a long transition are very great indeed, and that there are compelling reasons to ensure Scotland becomes independent by the time of the May 2015 UK general election if there is a Yes vote.  That  would be formidably difficult – not only are there are tough and complicated issues to be negotiated and resolved  between the governments, but also legislation needs to be passed by both Scottish and UK Parliaments (and the UK Government would need to pass a paving bill too).  But the problems caused by a longer transition are even more formidable, in my view.

The CiF piece can be found here.

 

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The Silk Commission’s Part 2 report

If ever a report deserved careful consideration rather than an immediate response, it’s the Silk Commission’s Part 2 report.  The product of more than 15 months’ evidence-taking and deliberation, it is a carefully framed, principles-based blueprint for the next step for Welsh devolution.  The full report is available here, and the executive summary (which I must admit to having relied on for this post) is here.  There’s BBC News coverage here, here and here, and from Wales Online here.

The key recommendations are:

  1. devolution of policing to the National Assembly
  2. devolution of responsibility for youth justice, but not the courts or the legal system generally
  3. devolution of planning powers to approve energy projects of up to 350 megawatts, of powers relating to sewerage and the regulation of some aspects of water supply within Wales, and for there to be a Welsh Crown Estate Commissioner.
  4. some further devolution of powers in relation to rail franchising, bus and taxi regulation, and speed limits and drink-driving
  5. appointment of a Welsh member of the BBC Trust (something already in place for Scotland), and control for the Assembly over public funding for S4C
  6. an increase in the size of the National Assembly, noting many calls for 80 members but leaving the issue for further consideration
  7. an enhanced approach to the conduct of intergovernmental relations and the machinery for that. The Secretary of State for Wales would also lose his seat in the National Assembly, his right to receive its papers and obligation to present the UK Government’s legislative programme each Parliamentary session.
  8. perhaps most importantly, a move to a ‘reserved powers’ model for the National Assembly’s legislative powers, away from the current ‘conferred powers’ one, along with a removal of the current and problematic protection of pre-devolution powers of UK ministers.

There are also calls for further study of a number of matters – not just the size of the Assembly and the number of AMs, but also the possible devolution of prisons and the court system.  It sees no need for a further referendum on any of these proposals.

What is notable about this is how cautious it is.  The recommendations eschew a number of more radical calls – for the establishment of a separate legal jurisdiction, or for devolution of the civil or criminal courts, the civil or criminal law, or of welfare.  I argued in my own submission that it would be very hard to establish a ‘reserved powers’ model without establishing a separate legal jurisdiction, and that this could be done without losing many of the advantages of the current shared arrangement.  (See also THIS EARLIER POST on the relationship between a legal jurisdiction and legislative powers.)   I suggested as well that the Welsh Government’s proposals for a reserved powers model would imply a devolved power to legislate for areas like land or contract law (these are omitted from the Welsh Government’s proposed list of reserved matters).  This would achieve the substantive outcome of a separate legal jurisdiction without formally calling it such –which may be the worst of all worlds.

Welfare devolution is another area which would create a number of administrative problems but offers scope for major gains for both governments and for citizens – as we’ll be arguing shortly through the Devo More project.

The Silk proposals are, in essence, an attempt to make sure the division of powers between Welsh and UK institution catches up with reality.  They’re not actually very radical; they don’t take account, for example, of the impact of the September referendum on Scottish independence (whether there’s a Yes vote leading to Scottish independence and a restructuring of the remainder of the United Kingdom, or a No vote resulting in further devolution for Scotland).  Rather like Holtham before it, this is an exercise in bringing Welsh devolution up to date not making far-reaching plans for the future.

However, the proposals do represent a clear consensus across the Welsh political parties about what should happen next.  I’ll shortly be putting up a post about the problems arising from the way the UK Government approached Silk Part 1, and its profound misreading of the political and economic situation in Wales compared with Scotland.  The gravest mistake the UK Government could make would be to cherry-pick these proposals.  The second gravest would be to take a year to decide what to do, especially given that it has a legislative slot in the next Parliamentary session and not using that would mean a significant wait for any action – even though, from his initial reaction (saying a response would be for the next UK Parliament not the current one), that’s just what the Secretary of State seems to intend.

UPDATE, 4 March: Carwyn Jones’s response to the Silk Part 2 report, here, is interesting.  Although Jones calls for a substantial expansion of the powers of the National Assembly and Welsh Government, he appears unwilling to accept the logical implication that greater self-government means no longer being in a privileged position when it comes to UK-wide institutions.  He seeks to maintain the office of the Secretary of State (despite his well-publicised difficulties with both Conservative holders of that post), and the present number of Welsh MPs.  Both cases are poor. For a discussion of the Secretary of State, see HERE.  The latter case is if anything weaker.  Wales is presently over-represented at Westminster; if MPs were allocated to Wales on a similar basis to England, it would have around 32, not its present 40.  Scotland was similarly over-represented in the Commons before devolution, and the creation of the Scottish Parliament saw the number of Scottish MPs reduced to the English ‘quota’.  That meant a reduction from 72 to 59.  This was provided for in the Scotland Act 1998, and (to avoid  a reduction in the size of the Scottish Parliament as well) required further legislation to ‘decouple’ the number of MSPs from the number of MPs.  (Decoupling has already happened for Wales, as part of the abortive plans to reduce the size of the Commons.)

Wales cannot expect to maintain a privileged position at UK level if devolved powers are to be extended.  Carwyn Jones is trying to have his cake and east it.

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After a Scottish independence referendum Yes vote

There has been remarkably little public discussion of what would happen if there were a Yes vote in the Scottish independence referendum.  The widespread assumption seems to be that negotiations would be swift and straightforward, and Scotland would readily become an independent state.  The Scottish Government’s position (previously set out in the February 2013 paper Scotland’s Future: from the Referendum to Independence and a Written Constitution, but repeated in the independence white paper) remains that May 2016 would be when Scotland would become independent.  That is a very simplistic approach; negotiations would be complex, possibly protracted, and gravely complicated by the May 2015 UK general election.  Considerations about timing, and the impact of the referendum vote would affect the strength of the various negotiating positions, as well.

Nick Barber of Oxford University has now written an exceptionally good post about the implications of Yes vote.  I don’t wholly agree with it, but it should be read by anyone thinking seriously about these issues.  It can be found on the UK Constitutional Law Association’s blog, here.

In a separate but related development, the Lords Constitution Committee at Westminster has announced an inquiry into the implications of a Yes vote.  There’s news coverage from the BBC here, and details of the inquiry and its call for evidence here.  The closing date for submissions is 28 February 2014.

UPDATE, 27 January: There’s also a Lords debate on Thursday about ‘The implications for the UK of the forthcoming Scottish independence referendum’.  Details are here.

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Implementing Silk in Wales: an update

The UK Government has now published its proposals for the implementation of the Silk Commission’s Part 1 report, following its announcement at the beginning of November (and so managed to get its response in just before the anniversary of the publication of the Commission’s report).  The Wales Office’s news release is here and the paper itself, Empowerment and responsibility: devolving financial powers to Wales, is here. (Note for government documentation trainspotters: this isn’t a Command paper to be formally laid before Parliament, and certainly not a white paper or even green paper.  This contrasts with both Labour and Coalition responses to Calman, and again suggests either that the UK is not taking Wales as seriously as it did Scotland, or that this is a response framed in some haste.)

Unsurprisingly, the paper largely confirms the key elements of the deal announced by the UK Prime Minister and Deputy Prime Minister, previously discussed HERE: devolution of two small land taxes, devolution of 10 points of income tax, but only after a referendum.  It confirms that, as for Scotland, aggregates levy may be devolved, but only once outstanding EU state aids issues are resolved, and that air passenger duty will not be. Continue reading

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Implementing the Silk Commission’s proposals, and the Welsh block grant

This post also appears on the Institute of Welsh Affairs’ ‘Click on Wales’ blog under the title ‘Havering over Welsh taxation’, here.  I was on BBC Radio Wales’s ‘Sunday Supplement’ programme to talk about it at around 8.30 am on Sunday 21 July, available to listen again here or as a podcast here.

While the Silk Commission carries on work on Part 2 of its inquiry, the UK Government has been deliberating slowly on the Part 1 report.  Promises of an ‘early’ response vanished, as did the commitment to one in the ‘Spring’. The summer solstice came and went, with no response from the Secretary of State other than a note that ‘good, positive progress’ had been made, ‘many issues’ resolved, but some remained outstanding. The rumour mill abounds with explanations of what the unresolved issues might be (see, for example, David Cornock here and here). If what happens to the Welsh Government’s Block Grant is not one of them, it should be.

The approach for dealing with the reduction in the block grant recommended by the Silk Commission sounds comparatively straightforward in principle, though it is rather harder to apply in practice. In the first year the new arrangements are in operation, the block grant is cut by an amount corresponding to the yield of the devolved tax ‘space’ – 10 points of personal income tax in the case of Silk (and Calman/Scotland Act 2012) for Scotland.  That cut is then adjusted ‘proportionately’ in subsequent years. What ‘proportionately’ means here is not clear. The Holtham Commission did sterling work in identifying what that might mean in practical terms, recommending what it called the ‘indexed deduction’ approach for personal income tax.  The same approach applies in principle to other devolved taxes, but the yields of those are modest so the issue is not so vital there.

The ‘indexed deduction’ method would involve taking the Welsh proportion of the overall UK revenues from that tax, and reducing the block grant by that proportion.  So, if devolved income tax in Wales generates 1.75 per cent of total UK personal income tax revenues in year one, the reduction in the block grant would be 1.75 per cent of UK personal income tax in each subsequent year – whatever the change in overall UK personal income tax revenues. The amount of the deduction would go down if overall tax revenues went down, and be increased if revenues went up. The result would be that the Welsh Government would gain if its use of its powers increased tax revenues in Wales ahead of the UK as a whole, and lose out if they declined more than the UK as a whole.  This approach has been agreed between the UK and Scottish Governments for the working of the Scotland Act 2012, but work on what it means in practice is ongoing in the ‘Joint Exchequer Committee’ established by the two governments. There has still not been any published attempt to show what the impact of making the cut and adjusting it by that method would be.

Applying the ‘indexed deduction’ method is comparatively easy for Scotland. The Barnett formula means that the Scottish block grant is comparatively generous. One can argue about how generous it is, but it is clear that the Scottish Government’s block grant exceeds by some distance any reasonable estimate of Scottish relative needs. Holtham estimated Scottish needs at 104 or 105 per cent of English ones, but depending on how one cuts the numbers (which is tricky) Scotland gets around 118-120 per cent of English spending for services covered by the block grant.

A further quirk is that the public spending boom of the 2,000s should have led to quite rapid convergence in devolved spending on the ‘English’ level – but, for Scotland, it did not. It appears that Scotland’s declining population cancelled out the convergence effect in the block grant, since convergence relates to per capita levels of spending, while the block itself is calculated as a lump sum and updated population numbers only affect incremental changes to that. So if the application of the reduction in the block grant affects the overall resources available to Scotland, it will only eat into that ‘cushion’ of the Barnett bonus – and it will not make a difficult situation significantly worse as time goes by.

Wales would love to have Scotland’s problems. It is clear that Wales is somewhat ‘underfunded’ given its present relative needs. At present, the block grant provides 113 per cent of the English level of spending on devolved services – while Holtham found Wales’s relative needs were between 114 and 117 per cent. That creates a different set of difficulties. If the block grant fails to produce a ‘fair’ level of funding relative to need at the outset, any cut in that grant – however it is adjusted – will probably make matters worse, as convergence happens. As a result, it becomes very hard to reconcile devolved fiscal accountability with reasonable UK-wide equity in public spending.

Matters needs not necessarily get worse, if the grant were adjusted to compensate for unfairness in funding before any reduction is made to allow for devolved income tax. The demand for a ‘fair’, needs-based grant – as articulated by Holtham – would be the simplest and most effective way of doing that. But a needs-based grant looks to be pretty clearly off the cards at present. The effects of introducing that for Scotland, particularly in the run-up to the 2014 independence referendum, are frightening enough to send politicians running in the opposite direction.

By pursuing its bilateral discussions about the block grant with the UK Government – and excluding it from the Silk Commission’s remit – the Welsh Government minimised its influence over securing ‘fair funding’, as well as preventing the Silk Commission from taking a comprehensive view on Welsh devolved funding. What it got instead – the deal announced last October – was promise of some undefined action if convergence appeared to become a material issue, though it isn’t at present because of the restraints on public spending at Westminster.  (My discussion of that on Devolution Matters is HERE.)

How this would be resolved if or when convergence comes back on the agenda would involve a good deal of bargaining and haggling between the Treasury and Welsh Government, and a good deal of reliance on subjective assessments.  Although the Welsh Government seems to have a good deal of confidence in that deal, it is not so much a sticking plaster to help a broken leg, as a fig leaf.

Even then, a ‘fair’ grant would need an adjustment mechanism. You would need to be able to adjust the Welsh block (before the deduction for the share of devolved income tax) as spending changes in the reference point – so Wales gets a consequential change as spending on health or transport in England goes up (or down).  The simplest adjustment mechanism is that used for Barnett – allocating a population share of changes in spending on ‘comparable functions’ in England.  But any formula that works in that way will have a convergence element built into it.  So the problems caused by the Welsh block grant falling below Welsh relative need will not go away.

Indeed, it is made worse because the devolved tax power transfers a degree of volatility risk to the devolved level, while devolved public services are counter-cyclical or inflationary in their cost. A devolved government needs to know as accurately as it can how much money it will have for those services, and the starting point for that figure must deliver a comparable level of spending to that in England.  The more subjective the mechanism for adjusting the numbers, the less certainty and accuracy there is in the system.

Each of these problems is capable of being fixed. It would be quite possible to build into the mechanism for implementing Silk an adjustment to the block grant to avoid convergence, and another to cut the block grant to allow for partially devolved income tax. It would even be possible to establish a system that was also robust and predictable, and pretty stable, though HM Treasury would probably baulk at the loss of control over spending policy that would entail.

But the problem is that such mechanisms will need to be applied by the Treasury, and run on Treasury estimates which will necessarily have an element of subjective estimation built into them. By contrast, the day to day, year to year, operation of Barnett is pretty automatic and clear. The most serious problems arise when it is changed at a spending review.  So ironically, there is a real prospect that the overall effect of devolving income tax while making sure other changes do not damage Wales financially will increase the extent to which Welsh public spending depends on HM Treasury’s calculations, not reduce it. Ensuring a measure of fairness may mean less clarity about how financing works.

And that is the real problem.  The goal of the Silk recommendations is to increase the National Assembly and Welsh Government’s ‘fiscal accountability’. That means establishing clear lines between what is a devolved responsibility and what is a UK responsibility. There is little point in voters being able to hold the Assembly to account for increased (or reduced) income tax if there can then be arguments that this only happened because the Treasury has allowed it. That would not add to accountability. In fact, by creating scope for extra arguments between governments and blame-shifting, it would reduce it.

There are two points here that require further consideration. The first is that the detail of any response implementing Silk needs to be looked at carefully, to see how that mechanism will work.  Steering a course that delivers the benefits of Silk – in the form of increased autonomy and accountability – is difficult, and UK Government claims of success should be treated with scepticism given the difficulties of delivering these objectives.

Second, one has to ask how long the financial system for devolution can go on being amended and patched in this way. It is increasingly looking like one of Heath Robinson’s strange jerry-rigged machines, and increasingly incapable of actually doing what is demanded of it. These problems are much worse for Wales than for Scotland, but Scotland has them too. What look like bolder approaches – such as my proposals set out as part of the IPPR’s ‘Devo More’ project – in fact resolve them much more effectively, by trying to start with a clean slate rather than perpetuating the mess that has accumulated over decades. At some point, clarity and comprehensibility need to take priority over political or administrative convenience.

As part of that, the Treasury needs to be asked a hard question: why does the same framework for financing arrangements have to apply to Wales as to Scotland and Northern Ireland? While almost every part of the three sets of devolution arrangements varies a good deal, the Treasury has insisted on a measure of symmetricality in the block grant and the Barnett formula. It is rather a superficial form of symmetry, as when one digs down there are many substantial differences between each country’s arrangements. At present it is Wales alone that is underfunded relative to need by the block grant, and therefore only Wales that is exposed to the acute problems of convergence on an English level of public spending.  Symmetry causes problems for Wales in a way that it does not for Scotland or Northern Ireland.

In his recent speech at the Wales Governance Centre in Cardiff, Welsh Secretary David Jones lauded the virtues of ‘asymmetric devolution’. Asymmetry when it comes to the operation of financing would have a direct and tangible value for Wales.  It will be interesting to see whether that was merely an attempt to defend a messy status quo, or a preparatory step for an imaginative deal to make fiscal devolution for Wales work.

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Filed under Calman Commission/Scotland bill, Devolution finance, Intergovernmental relations, Wales, Whitehall