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Scotland is to raise more of the money it spends—whether it wants to or not

PERHAPS the biggest problem in politics is how to match the public’s desire for things like roads, hospitals and schools with its dislike of paying the taxes needed to build and run them (see article). That has not worried Scotland’s devolved government, however. It has spent lavishly on transport, health care and education: Scottish university students pay less than English ones, and oldsters are cared for free of charge. Content with its block grant of £33 billion from the Treasury in London, the Scottish government has shown no interest in using the single, modest tax-raising power it has: varying the 20% basic rate of personal-income tax by up to three percentage points.

That may be about to change. On June 15th a commission set up under Sir Kenneth Calman, once Britain’s chief medical officer, came up with some ideas on how to improve the Scottish Parliament, ten years into devolution. Its chief innovation is suggesting that Scotland raise more of the money it spends, in the hope that fiscal responsibility might make its politicians cannier with taxpayers’ cash.

The commission proposes letting the Scottish government vary income-tax rates by 10p in the pound in each tax band. It suggests that London set Scottish rates at 10p less than those for Britain as a whole, and cut its block grant by the amount that the difference in rates might be expected to raise. Scotland’s finance minister could then produce a follow-up budget to fill the gap—or not. A few other taxes might also be devolved (mostly minor ones, such as air-passenger duty, and explicitly not big earners such as corporation tax or North Sea oil and gas levies). Sir Kenneth reckons the scheme would put Scotland in charge of raising around 16% of its budget.

The proposals are likely to please both the Scots, by giving them more power over their own affairs, and the English, by reducing the money the Treasury sends north. Gordon Brown at once welcomed the proposals, saying that they would provide a new basis for the political union between Scotland and England. For his part Scotland’s first minister, Alex Salmond, briefly looked stunned—inheriting responsibility for taxes in the depths of a recession is a poisoned political chalice—but quickly rallied. He said he might include a vote on the proposals in a referendum on Scottish independence he wants to hold next year. Mr Brown could trump Mr Salmond by rolling the recommendations into a bill with other constitutional reforms before Mr Salmond has a chance. The politics of all this are far from straightforward.

Seceding from Britain is not especially popular in Scotland but Mr Salmond is. The Calman commission was set up in London after his Scottish Nationalist Party (SNP) edged out Labour in the Scottish elections of 2007. The SNP has since won one bye-election and thumped Labour in the European elections on June 4th. The Labour Party looks set for defeat in the general election which must be held by June 2010. Mr Brown may calculate that swift action on the Calman plan could defuse the SNP threat to Labour’s Scottish seats.


Whatever its merits, however, the Calman plan fails to address the bigger problem of how public spending is distributed around Britain. Though Scotland is the fourth-wealthiest part of Britain (far richer than England’s North-East, for example), it receives, like Wales, the third-biggest dollop of central-government spending per head (see map). Poorer regions gripe, with reason, that this is unfair.

These inequalities arise because the formula for allocating cash to Scotland, Wales and Northern Ireland, introduced in 1978 and based on population, has failed to produce the hoped-for convergence in regional spending. Politicians have added extra cash over the years—usually, in Scotland’s case, to appease Nationalist uproar.

Sir Kenneth was not asked to come up with a different formula and didn’t. But pressure to do so is building in other parts of the union. Welsh politicians, convinced that Wales gets a raw deal, have set up a big-name commission to examine the formula’s flaws. Its first report is due soon. If it is written with the same cogency as Sir Kenneth’s, Mr Brown’s regional problems will only get worse.

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