Category Archives: Devolution finance

Bingham Centre review of devolution in the UK

For the last few months, I’ve been working with the Bingham Centre for the Rule of Law on a major inquiry into devolution and how it should develop, from the point of the UK as a whole. The starting point has been constitutional: what sort of constitutional system has emerged given the fragmented nature of the process of devolution in Scotland, Wales, Northern Ireland and across England. Our committee has been chaired by Professor Sir Jeffrey Jowell QC, Director of the Bingham Centre, and includes such figures as Professor Linda Colley, Gerald Holtham, Sir Maurice Kay, John Kay and Philip Stephens of the FT. (Full details of the committee are here.) Adam Tomkins and I have acted as advisers to the committee.
We’ll be publishing the report on 20 May, with a launch at Middle Temple Hall, and have a number of important recommendations for how the UK should work which we hope will shape the actions of the incoming UK Government, whatever political complexion it may have. Key to these is the need now to think about devolution as affecting the UK as a whole, and what the nature of that Union is – not unitary, but not federal either. No new government can afford to ignore these issues, or fail to try to tackle them.

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Filed under Devolution finance, English questions, General, Northern Ireland, Publications and projects, Scotland, Wales

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 – and it’s hard to see a rationale for excluding Scottish MPs from voting when only the Scotland Act 2012 powers are in effect.

The third question is how to resolve 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 the case that 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

Devo Max and Devo More

There are two myths going around about what happens following a No vote in the Scottish referendum.

First, it’s said that plans for ‘more devolution’ are unclear. They are not. The three pro-UK parties have different schemes for them, it’s true, but there is a substantial degree of common ground between them. All involve devolution of most or all of personal income tax to the Scottish Parliament. Labour and Conservatives both support forms of welfare devolution, which – among other things – would have enabled Scotland to opt out of the Housing Benefit change that led to the ‘bedroom tax’. The differences do need to be resolved, but there is also a clear route for that, endorsed by the UK Prime Minister in his Aberdeen speech as well as other party leaders: an early process of cross-party negotiations, leading to a white paper by November 2014, publication of draft legislation in early 2015, followed by incorporation into manifestoes for the May 2015 general election, which will give the mandate for delivery of them.  That level of political commitment is not easily ducked – and ironically it is perhaps the Conservatives who have the greatest short-term political interest in securing their delivery.

It’s also untrue that these are last-minute proposals All these schemes have drawn on the work I have done with IPPR, and particularly Guy Lodge, through the Devo More project since late 2012. They reflect many months of work and careful analysis of the implications of further devolution, not just for Scotland but for other parts of the UK as well – they haven’t been suddenly ‘pulled out of a hat’.

Details of the key publications from Devo More can be found here, here and here (and there are posts about the financing paper here, the welfare one here and how the programme fits various political traditions here).

Second, it’s suggested that these proposals amount to ‘Devo max’. They don’t. This is usually a rather lazy shorthand from journalists or politicians who haven’t understood what is actually on the table. The extra-devolution schemes, or scheme, will substantially enhance the autonomy of a devolved Scotland within the UK. But the Scottish Parliament is already responsible for about 70 per cent of all public spending in Scotland. The Devo More proposals will take Scotland as close to home rule as is possible in a single state.  They will deliver what Scots had clearly shown they’ve wanted for a decade or more – greater self-government in the Union – in a way that works with the interests of people in other parts of the UK, rather than against them.

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Filed under Devolution finance, Publications and projects, Referendums, Scotland, Scottish independence, Westminster

‘Devo More’ seminar in Cardiff, 11 June 2013

I’m giving a seminar on Devo More and what it would mean for Wales in Cardiff on the morning of Wednesday 11 June. The full title is ‘Devo More: How fiscal and welfare devolution can benefit Wales and strengthen the Union’, and it is part of the UK Changing Union programme based by the Wales Governance Centre at Cardiff University, under the aegis of the National Assembly’s Cross Party Group on the Changing Union. (Those who haven’t seen them can find the Devo More and Welfare paper here, and Funding Devo More here.)
The seminar will take place at 8.30 am in conference room 24 in Tŷ Hywel, with tea, coffee and pastries provided. To book a place, please email info@ukchangingunion.org.uk.

UPDATE, 12 June: The slides from Tuesday’s talk are now available HERE.

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Unlocking the lockstep?

There are interesting changes to the ‘Calman’ model of income tax in the Wales bill (which had its Commons second reading on Monday) and the Finance bill (which had its Commons second reading on Tuesday).

The ‘Calman’ model applies a ‘lockstep’ to the devolved income tax rate, which has to be the same for all three tax bands (basic, higher and additional or 45 per cent). That rate can be 0 per cent, 10 per cent (as it is at present) or some other figure but it must be the same for all three bands – so if the devolved rate were nine per cent, you would have tax rates of 19, 39 and 44 per cent. While this question did not attract particular attention when the Scotland Act 2012 was going through the UK and Scottish Parliaments, it has been controversial in Wales. It was not recommended by either the Holtham or Silk Commissions, and has attracted criticism from the Commons Welsh Affairs Committee, the First Minister (who called the power with the lockstep ‘pretty useless’) and the Plaid Cymru and Welsh Conservative leaders.

The provisions in the Wales bill mark a change from the draft bill published before Christmas. Instead of providing for a single ‘Welsh rate of income tax’ across all three bands, the key operational clause now provides for Welsh basic, higher and additional rates and defines each of them separately (see clause 9 of the bill). Clause 289 and Schedule 34 of the Finance (No 2) bill make similar changes to the finance provisions of the Scotland Act 2012. (Both bills also provide for beefed-up arrangements for reports on devolved tax powers by the Comptroller and Auditor General, something that was conspicuously missing from the Scotland bill.)

The substantive policy behind the devolved rate of tax remains the same; the lockstep is still in place, and UK Government policy backs it strongly. But this change creates the legal basis for having different rates of tax for each band, if that policy decision were taken later, by altering the rule regarding what a ‘Welsh’ (or ‘Scottish’) ‘rate resolution’ would be.

The application to Scotland appears to be an inversion of the position that ‘Wales gets what Scotland gets’, which is apparent throughout the finance provisions of the Wales bill. Since what Scotland has is proving politically very difficult in a Welsh context, creating a framework for a possible different approach is an interesting move. In the light of ongoing debates about fiscal devolution to Scotland, though, including the Scottish Labour Party’s proposals to increase the devolved rate of income tax from 10 to 15 points and to allow the Scottish Parliament to vary higher and additional rates upward, there are obvious potential uses on the table in Scotland as well.

UPDATE: There’s coverage of this issue – quoting me extensively – here, which appeared on the front page of Wednesday’s Scotsman, and a cartoon and comment, here.  It’s interesting to note a firm denial of the idea that there is any plan to break the lockstep from HM Treasury, reported in the Scotsman story.  Ben Riley-Smith of the Telegraph has also tweeted a denial from No. 10.  I don’t doubt the policy remains to maintain the lockstep, but also that this creates a smoother path to break it if the policy were to change.

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Filed under Calman Commission/Scotland bill, Devolution finance, Legislation, Scotland, Wales

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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Filed under Calman Commission/Scotland bill, Devolution finance, Lib Dems, Referendums, Wales, Westminster, Whitehall

An emerging fiscal debate in Northern Ireland

It has been quite easy to miss from Great Britain, but over the last few months there have been the beginnings of a serious debate about devolution finance in Northern Ireland.  Until now, this debate has been largely absent there, with the (major) exception of the debate about devolving corporation tax.

I’ve argued before that the corporation tax debate has been rather an unreal one, rooted in a serious absence of basic information and misapprehensions about both the benefits and problems of tax devolution (see HERE and HERE).  With the UK Government’s decision in March 2013 to put the issue on hold at least until after the Scottish independence referendum, that debate has at least paused. There still seems to be a belief there, however, that corporation tax devolution is not only viable and practicable but some sort of holy grail for the invigoration of the Northern Ireland economy.  (A separate part of the Northern Ireland debate has led to devolution of air passenger duty for long-haul flights, set at a lower level for 2012-13 and passing APD to Stormont’s control from the start of 2013.  In practice, there’s only one such flight – a daily one from Belfast International to Newark, New Jersey, in the US.)

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Filed under Devolution finance, Events, N Ireland corporation tax devolution, Northern Ireland