An ‘English rate of income tax’: six questions in search of an answer

In a speech on Friday launching the Conservative Party’s ‘English manifesto’, David Cameron apparently proposed an ‘English rate of income tax’, on which voting in Parliament would be limited to English (or non-Scottish) MPs.  (There’s also Telegraph coverage here and BBC News coverage here.)  There’s not much detail about this – Cameron’s speech isn’t available on the Conservative Party website, nor is the ‘English’ manifesto.   But from what we can tell of it, this proposal raises a lot of questions.

The first question is whether this is a move beyond the Conservatives’ manifesto commitment for a veto for English MPs (or English, Welsh and Northern Ireland) MPs on non-Scottish income tax decisions, after the Smith Commission proposals are enacted.  This proposal caused quite a stir  when it was first announced, back in December 2014, and raises the hackles of Labour and other parties (and see also here), but it’s not actually new.  This may just be a rhetorical shift, using heightened language to get news coverage for an old story, but if so it has been publicised in remarkably insensitive terms: what the Conservatives are proposing is not an ‘English rate of income tax’, but relates to Wales and Northern Ireland as well. This may be an attempt to curry favour with English voters, but England is not the only part of the UK it affects.

The second question is what this proposal relates to: the Scottish rate of income tax which is due to come into effect in April 2016, and on which a decision will need to be taken this autumn, or the Smith Commission proposals? The latter probably won’t come into effect until April 2018 at the earliest, so this will not be something that could be put in place for England very quickly, or would need to be.  If the former, it implies very quick action indeed.

The third question is how the difficulties an ‘English rate of income tax’ shares with any move toward ‘English votes for English laws’ at Westminster to address the West Lothian question. These can be summarised as

• Serious practical difficulties in identifying ‘English laws’
• Operational problems in limiting those and ensuring only qualified MPs voted on them in divisions
• The potential governability issue, if a UK Government with the support of a majority in Parliament as a whole did not have majority support from English MPs, and could not get its business relating to England through Parliament.

On top of these, it would probably intensify (and not redress or remove) the problem of the connection between decisions about funding for services in England, and the block grants for devolved governments calculated using the Barnett formula. It would risk intensifying those problems because the ‘no detriment’ principle which is adopted for tax devolution is meant to protect each government from the effects of tax decisions taken by the other tier of government. An ‘English-only’ tax decision would risk creating all sorts of spill-overs which would trigger that principle.  So this is a recipe for greater complexity, not simplicity or ‘fairness’.

The operational problems of identifying what measures Scottish MPs could vote on and which they could not would be considerable. Collection and enforcement of income tax, even after Smith is implemented, will be for HM Revenue & Customs – so Scottish MPs should be able to vote on all matters relating to that. So would the definition of income, and exceptions, exemptions and reliefs. Also allowances – the personal allowance, married couples’ allowance, and so forth. And as income tax on savings and dividend income is not devolved, decisions about that would also need to include Scottish MPs. No wonder the Smith Commission noted that ‘Income Tax will remain a shared tax and both the UK and Scottish Parliaments will share control of Income Tax. MPs representing constituencies across the whole of the UK will continue to decide the UK’s Budget, including Income Tax’ (paragraph 75). There may be a logic in stopping Scottish MPs voting on the devolved matters, but those are rates, bands and the thresholds between bands – a very significant measure of fiscal devolution, but not the sort of complete devolution that an ‘English rate of income tax’ would imply. Making that actually work, vote by vote, will involve a veritable Parliamentary hokey-cokey.  The Smith recommendation not to limit MPs’ voting rights on tax matters will be very much easier to make work.

The fifth question is whether, if this really is about an ‘English’ (or English/Welsh/Northern Ireland) rate of tax, it can actually work at all.  It almost certainly can’t.  Tax devolution for Scotland (both under the Scotland Act 2012 and the Smith Commission proposals), Wales and Northern Ireland works by making a reduction from the block grant to allow for devolved tax capacity. There are many issues about how that will function in practice, but the principle is a viable one – because there is a distinct and identifiable grant to fund each devolved government.  That is not the case for England. Funding for English services is simply funding for UK Government functions that happen to be located in England. To have a separate English rate of income tax means identifying what those services are and having a separate and identifiable pot of funding for them, to which the English rate of income tax flows. That would be a huge upheaval for the administrative machinery of government, which certainly goes beyond the commitment in the Conservatives’ UK manifesto for a veto for English MPs on income tax decisions.  It would amount to putting in place a federal fiscal structure for the UK.  That certainly hasn’t been discussed by any political party to date.

The sixth question is whether this is meant to apply just to the Scottish proposals for income tax, or more widely.  With devolution of stamp duty land tax and landfill tax to Scotland and (in due course) Wales, shouldn’t it logically apply to those too?  What about issues regarding the new Northern Ireland rate of corporation tax?  What about air passenger duty or the aggregates levy when those are devolved?  The fact these are small taxes doesn’t alter the principle that appears to underlie Cameron’s proposal.

So, if this is something new, it may well be unworkable. But it’s probably if this is just eye-catching rhetoric to reheat an old promise, which is causing much more heat than light.  But who would report an announcement about ‘English, Welsh and Northern Ireland votes on English, Welsh and Northern Ireland income tax rates and thresholds between rates on non-savings non-dividend income’?

 

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Filed under Conservatives, Devolution finance, N Ireland corporation tax devolution, Northern Ireland, Scotland, Wales

Improving intergovernmental co-ordination: better intergovernmental relations and better devolution

I’ve a report out today on the procedural aspects of intergovernmental relations.  This was commissioned by the UK Changing Union project through the Wales Governance Centre at Cardiff University, and can be found on their website here. Today was also the day when the plenary Joint Ministerial Committee met; it agreed, among other things, a full-scale rewrite of the Memorandum of Understanding.  As this post argues, such a rewrite is overdue. 

Intergovernmental relations are key to making devolution work effectively. The Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly all operate in a wider context of governance across the UK, and how their functions overlap with those of the UK Government (and other governments) is vital for all four governments and all UK citizens. The Smith Commission’s recent report pays a good deal of attention to the need to ‘scale up’ intergovernmental co-ordination as part of the package of further devolution.

The UK Government is not very interested in managing intergovernmental relations, however. It put in place an attenuated under-institutionalised set of mechanisms in 1999, and has allowed that to weaken or fall further into disuse since then. The key institution is the Joint Ministerial Committee. Plenary meetings of that ceased altogether between 2002 and 2008; they have been more or less annual since then, but are characterised by grandstanding rather than productive work. The JMC’s ‘Domestic’ format has nearly ceased to function, as so few policy issues concern more than one devolved government. The only established format of the JMC which does meet regularly, and does more or less what it was expected to, is the EU format which helps formulate the UK ‘line’ for major EU Council meetings, though there are problems even there. In reality, most intergovernmental issues are bilateral, but with few exceptions they are dealt with in an ad hoc, casual way, out of sight of public or legislatures, and many important issues slip through the net.

The argument for a more systematic approach to intergovernmental relations is unanswerable. Such conduct is simply not consistent with ensuring that devolved governments are treated fairly, feel they have been treated fairly, and citizens from across the UK can see they have been treated fairly. The UK Government needs to recognise that such procedures are not appropriate for the changed constitutional landscape following the Scottish referendum – if they ever were appropriate at all. But different approaches have been repeatedly urged on the UK Government, through Parliamentary committee such as those in 2002 by the Lords Constitution Committee, in 2009 by the Commons Justice Committee or in 2010 by the Commons Welsh Affairs Committee. No change has resulted despite such repeated urging from across Parliament, and despite the potential advantages for the UK Government – whether better policy co-ordination, an indirect way of achieving its policy goals, or simply symbolically showing the UK’s ability to incorporate its various parts into a single multinational union.

The difficult question is what to do, given where we are now. Is it still appropriate to call for the sort of regular, multilateral meetings that are used in more symmetrical systems? Multi-lateral intergovernmental co-ordination has had little impact because it does not relate to the practical nature of government in a profoundly asymmetric UK where most issues are bilateral not multilateral. The plenary JMC is dominated by high politics driven by party concerns –a theatrical exercise which contributes little to efficient government, though it cannot be regarded as dignified given the degree of masochism it requires from the UK Prime Minister.

The JMC (Domestic) was meant to be a way of dealing with practical policy issues, but it has proved to be of limited and declining value. In practice, lower-level co-ordination relating to specific policy issues is done bilaterally, but it works inconsistently, and out of sight of the public and beyond legislative scrutiny. That makes for bad governance. It also creates a process from which Wales, structurally and regularly, is the loser, lacking the political clout and outside interest that shape how Scotland and Northern Ireland play the game.

So perhaps the way forward would be to stop talking of multilateral ministerial committees, and instead embrace the logic of bilateral relations in more co-ordinated way. The Part 2 report of the Silk Commission suggested a ‘Welsh Intergovernmental Committee to manage this, a recommendation supported by the Welsh Government in its response to Silk. Whether the UK Government would be willing to commit the senior ministerial time this would need is doubtful. A more appropriate way of working, building on existing arrangements and enhancing them, would be for the Secretary of State for Wales or the junior Wales Office Minister to take on an active role here. The Wales Office would take on the task of assessing the impact of UK Government business on devolved Welsh functions, and Welsh policy on non-devolved ones, on the basis of each respecting the other’s role, so that both governments are able to take an overview of the welter of business of each government that affects the other.

The second area that calls for change is how disputes and disagreements between governments are handled. When these are legal in character, they go to the UK Supreme Court, via various ‘leapfrog’ procedures. But when the issue is not whether a government or legislature has the power to act, but whether they behaved properly toward each other when they did, the situation is quite different. Since 2010, there has been an agreed ‘disputes avoidance and resolution mechanism’ in the Memorandum of Understanding, but it has proved to be particularly flawed in both its design and working. It has only met once, to consider the row arising from the way the UK Government stopped devolved governments from receiving consequential payments under the Barnett formula for the regeneration spending on the area around Olympic Park in Stratford, before the 2012 London Olympics. On that occasion, an hour-long meeting was shoe-horned into Francis Maude’s diary at 8.30 in the morning. Maude was involved as a UK Government minister who had not been involved in the matter previously – but putting another UK minister in charge of the process, one bound by collective responsibility to one side of the dispute but not the other, is a potent source of apparent if not actual bias.

Possible bias is only one problem. The other major problem is that the disputes resolution ‘panel’ has no power to do anything other than mediate the dispute – to seek to find an agreement between the UK department and devolved governments involves. If they cannot agree, there will be no resolution, but the absence of any resolution is going to favour the UK department in almost all possible cases. The fact that a ‘do-nothing’ outcome will always advantage the UK Government is a grave problem. And in issues about the working of the Barnett formula, there will be a third: the control the Treasury has over the Statement of Funding Policy. In this case, the Treasury was not merely judge in its own cause, with a jury from its side of the fence, but it wrote the rules as well!

Such an approach fails to meet even the most basic idea of fairness. At the very least, there needs to be an impartial mediator, perhaps a panel not an individual, and the possibility of causing some embarrassment for a recalcitrant government that refuses to give ground – at least by a public finding against it. This will fall some way short of the Smith Commission’s recommendation of ‘well functioning arbitration processes’, but again is more likely to be workable in practice.
Leaving matters to be handled in ad hoc, reactive, unstructured way is no longer an option for the UK Government. The question is how it wants to shape the way forward.

This post also appears on Click on Wales, here, and the ‘Future of Scotland and the UK’ programme blog, here

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Filed under Intergovernmental relations, Northern Ireland, Publications and projects, Scotland, Wales, Whitehall

Stevenson Lecture in Glasgow, 11 November

I shall be giving a lecture in Glasgow at 6pm on Tuesday 11 November, in the series of Stevenson Trust Lectures on ‘Scotland’s Citizens: The Referendum and Beyond’.  My lecture will be on ‘Devo More not Devo Max: The realistic possibilities’, and I’ll be explaining the issues relating to further devolution, what might be practicable and what isn’t, and why.  There should be plenty of time for questions afterward, both in the lecture hall and informally over drinks.

The lecture takes place in the Sir Charles Wilson Building on Glasgow University’s main (Gilmorehill) campus.  Further information is available from the organiser, Kevin Francis, at kevin.francis@glasgow.ac.uk, or stevensontrust@gla.ac.uk.

UPDATE, 12 November: The slides from my lecture can be found here.

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‘Scotland on Sunday’ piece on the Smith Commission and delivering further devolution

I’ve an article in today’s Scotland on Sunday about how the referendum result defines the scope of the work of the Smith Commission, and what it can and cannot deliver.  I argue that the referendum choice excludes some options, because they are incompatible with the Union that Scots voted to remain part of on 18 September, and that attempts to widen the process will be obvious as attempts to frustrate it.  It can be found here.

UPDATE: The text of the article as originally filed is now pasted below.

The Smith Commission starts its work with two great advantages over predecessors like the Calman Commission, the National Conversation, or even the Scottish Constitutional Convention. First, it has all the major parties involved. Second, its remit is clear: it is not just to consider Scotland’s constitutional future, but to do that in the context of Scotland remaining part of the United Kingdom. For the first time, all the actors are involved, and the purpose is clear: to work out a sensible model for further devolution for Scotland, recognising that Scotland’s future lies in the United Kingdom not outside it, and that this must be decided soon.

The determination that Scotland’s future is within the UK is fundamental to what ‘more devolution’ looks like. Any solution must be compatible with remaining part of the UK, not an opt-out from it. ‘Devo max’ – devolution of all ‘domestic’ functions, and tax setting and collecting powers – is just such an opt-out. You cannot be part of a country while simply choosing not to participate in its financial arrangements, welfare system or most of its economic structure, which devo max would mean. You cannot be part of a country when you claim the right to undermine your fellow-citizens whenever it suits you, as devo max would imply. The referendum decision took that off the table, just as it took independence. Any attempt to reinstate that option is not only a waste of time, but has to be regarded as a deliberate attempt to unpick the referendum decision and reverse its ‘decisive’ character.

To be compatible with remaining part of the UK, ‘more devolution’ also has to work for other parts of the country – not just England, but Wales and Northern Ireland too. This cannot be a case of Scotland simply grabbing what extra powers or advantages it can, whatever the consequences for the rest of the UK. It is about how Scottish self-rule can be effectively combined with shared rule for the UK as a whole, and the interests of the rest of the UK. Through the referendum, Scotland has chosen to ‘opt in’, and that implies a very different sort of constitutional debate to the one there has been up to now.

The Smith Commission has one other constraint, which is a source of strength as well as a challenge; the limited time for its work. It is due to reach agreement by the end of November, following publication of a UK Command paper setting out issues by the end of October and leading to draft legislation by Burns Night 2015. That is tight. There is no time for the introduction of new and extraneous issues. The three pro-UK party commissions, the Devo Plus group, and the IPPR’s Devo More project have all canvassed models for further devolution with clarity. The Scottish Government has devoted much less work to options for further devolution, the best being the elaboration of ‘full devolution’ (a.k.a. devo max) in the 2009 white paper Your Scotland Your Choice. With that option now off the table, there is little clarity about what the SNP might propose, though Fergus Ewing has already suggested underground fracking for oil and gas. SNP contributions must be constructive, given the remit of the commission. Raising complex new issues with little preparation would be a transparent attempt to frustrate the process, and stop the devolution of Scottish voters gaining control of further functions as was promised to them.

At long last – after multiple commissions, debates and a bruising if invigorating referendum campaign – Scotland’s constitutional debate has at last reached the point of all the parties discussing the same subject in the same room. Let’s hope they can now deliver.

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New ‘page’ on the West Lothian question

I’ve just added a page explaining the West Lothian question to those on the blog.  It can be accessed through the links at the top of the page, or HERE.

One point often overlooked, which I discuss there, is the extent to which the anomaly of the West Lothian question is made worse by problems of mis-representation, which are fuelled by using the First-past-the-post electoral system.  The result is that Labour is disproportionately strong (compared to its share of the vote) in Scotland and Wales, as are both Conservatives and (somewhat less so) Labour in England.  The Lib Dems in England, the SNP and Conservatives in Scotland, and Plaid Cymru and the Lib Dems in Wales are the main losers.

There are arguments on both sides of the question of proportional representation, but its absence creates these anomalies that mean Labour has far more Scottish and Welsh MPs than its share of the vote justifies, and the Conservatives more English MPs.  A more equitable electoral system would reduce that disparity, and the degree to which the West Lothian question is played up or down for party advantage.

I’ll be saying something further about the possible solutions to the West Lothian question in the next few days.

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Filed under English questions, Scotland, UK elections, Wales, Westminster

‘Constitutional Futures’ workshop at Queen’s University Belfast, 10 October

Along with James Mitchell from Edinburgh and Aileen McHarg from Strathclyde, I’ll be taking part in a workshop on ‘The Direction(s) of Devolution’ in the law school at Queen’s University Belfast on Friday 10 October.  There is more information here, or the flyer can be downloaded here.  Capacity is limited; please email law-enquiries@qub.ac.uk if you’d like to attend.

 

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SNP, sorry: the referendum result takes Devo Max off the table

The clear and decisive vote in the Scottish independence referendum is a powerful statement in a number of ways. There is clearly a large constitutional and political debate now underway, for the whole of the UK and each of its parts and not just Scotland.

But aspirations that this means ‘devo max’ – the devolution of all functions save defence, foreign affairs, currency and maybe immigration, and including the power to set and collect all taxes in Scotland – are simply wrong.  Devo max in that form is definitely off the cards. It has never been offered or proposed by any of the pro-Union parties. The enhanced-devolution schemes they have, to be brokered now through the process chaired by Lord Smith of Kelvin, are all substantial further devolutions of power, but not ‘devo max’.

In his concession speech, Alex Salmond committed to work with other parties in Scotland, and the rest of the UK, to deliver further powers for the Scottish Parliament. The Scottish Government of course undertook to ‘continue to work together [with the UK Government] 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’, in the much-discussed Article 30 of the Edinburgh Agreement.  For the Scottish Government to be an active participant in that process, it and its supporters need to acknowledge that devo max is also now off the table. The referendum was a clear signal by the people of Scotland that they wanted to remain part of the United Kingdom. Far-reaching further devolution is perfectly compatible with that, more so with the wide-ranging approach to constitutional reform that the Prime Minister has signalled. But – as I made clear in my evidence to Holyrood’s Finance Committee in June – full fiscal autonomy and devo max are not. It has nothing to offer Wales or Northern Ireland, and would be unworkable for them. More seriously, the extensive, de facto withdrawal from most aspects of a shared economy and shared social citizenship that devo max would imply is not workable for other parts of the UK. Those remain key tangible manifestations of remaining part of the UK. By rejecting full-fat independence, Scotland’s voters also opted to decline its skimmed version that is devo max.

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