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Monday, June 1, 1998 Published at 13:07 GMT 14:07 UK

UK Politics: Talking Politics


BBC Scotland's Political Editor Brian Taylor looks at the controversies arising from the Scotland Bill's details


As outlined in the article on the Bill, the present funding arrangements for Scotland would broadly continue. At an earlier stage, there was talk of "assigned revenues" whereby all the taxes collected in Scotland would accrue to Edinburgh - with subventions to or from the Treasury where necessary.

But that has been abandoned as cumbersome. Instead, it is proposed that Scotland will continue to be funded by a form of Block Grant.

The grant will be varied annually according to the existing Barnett formula whereby Scotland's budget is amended by a proportion of the change in budgets elsewhere.

This was intended - over a long period - to narrow the relative spending advantage that Scotland enjoys: although in practice the gap has not diminished all that much.

Tax varying powers

In addition, it is envisaged that the Parliament would have the power to raise or lower the basic rate of income tax by three pence in the pound.

[ image: Scottish Secretary Donald Dewar indicated he may favour tax-raising powers being used]
Scottish Secretary Donald Dewar indicated he may favour tax-raising powers being used
Labour has stressed that - were it to govern in a devolved Scotland - it would not envisage using this power in the initial stages. This means it would not breach its UK pledge of no increase in tax rates for the lifetime of the Westminster Parliament.

Liability to this tax power would be restricted to those who are principally resident in Scotland: around 2.4m Scottish income tax payers.

It is said that more than 25% of these would not be affected by tax-varying powers because they are lower-rate tax payers.

Of the rest, it is said that nearly two-thirds would pay 145 per year on average if tax were to be increased by the full 3p. The maximum payable is said to be 660 - affecting only 7% of Scottish income tax payers.

In addition, Scottish Secretary Donald Dewar has indicated that he might favour this power being used - if at all in the future - for special, time-limited projects requiring a clear subvention from the taxpayer.

This, however, is not specified in the legislation and would remain a matter for the Scottish Parliament to decide.

Tax cuts

If Edinburgh opted to increase income tax, it would self-evidently keep the additional revenue. Equally, if Edinburgh opted to cut income tax it would have to forego the equivalent in cash from the Treasury and make cuts in its budget.

As the original Convention document says: "There will be no question of England subsidising tax cuts in Scotland."

There are still questions arising however. The former Tory Scottish Secretary Michael Forsyth made considerable play of his attacks on the tax power - which he dubbed the Tartan Tax.

This formed much of the basis of the No campaign in the Referendum without, of course, succeeding in swaying the Scots.

< a name=#Business fears> Business fears

The business community - which is steadily learning to live with devolution - remains seriously worried by the tax power.

It fears that a Scottish Parliament may not be able to resist the temptation to raise revenue with a knock-on effect upon wage demands and competitiveness.

As a separate but related issue, business is lobbying against possible increases in business rates. Local government finance is an issue devolved to the Scottish Parliament.

The business fear is that the new Parliament will seek to free resources by obliging councils to fund more of their spending locally, putting pressure on council taxation - which will remain capped - and, possibly, business rates.

Government ministers have voiced their view that a newly-formed Scottish Parliament will want to work with the business community and will not wish to do anything which might counter the wider objectives of fostering growth and reducing unemployment.

Spending advantage?

But in addition, there are signs that the devolution debate will spotlight Scotland's claimed relative spending advantage.

Most recently, the contenders for the post of London mayor have argued that they would wish to see the allocation of funds restructured to London's gain and Scotland's disadvantage.

It may be - as devolution supporters point out - that any potential tax cuts voted by the Scottish Parliament would not be sponsored by England. However, it is likely that the existing financial set-up will come under close scrutiny. The Treasury has long regarded Scotland as over-funded and has sought retrenchment.

The White Paper which preceded the devolution bill indicates that any "substantial revision" of the formula governing the change in Scotland's funding would require "an in-depth study of relative spending requirements" and maximum consultation between London and Edinburgh.

In due course, this could presumably turn into the study of relative needs which some argue would result in cuts in Scotland's historically high level of funding.

It should be noted of course that others dispute the assessment that Scotland is over-subsidised. The Scottish Office would prepare a robust defence and Nationalists argue that - taking a proportion of oil revenues into account - Scotland subsidises England.

But for now it is important to stress that Mr Dewar has secured the retention of the existing financial set-up.

These issues will undoubtedly be raised again - although it is scarcely credible that the present administration would raid Scotland's budget to any drastic extent: given its political make-up and its determination to make devolution succeed.

It is envisaged, however, that the Barnett formula will in future be reviewed annually. It may be interpreted from this that the narrowing of the gap between Scotland and England which Barnett originally intended may be accelerated in the future.

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