Thinking about different ways of doing devolution finance:

I’ve already mentioned (HERE) the Edinburgh seminar last week on exchanging information about ‘place inequality’ with academic colleagues from Brazil. My presentation to the seminar wasn’t just about data (which readers will know is a concern I’ve had had for some time), but also related data needs to ideas about how the UK might develop what I call a ‘more or less federal’ approach to devolution finance.  The goal here is to devise a system which would reconcile a measure of UK-wide redistribution, and equity in public services, with substantial fiscal autonomy. I’m still working on this and my ideas on how exactly it might work remain somewhat tentative, but they underpin my presentation, which considered what such a system might entail, what data we would need to operate it, what we already have, and what changes would be needed.

My thinking at present is that we would need to have two grants, or two elements of a grant. One would be to address spending needs, meaning both the costs of providing public services (such as sparsity of population) and cost factors arising from varying demands for them (many of which are demographic –younger and older people use public services like education and health more). The other would be a fiscal equalisation grant, to deal with different tax bases across the UK. The chief reason to draw a clear distinction between the two is because one wouldn’t expect all three devolved administrations to want to opt into a system involving a measure of fiscal responsibility from the outset – Scotland probably would, Wales might (but might not), and I’ve no clear idea what Northern Ireland might do. A system that addressed both aspects of need would, however, be much more attractive to devolved governments and legislatures, as well as be more workable from the UK point of view.

As far as data needs are concerned, the bottom line is that we would need much better data about tax revenues, across the UK. The main concern would be with personal taxes rather than corporation tax, VAT and other taxes levied on business (where there are serious problems in working out what revenue is attributable to which place). HM Revenue & Customs appear reluctant at present to contemplate disclosing such data, though I can’t see any good reason for it. Data at the level of the nations and English standard regions can’t possibly reveal information about individual tax payers.

As far as the spending grant is concerned, it seems to me that the ‘top-down’ grant of the sort considered by the Lords Barnett Formula Committee and the Holtham Commission serves as a valuable starting point. One virtue of that approach is that it makes use of the range of high-quality social statistics the UK already has – and that the indicators used can be adjusted to fit available data, rather than needing the vast data-gathering exercise that was necessary for the sort of detailed assessment carried out by HM Treasury in 1979.

The slides from my talk, outlining my thinking so far, are HERE. As I say, this is work in progress not a polished proposal, but I think it may stimulate debate.   The key point is a very simple one: this is not a debate where the only options are the status quo, the Calman/Holtham recommendations, and ‘full fiscal autonomy’. There are other broad options, and many points of detail that will profoundly affect how any system would actually work.

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2 Comments

Filed under Calman Commission/Scotland bill, Comparisons from abroad, Devolution finance, Events

2 responses to “Thinking about different ways of doing devolution finance:

  1. russell mellett

    Hello Alan:

    We agree that there is a very wide “policy space” between the Calman/Holtham proposals and the notion of “full fiscal autonomy”. It is also true that there are many details to be “ironed out”; and that details matter a great deal for any system of intergovernmental finance.

    We seem to disagree, however, that all three Devolved Governments (DG), both can and should raise a substantial portion of their revenue requirements. Raising own revenues is fundamental to governance; and raising a substantive portion of own revenue requirements would promote responsible and responsive government in each of Scotland, Wales, and Northern Ireland.

    So how could this work? Suppose, for example, Westminster transferred the Personal Income Tax (PIT) revenue capacity in each of Scotland, Wales and Northern Ireland to the respective Devolved Governments. At the point of transfer, the UK tax structure applied to the standardized tax base in each region. Keeping the tax base the same across regions and with a common tax collection agency; going forward, Scotland, Wales and Northern Ireland could choose to maintain the UK tax structure or to vary PIT taxation in their respective region. The actual PIT collected in each year in each region would go toward meeting the revenue requirements of the respective Devolved Government. The fiscal transfer from Westminster (Barnett or its successor) would account for the revenue capacity of each DG in each year.

    For fairness, the same tax bases should be devolved to Scotland, Wales and Northern Ireland at the same time. Different tax policy choices by each DG could lead to asymmetric results. So, for example, Scotland may choose a different PIT structure than the UK, but Wales and Northern Ireland may just stick with the Status Quo. In any event, it is important policy principle that all Devolved Governments raise a substantial portion of own revenue requirements in any revamped system of UK intergovernmental finance; whatever the fiscal plumbing may turn out to be.

  2. Pingback: Wither the Scotland bill? « Devolution Matters

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