Conclusion
54. The Smith Agreement represents the best of both
worlds. It presents Scotland with much greater powers over taxation,
meaning for the first time the majority of the money the Scottish
Government spends will be paid for by its own taxation. This will
it make it more fiscally accountable to the people of Scotland
for how it spends their taxes. On the spending side significant
powers over welfare will be devolved including a potentially important
power to increase each and every benefit. At the same time, Scotland
will continue to benefit from pooling risk and resources across
the wider tax base of the whole of the United Kingdom, which will
protect it from any shocks in Scottish revenues or expenditure.
55. As our analysis of full fiscal autonomy, an alternative
option to the Smith Agreement, makes clear, while it would deliver
additional powers and responsibilities to Scotland it would also
expose the country to greater risks. Under full fiscal autonomy
Scotland would benefit in full from any better than expected revenues
from taxes that are currently reserved but it would also have
to bear the consequences were such revenues to collapse. As the
recent fall in the oil price demonstrates such a scenario is not
fanciful and without the protection of the wider and more diverse
UK economy the consequences for Scotland would have been disastrous.
The Barnett formula gives Scotland more resources than its share
of population currently warrants: in 2012-13 this was worth £8
billion to the Scottish Government, equivalent to approximately
£1,500 per person. Full fiscal autonomy would result in the
loss of this transfer and, without sufficient oil revenues to
mitigate such a loss, a sizeable fiscal gap would be created that
would need to be filled by increased tax revenues, cuts to public
spending, increased borrowing or a mixture of all three.
56. The collapse in the oil price is a stark reminder
of the risks that face economies which rely on a volatile revenue
stream to fund a large proportion of their public spending. The
conclusion of the Smith Commission not to devolve such a volatile
source of revenue, nor to recommend full fiscal autonomy, but
instead to retain the system of shared benefit and pooled risk
across the United Kingdom has already proved to be a wise decision,
and one that is of obvious and immediate benefit to the people
of Scotland.
57. It is clear that the Smith Agreement faithfully
fulfils the "vow" to devolve substantial powers that
unionist party leaders made in the lead up to the referendum.[87]
It is now important to focus on its implementation and the draft
clauses are one further step in that process. Tougher and more
complicated negotiations will follow, particularly in developing
an effective fiscal framework to govern the new economic relationship
between Scotland and the United Kingdom Exchequer. With fiscal
rules in place that are fair, robust and transparent, and which
allow Scotland to bear the consequences of its decisions, then
the Smith Agreement has the potential to be an enduring settlement.
Get them wrong and the potential for grievance, from either side,
will be huge. We look forward to both Governments working together
constructively and in good faith to deliver a new devolution settlement
for Scotland, one that devolves significant powers to the Scottish
Parliament and Government and does not cause detriment to either
Scotland or the United Kingdom.
87 The 'vow' was published on the front page of the
Daily Record newspaper on 15 September 2014. Back
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