Economic Affairs Committee
A Fracturing Union? The Implications of Financial Devolution to Scotland

1st Report of Session 2015-16 - published 20 November 2015 - HL Paper 55


Executive Summary: A fracturing union?

Summary of Conclusions and Recommendations

The Issues



The Financial devolution settlements

Problem 1: ‘Nobody knows what is going on’: The absence of the fiscal framework

Problem 2: Funding of devolved administrations in the UK

The Barnett Formula

Problem 3: Adjustment of the block grant to reflect devolved income tax receipts

Method 1: fixed percentage change to the block grant adjustment

Method 2: index deduction to changes in rest of UK revenues

Method 3: index deduction to changes in rest of UK revenues per head

Which method is preferable?

Problem 4: The second ‘no detriment’ principle

Application in selecting a method for adjusting the block grant to reflect devolved powers of taxation

But otherwise unworkable?

Problem 5: Choice of devolved taxes

Problem 6: Borrowing Powers

Questions about borrowing powers for Scotland

Problem 7: Transparency and Scrutiny

Scrutiny prior to devolution

Future scrutiny

Annex 1: Devolution in the UK

How did we get here? The Evolution of Devolution in the UK



Northern Ireland

Annex 2: Tax devolution: principles and practice

Principles: which taxes are best to devolve?

Practice: rationale for current tax devolution



Northern Ireland

Individual taxes

Income Tax

Corporation Tax

Assignment of Value Added Tax

Annex 3: The Block Grant and the Barnett Formula

Expenditure per head in the UK by country and region

History of funding for Scotland, Wales and Northern Ireland

The Barnett Formula—an example

Should the Barnett formula be replaced?

Needs-based system

Support for the Barnett formula

Annex 4: Adjusting the block grant to reflect devolved revenue raising powers

The three methods for adjusting the block grant to reflect devolved powers of taxation to Scotland

Link to the second no detriment principle

Annex 5: Borrowing Powers

Devolution of borrowing powers

Additional borrowing powers for Scotland and Wales

Support for further borrowing powers

Extent of further borrowing

No bail-out rule

Appendix 1: List of Members and Declarations of Interest

Appendix 2: List of witnesses

Appendix 3: Call for Evidence

Evidence is published online at and available for inspection at the Parliamentary Archives (020 7219 3074).

Q in footnotes refers to a question in oral evidence.

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