I’ve addressed some of the implications of that, and the interaction between the two referendums, in a post for the Spectator‘s ‘Coffee House’ blog.  That can be found HERE.

There’s coverage of Davidson’s speech from BBC News here, Holyrood magazine here, the Guardian here, the Telegraph here, the Scotsman here, the Herald here, and a thoughtful analysis by Alex Massie in a Spectator blog here.

I have accepted the party’s invitation on a non-party basis, and remain politically impartial.  I’ve already given evidence to the Scottish Liberal Democrats’ Commission on Home Rule and Community Rule and Labour’s Devolution Commission.  I will continue work with IPPR on the ‘Devo More’ project, and to help any other parties or bodies that want devolution advice so long as that doesn’t create impossible time pressures or conflicts of interest.

So – if the news that IHT is to bear the burden of increasing resources to pay for the new ‘social care cap’ in England is right (see BBC News here, and Sunday’s Telegraph here) – the upshot is rather confusing.  An additional tax burden will be imposed on residents of all parts of the UK, including Scotland, Wales and Northern Ireland as well as England – to pay for a benefit only to be experienced in England.  That is anomalous.

There are two ways to resolve this problem.  One is to allocate shares of the extra tax revenues so generated to devolved governments in Scotland, Wales and Northern Ireland, since social care for the elderly is a devolved function.  That is attractive, and would be the sort of approach sought by Quebec, where the long-standing demand of the provincial government has been to call for an ‘opt out with compensation’ from expansions of the Canadian federal government’s social programmes.  However, that might not be in devolved governments’ best interests – the tax base that supports inheritance tax revenues is driven by property values, and so hugely skewed toward southern England.  (In Scotland, according to GERS, it only generated 0.4 per cent of total tax revenues in 2010-11.  It’s only 0.37 per cent in Wales according to the Silk Commission report, and 0.33 per cent in Northern Ireland, according to the Northern Ireland Net Fiscal Balance Report.)  Getting those extra tax revenues from the tax base in Scotland, Wales or Northern Ireland would in fact mean a larger share of a smaller cake.  That’s all the worse for Scotland and Northern Ireland given their ageing populations.

The alternative approach would be to let the Barnett formula take the strain, and allocate to devolved governments their consequential share of increased UK Government spending in England.   This is what Barnett is meant to do, after all – allocate consequential shares of spending on ‘comparable’ functions in England to devolved governments.  It appears that the increased IHT revenue will only bear part of the cost of increasing resources for the care cap, so the rest will presumably come from general taxation anyway.  Using Barnett would in fact put rather more funds into the hands of devolved governments, albeit at the expense of English taxpayers, but in a way that accomplishes a form of equity in distributing shares of the cost of the English policy across the UK.

If the latter is the approach to be taken, it should form part of the Department of Health’s formal announcement.  The pre-announcement briefings have suggested a UK-wide tax to fund a purely English policy, which may make electoral sense for the Conservatives but not much constitutional sense (and that’s without judging whether this policy approach is in fact right or not – given that it has been criticised by Andrew Dilnot as well as Labour spokespeople).  It looks rather like the sort of high-handed approach from Whitehall that has been all too common in the past – and which in the present context strengthens arguments for independence in Scotland.  (Of course, it also sits on top of the UK Government’s exclusion of claims for attendance allowance from beneficiaries of that policy after free long-term care for the elderly was introduced.)  It also suggests that a more nuanced approach to welfare devolution may be hard to implement, because doing so is beyond Whitehall’s habitual ways of working.

What this is not is a case for devolving inheritance tax.  IHT is one of few taxes emphatically not suitable for devolution on fiscal grounds.  Experience in both Canada and Australia of transferring the death/estates duty tax base to the provinces/states was that within a decade, tax competition between the various governments drove the rate of tax to zero across the whole country.  There are few cases where the evidence of fiscal competition cannibalising a tax base is so clear.

Thinking about social care costs is actually a tricky challenge.  It involves redistribution across time as well as space.  At present, devolved governments have the responsibility for providing care, but not the policy or legal instruments to secure its funding.  The way the UK Government has ploughed ahead making policy for England with so little regard for the position of devolved governments has done it few favours.

UPDATE: This post was written just before Jeremy Hunt made his statement in the Commons (which is available here) or the Department of Health published its white paper Caring For Our Future: Reforming care and support, Cm 8378 (available here).  There’s no mention in the white paper of the use of changes in inheritance tax (or NICs transferred from the soon-to-be-discontinued second state pension) to fund the new policy.  Indeed, for that matter there’s no mention of devolved governments or institutions at all.

Yet the white paper notes, without irony, ‘Fragmented health, housing, care and support are letting people down.  A failure to join up also means that taxpayers’ money is not used as effectively as possible, and can lead to increased costs for the NHS’ (p. 16).  Moreover, the DH statement says, ‘A national minimum eligibility will make access to care more consistent around the country, and carers will have a legal right to an assessment for care for the first time.’  All that is true, but applies as much to policy across the UK as that within England.  When directly asked about the devolution implications in the Commons, by Willie McCrea from South Antrim, Hunt stalled, saying ‘different approaches are being tried in all four constituent parts of the United Kingdom and we must look at what is happening in the different parts and all learn from each other.’

The UK Government has set out a policy only for England, which affects devolved governments and their policy functions quite significantly – but without there being any apparent assessment of its impact on them, or the fact that the UK Government possesses and is using policy levers that are not available to them despite their similar responsibilities.  This is simply confused policy-making; and the fact that the financing was discussed in the press and Commons statement, but does not appear in the published documents, suggests it was made rather late in the day too.

The aim of this project is to consider how devolution for Scotland, Wales and Northern Ireland might be enhanced; how to make a devolved UK work better.  That means increasing the scope of devolved powers and responsibilities, but also looking at the Union as a whole and how to improve that.  Effective devolution means more self-government, but it also means ‘more Union’; a more effective tier of government that delivers certain functions that devolved governments are unable to, in a way that makes it clear what the Union does for citizens as well as what devolved governments do.  That is a far cry from the vestigial sort of entity it has often become in many of the Scottish debates.  It’s also a step beyond the current thinking that suggests ‘more powers for Scotland (or Wales) means less for Westminster’; this need not be zero-sum game, if the thinking about what is involved is careful enough.  If we are to continue to live in one decentralised country, we will all need to be clearer about which government does what and why.

I’ve explained separately some of the ideas underpinning my financing paper, which will be carried through into the project as a whole.

The ‘Devo More’ project will necessarily be a wide-ranging one, and our next big piece of work is to look at how devolution of aspects of welfare and social security might be accomplished, and what the implications of that will be.  Another strand will be the sort of changes needed at the centre of government for is rather different sort of union to work.  There is a good deal involved in the project, and those interested should keep an eye on the project’s webpage, which is here.

I’m very glad to be working with the Institute for Public Policy Research, and particularly Guy Lodge, on this project.  IPPR have long taken a serious interest in debates about devolution and its implications, including the work they have done recently on developing public attitudes about national identity in England, their ‘Borderland’ project on the implications of change for Scotland for northern England, and how ‘English votes for English laws’ at Westminster might work.  (The same can’t be said for most of the other London think-tanks.)  For my part, working with IPPR isn’t a reflection of any political views; as well as formal committees, I’ve advised parties and politicians from across the political spectrum in the past (including Conservatives, Lib Dems, Labour, the SNP and Plaid Cymru), and hope to continue to do so.  It is simply a pragmatic judgment about who has the willingness and the resources to do serious, policy-oriented thinking about the future of the UK.  In this respect, IPPR have stolen a march on their rivals.

My presentation from the launch is now available HERE.  Rachel Ormston’s slides – particularly interesting on what she calls the ‘maximalists’, those who want significantly enhanced devolution for Scotland but not independence – are here.

To highlight events and other activities relating to this project for those using Twitter, we shall be using the hashtag #devomore.

I’m also going to be on BBC Radio Wales’s ‘excellent Sunday Supplement’ programme this coming Sunday (27 January) to talk about the report and its implications for Wales.  That should be at about 8.30 am.

This paper draws on work on both devolution finance and the working of federal systems that I have been doing for many years now, starting with my time at the Constitution Unit in the early 2000s working on its Leverhulme-funded programme ‘Nations and Regions: the dynamics of devolution’, as well as work on Brazil and Switzerland I carried out at Edinburgh University.  If nothing else, this indicates how academic research often takes a long time to pay off, and can do so in ways that were unexpected at the outset.

An option like this is badly needed, for two reasons.  First, there is clear evidence that it is what the people of Scotland want.  They like devolution and want more of it; in particular, they want devolution to affect control of taxation and welfare.  That has been shown clearly in numerous opinion surveys, particularly the Scottish Social Attitudes ones, and their 2012 findings just released confirm the point.  Outright devolution of those is very difficult within the Union – it would only be possible with some sort of ‘devo max’ approach, which is emphatically not what I am proposing.  Apart from anything else, it would not be viable for Wales or Northern Ireland.  Significant control of those is, however, possible, and that is what this paper (and the wider ‘Devo More’ project of which it forms the first output) is investigating.  Finding practicable ways to ensure devolved control of these functions is part of making sure that Scottish devolution (and devolution elsewhere) matches the aspirations of the Scottish people, a basic democratic goal.  It also serves a more constitutionally fundamental purpose; it ensures that government in Scotland (and elsewhere) is, and should remain, legitimate.  Devolution in 1998 was, after all, a response to similar problems that arose both Wales and Scotland in the 1980s and 1990s.

Second, it relates to the 2014 independence referendum.  An ‘enhanced devolution’ scheme is not on the ballot paper, of course.  That is probably right; it would be hard (though not impossible) for a referendum to offer multiple choices to the voters in such a way that it would also establish a clear mandate for independence, if that were the choice of the electorate.  Once the SNP committed itself to having a single referendum on independence, it effectively ruled out putting an ‘extra devolution’ option to the voters in the same poll, even though it dangled the prospect of that in front of Scottish voters after the 2011 election.  (The situation might be different if the SNP had embraced a two-referendums strategy, as the first poll would be a way of identifying the preferred options not making a conclusive decision.  That was the SNP’s choice; by trying to bring a third option into a ‘decisive’ referendum, they muddied the waters so much it was off the cards.)

There are good practical reasons why more devolution could not have been on offer in any event.  There was no such scheme on the table, and still is not.  You could not prepare for a referendum in which one of the options was essentially undefined until the last minute.  (The Welsh referendum on legislative powers in 2011 shows how badly such polls can go if an expected player doesn’t show up.)  Such a scheme would need to have agreement across the unionist parties to be viable, as the Calman proposals had.  It’s fair to say that before now the unionist parties where in no mood to consider such an option, and many (such as Joyce McMillan, here) question whether they are now.  This is only a proposal for a scheme which is meant to work for all the unionist parties; we shall see whether they embrace it, and how enthusiastically they do so.  But defining such an option plays into the wider referendum debates by enabling the offer of ‘more powers after a referendum’ to be a credible one.  The battle-ground in the referendum campaign is voters who support that; if they do want more devolution but do not believe that promises of it will be delivered after a poll, the risk increases that a referendum will be lost.

Part of what has to define an ‘enhanced devolution’ scheme is what works in the interest of the UK as a whole.  This scheme is meant to do that; it is intended to work for Wales and Northern Ireland as well, if they wish to go down the path of fiscal devolution.  It is also designed to be ‘union-reinforcing’ rather than ‘union-weakening’, as ‘devo max’ would be, and as devolution of taxes like corporation tax, inheritance tax or fuel duties would be likely to be.

It also offers benefits for England, chiefly because the transfer of fiscal capacity to Scotland and other devolved governments will both enable and require them to finance spending on better services than those in England out of their own resources.  Free university tuition in Scotland has become a politically toxic symbol of supposedly generous financing of Scotland.  Some of this anger is misplaced, and is to do with choices made by devolved governments – funding, say, free prescriptions at the cost of other functions.  But some of it has a point.  Transferring a significant degree of fiscal capacity means that, if the Scottish Government wishes to provide an overall higher level of public services, it can do so – but Scottish taxpayers will have to pay for it, and the Scottish Government will have to make the case to its voters for that.  That is what autonomy means.

Fiscal devolution does not stop the UK Government undertaking redistribution across the UK, if it wishes.  A ‘vertical fiscal imbalance’ – a gap between the revenues a regional-level government can raise using its own tax powers, and its spending obligations – is common in federal systems.  In the UK it is unavoidable.  There are many taxes which are not suitable for devolution, either because the administrative costs of doing so would be disproportionate, or because of the character of the taxes themselves.  Take fuel duties as an example.  These are a useful source of revenue (they account for about 5 per cent of total UK tax revenues, proportionally more in Wales and Northern Ireland).  However, devolving something so obviously and necessarily mobile would trigger widespread avoidance, tax competition or both, and even then would incur considerable compliance costs, even though the burden of them falls heavily on people who live or work in sparsely-populated areas like the Scottish Highlands or mid-Wales.  The same applies to a good many other taxes, which are best left in UK Government hands.  Scottish, Welsh and Northern Ireland taxpayers will continue to contribute to the UK as a whole, through a wide range of non-devolved taxes, and it is for the UK Government to decide how to use those.

The recipe I have come up with involves handing over four sets of revenues to devolved governments:

• All personal income tax, including decisions about rates, thresholds, exemptions and relief.  There will need to be some practical restrictions on this, if HM Revenue & Customs are to continue to collect income tax across the UK (and there are good reasons why they should), but those should be as minimal as possible for administrative reasons.
• All land taxes.  This should be uncontroversial; to a large degree, it has already been accomplished for Scotland through the Scotland Act 2012, and is recommended for Wales by the Silk Commission (and supported by the Welsh Government).  Land taxes are not a major source of revenue, but they are a secure and easily devolvable tax base, and are an important instrument of policy as well.
• ‘Sin taxes’, meaning duties on alcohol and tobacco.  This faces serious legal problems, but there is such a close relationship between the harm these products can do and other devolved functions, notably public health, that devolved governments should have control over tax levers as well as regulatory mechanisms when dealing with them.  They are also quite useful as sources of revenue.
• Assign a large proportion – 10 points, of the 20 currently levied – of Value Added Tax.  EU law prevents devolution of VAT, although sales taxes are commonly levied by state or regional-level governments in federal systems.  Assigning it – passing the revenues directly to a devolved government, which does not have control of the rate of tax or what the tax is levied on – was considered and dismissed by the Calman Commission for Scotland, and the Holtham and Silk Commissions for Wales.  But, if we are looking at going meaningfully beyond that model of fiscal devolution, we have to think again.  VAT is a major source of revenue, and in the hunt for ‘devolvable’ taxes the choice of good taxes to devolve is a very limited one.  A major consumption tax is an attractive proposition for regional-level governments, and assigning it is the best one can do.

This is not so much the end of my work on devolution finance as establishing a clear starting point.  It is impossible to work out a scheme for devolution finance without working out what it is you are financing.  I have used the current division of functions between the devolved governments and London for this work, and if there were further devolution of expensive functions (notably welfare benefits, but also policing and criminal justice in Wales) it would be necessary to look at this again.  In later work in IPPR’s ‘Devo More’ project, we shall be considering those issues; that will mean returning to financial issues afterward as well.  But using 2010-11 figures, this model would have put £21.7 billion directly into the hands of the Scottish Government, £9.7 billion into those of the Welsh Government, and £6.1 billion into those of the Northern Ireland Executive.  That equates to 60.6 per cent of Scottish devolved spending, 62.2 per cent of Welsh devolved spending and 55.6 per cent of devolved non-social security spending in Northern Ireland.  Of that, large proportions would come from wholly devolved taxes: 42.1 per cent of Scottish spending, 44.2 of that in Wales, and 34.3 per cent of that in Northern Ireland.  That contrasts with the measures in the Scotland Act 2012, which would devolve taxes revenues accounting for around 30 per cent of devolved spending in Scotland, and the Silk Commission’s proposals, which would account for about 25 per cent in Wales.

Whatever form fiscal devolution takes, it is important to think about it as a package. Devolving one or two taxes on their own increases the risk of government revenues being exposed to serious shocks.  That is especially the case with volatile taxes like corporation tax.  Some devolved services are simply inflationary in character (notably health). Others are counter-cyclical, with demand increasing somewhat when times are bad (notably education).  None of them get cheaper to provide in hard times.  As there’s no such thing as a counter-cyclical major tax, stable revenues are needed to pay for them, and if the UK Government is to cease to manage the risk of fluctuations in revenue (which it does at present, through the block grant and formula system), devolved governments need tax revenues that are relatively stable, and if possible that balance the fluctuations among them.  The combination of devolved income tax and assigned VAT, in particular, does that.  Assigning VAT might not give devolved governments any control over policy levers, but the revenues are relatively stable, act as a counterweight to income tax ones (they shrink and grow on a different cycle), and over time it is a growth tax.

This model is an attempt to make a devolved UK work better; to enable it to be both more devolved, but also more unified.  Quite a lot of work remains to be done, but it hard to see that any sort of durable and workable solution would not draw heavily on it.

The report Funding Devo More: Fiscal options for strengthening the Union was published on Friday 25 January, and is available from IPPR’s website HERE. 

The paper should be available on Thursday, and we’re launching it at an event in Edinburgh on Friday.  I’ll be writing more in due course to explain what the wider ‘Devo More’ project is about.

UPDATE, 22 January: Monday’s papers included coverage of the report’s implications for Wales in the Western Mail, available here.  The Scotsman‘s coverage (here) included suggestions by David Mundell, Minister of State at the Scotland Office, that the unionist parties would have a collective ‘enhanced devolution’ position come the autumn, the first time he’s made any such suggestion.

The Herald had responses which included a general welcome from Alistair Darling of Better Together, and a dismissal of the proposals by Nicola Sturgeon.  That’s available here.  Sturgeon’s dismissal of the proposals is remarkable as the report not been published yet and so she can’t know its details.  Despite the SNP’s earlier suggestions that it would have welcomed an ‘enhanced devolution’ option on the referendum ballot, it would seem determined to resist any actual proposal to deliver that.

Including social rights in constitutions is always problematic.  This is proposed in Bulmer’s Model Constitution as well as now by Salmond.  No matter how one qualifies it – a common formula, followed by Bulmer, is to refer to a right ‘as implemented by law’, with the intention of subjecting the safeguard to the policies determined by the legislature (but also making the legislature implement the right).  That’s far from perfect as each and every right, even expressed in such general terms, will attract a good deal of debate and campaigning.  Even when rights are left in broad terms, the problem is that their margins are always contestable.  Does a right to education extend to the age of 16, 18, 21 or is it lifelong?  Does it include the right to, say, free music lessons, or to lifelong adult education?  Is that a right to ‘vocational’ education, or to courses of wider interest?  Does a right to free healthcare include a right to free cosmetic treatment, or to immediate treatment (which would ban all waiting lists)?  Each general right opens up a host of further, detailed questions about what exactly it  means.

Whatever view a government or legislature may take of such matters, someone is likely to challenge them – and that dispute will end up in the courts.  The effect of including social rights in a constitution is to give a greatly expanded role to the judges in deciding about such rights.  And that means that the judiciary start to have a professional interest in the scope of such a constitution, as well as that they share with all citizens.  Unsurprisingly, this sort of social right was left out of the McCormick constitution – Sir Neil, as a lawyer, understanding how difficult they would be to formulate.

As regards process, what’s now proposed is a convention with direct involvement from citizens as well as political parties and ‘civic Scotland’.  There’s no suggestion of how the participants will be selected, what timescale there would be for its work, or what process there would be for adopting a constitution once the convention had formulated a draft.  Would it require some parliamentary super-majority, approval at a further referendum, or what?  Salmond’s speech is silent on these points.  And, of course, once such a wider process starts, it will raise much wider issues, such as whether an independent Scotland should retain the monarchy, as the SNP currently proposes, to the discomfort of many in the party and the wider pro-independence campaign.

In truth, this proposal seems more about the referendum campaign than about the substance, with three examples of what would be in the constitution chosen to highlight differences between current UK practice and the SNP’s aspirations for an independent Scotland.  But raising them in this way highlights the rocky road there is from the present position of Scotland to what would be needed for an independent democratic state.  That is reflected in what Salmond says about the post-referendum process, which seems to be new.  He says that legislation will be in place for the ‘transfer of sovereignty’ in May 2016.  That is a pretty optimistic assumption, as it assumes that the ‘top-line’ negotiations can be concluded within 12 months of a referendum.  Given the complexity of the issues, it’s doubtful whether that is achievable – and it certainly will not be if issues like EU membership or ‘non-nuclear’ NATO membership are as complex and tricky to resolve as they increasingly appear.  It also assumes that the new House of Commons elected in 2015 is willing to give accelerated passage to an independence bill.  There would also need to be a transition period between the passing of legislation and ‘independence day’.  My own estimate, for what it’s worth, is that there would be at least three years between a referendum Yes vote and ‘independence day’, even assuming a smooth and straightforward negotiation and a willingness to leave many detailed issues to be resolved later.

Add to that a post-referendum process of also formulating the constitution of an independent Scotland, the road to statehood starts to look a much messier process.

There will be a launch of the event at the Royal Society of Edinburgh on George Street in Edinburgh at 8.30 am on Friday 25 January.  Speakers will include me, Guy Lodge of IPPR, Willie Rennie MSP, leader of the Scottish Lib Dems, and a Labour speaker.  There’s information about it on the IPPR website here, and anyone would like to attend should email Glenn Gottfried of IPPR at G.Gottfried@ippr,org to book a place.

My memorandum can be found here, and the transcript is available here.  I can even be watched giving evidence on the BBC’s Democracy Live website, here.

My appearance, and remarks about the role of the Electoral Commission, led to coverage in the Herald on Thursday here, and in the Scotsman, leading page 1 on Friday, here.  The other slightly surprising issues to come up in questioning were the role of the Civil Service and the extent to which the Edinburgh Agreement authorised such steps as the taking of legal advice on EU membership.  (I said it was hard to see how it did, as legally speaking nothing had changed with the Agreement – there would only be a change when the section 30 order had actually been made, which would expand the scope of devolved legislative powers.)   The other issue that cropped up was the legal status of the Edinburgh Agreement, on which it’s worth also reading Christine Bell’s position the Scottish Constitutional Futures Forum blog here.  It seems to me that the Agreement is a fairly typical intergovernmental agreement, declaring a lack of intention to bind the parties in contract though creating some reasonable expectations which are enforceable in public law, though there is a further question about what exactly these might be.  I’m unconvinced by parallels with the 1998 Belfast/Good Friday Agreement (available here), which was an agreement between (unspecified) parties but which included an annexed and binding agreement between the UK and the Republic of Ireland, two sovereign states, so to that extent it was an international treaty.  As the Multi Party Agreement and the British-Irish Agreement each referred to each other, and the Multi Party Agreement referred to what became the Northern Ireland Act 1998, there is a complex recursive effect between the Agreement and the Northern Ireland Act 1998 as the Act depends on the Agreement, but the Agreement also depends on the Act.  That’s clearly not the case with the Edinburgh Agreement, where there is a simple intergovernmental agreement with a draft legislative instrument annexed.