Sunday, 30 November 2014

Smith Commission: A Simple Summary

The Report itself is very short so I do recommend anybody who is even vaguely interested just reads it (> Smith Commission Report).  I've also appended the published Vow at the foot of this article to remind those who seem to forget what it actually said.

To pluck out the highlights and their implications;

Permanence of the Scottish Parliament(21)

"UK legislation will state that the Scottish Parliament and Scottish Government are permanent institutions."

This was never seriously in doubt and to suggest it might be was one of the more bizarre arguments used by the Yes campaign. That argument is now dead.

Income Tax Powers (76/77)

"the Scottish Parliament will have the power to set the rates of Income Tax and the thresholds at which these are paid for the non-savings and non-dividend income of Scottish taxpayers [...] there will be no restrictions on the thresholds or rates the Scottish Parliament can set [...] other aspects of Income Tax will remain reserved to the UK Parliament, including [...] the personal allowance"

Some fuss has been made about the personal allowance point (the threshold at which people start paying tax) but all this means in effect is the Scottish Government can't lower the threshold (i.e. can't have lower earners paying tax in Scotland than England).  They can effectively raise it (lifting more people out of paying tax) by setting the initial tax rate to zero (or a nominal amount) and introducing a new threshold and rate to create the effect of a higher personal personal allowance.

Welfare Powers (49/53/54)

"Powers over the following benefits in Scotland will be devolved to the Scottish Parliament: (1) Benefits for carers, disabled people and those who are ill: Attendance Allowance, Carer’s Allowance, Disability Living Allowance (DLA), Personal Independence Payment (PIP), Industrial Injuries Disablement Allowance and Severe Disablement Allowance. (2) Benefits which currently comprise the Regulated Social Fund: Cold Weather Payment, Funeral Payment, Sure Start Maternity Grant and Winter Fuel Payment. (3) Discretionary Housing Payments.

The Scottish Parliament will have new powers to create new benefits in areas of devolved responsibility [...] will also have new powers to make discretionary payments in any area of welfare without the need to obtain prior permission from DWP."

The highlighted paragraph is possibly the most significant in the entire report.  Whilst it's unclear to me what the difference is between "benefits" and "discretionary payments", this appears to mean that although the Scottish Government can't reduce the reserved benefits they can effectively increase them through "discretionary payments".


These new income tax and welfare powers surely deliver against the "extensive new powers" element of the Vow.  Full control of income tax gives the Scottish Government direct control over the most powerful lever of wealth redistribution; the ability to make discretionary payments in any area of welfare (in addition to full control over the devolved benefit areas) means that the Scottish Government can increase welfare payments for the worse off (if they are willing to find the savings in other devolved cost areas and/or increase the overall income tax take).  When the Yes camp highlight that only a percentage welfare expenditure is devolved it's worth remembering that the only complaint they can really have is if the Scottish Government wanted to reduce certain benefits.  I don't think there are any examples in SNP policy but I could be wrong.

As an example: with these powers the Scottish Government could make Food Banks a thing of the past (if addressing the issue is a simple as the Yes campaign suggested).


Block Grant Adjustment (95)

"No detriment as a result of the decision to devolve further power: the Scottish and UK Governments’ budgets should be no larger or smaller simply as a result of the initial transfer of tax and/or spending powers, before considering how these are used"

This is just common sense, but I highlight it as it has caused some confusion (on social media at least).  All this says is the Block Grant is adjusted to reflect the initial transfer of tax or spending (i.e. so that on "day 1" there is no net value transfer).  There would be no impact oo the Block Grant as a result of the Scottish Government using these powers (e.g. raising more tax in Scotland wouldn't reduce the Block Grant).

VAT (84)

"The receipts raised in Scotland by the first 10 percentage points of the standard rate of Value Added Tax (VAT) will be assigned to the Scottish Government’s budget. These receipts should be calculated on a verified basis, to be agreed between the UK and Scottish Governments"

This one bugs me a bit as it seems to be a largely cosmetic exercise which introduces unnecessary reporting complexity for businesses.  The block grant will be reduced by a commensurate amount and (appropriately in my view) the Scottish Government will have no power to vary VAT - so the only benefit is to create a direct link between changes in VAT-able consumer demand in Scotland to Scottish Tax revenues.  I might be under-estimating the differential variability in demand for VAT-able goods as a result of Scottish Government policy but this seems like a rather second order benefit to me compared to the pain of UK businesses having to separate reporting of VAT-able revenue between sales made in Scotland and rUK.

Correction: Marek Zemanik (who sat in Smith Commission meetings) informs me on Twitter that they were clear there would be no additional reporting burden for business that instead but would use "agreed estimation methods".  I'm happy to be corrected but leave my initial interpretation to show how wrong I can be!

Minimum Wage

This remains reserved and is one of the SNP's main complaints. I was interested hear Nicola Sturgeon cite the Minimum Wage as one of the "job creating powers" she was disappointed not to see devolved.  Whilst there is an argument for raising the minimum wage to drive consumer demand and free up benefit subsidies (thanks @UnisonDave) I think there is a stronger argument for ensuring we don't create low-wage based competition within the UK.  [For what it's worth I'm in favour of controlled increases to the Minimum Wage on a UK-wide level.]

Corporation Tax

This remains reserved and the SNP are unsurprisingly unhappy given that the only tax policy they offered during the independence referendum was to reduce corporation tax.  The idea that we might start a race to the bottom on corporation tax within the UK (or create low-wage based competition within the UK) seems to me inconsistent with the Vow ("sharing our resources equitably across all four nations to secure the defence, prosperity and welfare of every citizen") and - more importantly -the outcome of the referendum.


The Party Political Implications

I tend to steer clear of party political issues in this blog but it strikes me there are some rather interesting implications of the Smith Commission Report.

Whilst the Vow is still on track it has of course not yet been delivered - it will be the job of the next Westminster Government to implement the agreement.

If the Conservatives gain power it is highly likely that the issue of English Votes for English Laws (EVEL) will become entangled with any implementation of the agreement; if Labour hold the balance of power it would seem implementation is likely to be far smoother (and there won't be an in/out referendum on Europe).

The implications for the SNP are somewhat intriguing. To guarantee delivery of these extensive new powers and to ensure we stay within the EU they should surely favour a Labour Westminster Government.

That the SNP's forecast electoral gains in Scotland will come at the expense of Labour (and increase the likelihood of a Conservative government at Westminster) should cause some head-scratching amongst more thoughtful Scottish voters.  Those interested in seeing more power devolved to a Scotland that remains within the UK and the EU (and arguably those who are interested in seeing social justice delivered through re-distributive policies) may find themselves more drawn to Scottish Labour than the SNP.

The SNP faces another new challenge of course: assuming the new powers are delivered they will surely need to stop blaming Westminster for all of Scotland's social ills and start demonstrating their conviction to actually do something about them; they will finally have to grapple with the difficult tax and spend decisions that they have been able to avoid to date.

We live in interesting times.

Appendix: The Vow

As published by the Daily Record and signed by the main party leaders this is the actual wording of "the Vow":

The people of Scotland want to know that all three main parties will deliver change for Scotland.

We are agreed that:

The Scottish Parliament is permanent and extensive new powers for the Parliament will be delivered by the process and to the timetable agreed and announced by our three parties, starting on 19th September.

And it is our hope that the people of Scotland will be engaged directly as each party works to improve the way we are governed in the UK in the years ahead.

We agree that the UK exists to ensure opportunity and security for all by sharing our resources equitably across all four nations to secure the defence, prosperity and welfare of every citizen.

And because of the continuation of the Barnett allocation for resources, and the powers of the Scottish Parliament to raise revenue, we can state categorically that the final say on how much is spent on the NHS will be a matter for the Scottish Parliament.

We believe that the arguments that so powerfully make the case for staying together in the UK should underpin our future as a country. We will honour those principles and values not only before the referendum but after.

People want to see change. A No vote will deliver faster, safer and better change than separation.

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