Henry Hill, Research Assistant

Mike Indian, Political Analyst

For more information on DeHavilland and how we can help with

political monitoring, custom research and consultancy, contact:

T: 020 3033 3870

E: info@dehavilland.co.uk

W: www.dehavilland.co.uk

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On 18 September 2014, Scotland voted to remain a part of the United Kingdom. The final result

saw victory for the No campaign by 55.3 per cent to 44.7 per cent. The result was based on a

record turnout of 84.59 per cent.

Shortly after the result was declared on the morning of 19 September 2014, UK Prime Minister

David Cameron delivered a statement to the media in which he declared that the referendum

had presented “a great opportunity to change the way the British people are governed, and

change it for the better.”

He reiterated a vow made by himself, Labour leader Ed Miliband and Liberal Democrat leader

Nick Clegg to deliver further powers to the Scottish Parliament, in the event of a No vote.

The Prime Minister appointed Crossbench peer Lord Smith of Kelvin to spearhead the process

to take forward the devolution commitments, to deliver an agreement on the new powers by

the end of November 2014, and draft legislation by 25 January 2015. This approach was in line

with the timetable set out by former Prime Minister Gordon Brown in the run-up to the

referendum.

Lord Smith set out his remit during a visit to the Scottish Parliament on 23 September,

explaining that he would “create a process through which agreement is reached, but I cannot

force an agreement.”

The Smith Commission would pursue an engagement process based on the following strands.

Firstly by inviting two representatives from each of Scotland’s five largest political parties

(Labour, the SNP, Conservatives, Liberal Democrats and the Scottish Greens) to be nominated

to the Commission and accepting written submissions. Secondly, seeking to engage civic

institutions and business groups. Thirdly, by engaging the wider Scottish public.

By Friday 10 October, the parties had submitted their views to the Commission. The UK

Government published a command paper setting out its views on devolved powers to

Holyrood on 13 October.

Following a series of bilateral meetings with each of the representatives and Lord Smith, the

full Commission met for the first time on Wednesday 22 October.

In this briefing, DeHavilland assesses the key perspectives of each party involved in the

process, speaks to key stakeholders involved in and around the debate, and attempts to

analyse what a new devolved settlement for Scotland could look like.

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Party

Fiscal Powers Welfare Transport Local

Government Energy

Financial and

economic matters

Income

Tax

Corporation

Tax

Air

Passenger

Duty

VAT National

Insurance

Housing

Benefit Employment Pensions

Borrowing

powers

Financial

regulation

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Labour would structure Scottish Government

finance in such a way as to have 40 per cent of the

Parliament’s budget raised from its own

resources. Central to this would be the ability to

vary income tax by 15 pence, which would put

three quarters of income taxation under

Holyrood control. They would also introduce

new Scottish Progressive Rates of Income Tax.

However, that prescribes the limit of Labour’s

willingness to devolve taxation. Air Passenger

Duty would not be devolved until such time as

the fiscal and environmental implications had

been explored.

European law prohibits VAT devolution. Labour

would also reserve corporation tax, capital gains

tax, alcohol, tobacco and fuel duties, the climate change levy, vehicle exercise duty, inheritance tax

and tax receipts on oil levies to Westminster.

On welfare the party would give the Scottish Government control over housing benefit and

allowance, as well as the responsibilities of Skills Development Scotland, responsibility for delivery

of the Work Programme, and operation of Employment Tribunals. They make no mention of

devolving any of the core elements of the welfare state, such as pensions and the majority of cash

benefits such as Jobseekers Allowance.

With regards to transport, Labour advocates the devolution of railway powers and offer a “not for

profit” option for the Scotrail franchise.

Labour would incentivise local public authorities to provide services in a more efficient way, and

establish clearer distinctions between central and local government in the setting of council

budgets.

They would also establish a constitutional guarantee to local government, and propose to enshrine

the status of the Scottish Parliament into law, and devolve to it control over the administration for

Scottish and local elections. They would also establish a new Scottish Health and Safety Executive.

The Crown Estate in Scotland would be made accountable to Holyrood, and local councils and

communities would manage the seabed.

Regarding financial and economic matters, Labour would maintain the Barnett Formula but

reserve monetary policy, currency, regulation, debt management and employment law to London.

London would also continue to control drugs policy and related laws, gambling and betting,

broadcasting, abortion, immigration, as well as the Civil Service, defence, foreign affairs and the

constitution.

Former Scottish Labour leader Johann Lamont

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The Conservatives endorse comprehensive, if not

total, devolution of income tax to Holyrood, with

the Scottish Government having the power both to

set the rates and the bands. Matters such as the

definition of “income” would remain uniform

across the United Kingdom, in addition to the

personal allowance.

However, taxes levied on investments, dividends

and savings would remain reserved to

Westminster. So too could Corporation Tax - the

Conservatives cite legal complexity, low public

visibility and comparatively low yields to oppose

the devolution of corporation, capital gains or

inheritance taxation.

The Conservative submission regrets that, due to

European Union law, it is not possible to devolve

VAT to Scotland, and highlight that sales taxes are

often devolved to great effect in countries like the

United States and Canada, and argues for “serious

consideration” of the case for passing back to

Holyrood a cut of Scottish VAT revenue.

The need to maintain a pan-UK welfare system, as

well as the technical difficulty of implementing it,

leads the Conservatives to oppose the devolution

of National Insurance. On similar grounds they

are against the devolution of employment benefit,

which they claim has no public support and

would undermine the Calman Commission’s call

for “fairness” across the UK.

Pensions too should be reserved to Westminster,

not least because of the huge expense they

represent, but also because people often retire to

different parts of the country than those they

worked in. However, the Conservatives do

support Scottish control over housing benefit “if it

can be done”.

Professor Adam Tomkins is a legal scholar and Professor

of Public Law at the University of Glasgow. A staunch

Unionist from the “British, not Scottish” school and an

avowed republican, he made an interesting Conservative

selection when he was chosen, alongside former Scottish

leader Baroness Goldie, to be one of the party’s two

representatives on the Smith Commission.

Before the Commission formally convened, and the SNP

and Greens had submitted their proposals, DeHavilland

interviewed Prof Tomkins to get his views on the present

state and future development of the constitutional

question.

“The key deficiency in Scotland”, Prof Tomkins believed,

“has been to have a Parliament that is responsible for

spending money but not raising it. One of the clearest

desires of the Scottish people is for the Scottish Parliament

to ‘grow up’ and be responsible for raising money”.

This forms the core of Prof Tomkins’ version of the

Scottish Conservative offer: fiscal responsibility, married

to internal devolution – which he described as a “matter of

principle” – and “much more flexibility” on welfare, social

security and social justice.

This flexibility would fall within a pan-British welfare

framework: Prof Tomkins listed social security, especially

pensions, alongside the single market and national defence

as the essential role of the Union and the UK Government.

He also emphasised the need for: “A settlement that is fair

to all four nations of the United Kingdom… and that

meets the legitimate aspirations and interests of people in

all four nations.”

Asked whether the structure of the Commission risked

creating a new Scottish settlement without reference to the

rest of the UK, Prof Tomkins replied: “Let’s start from

where we are rather than where we might have liked to

be.”

Scottish Conservative leader Ruth Davidson

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Regarding local government reform, the

Conservative submission argues that:

“Consideration of Scotland’s constitutional future

must embrace devolution and decentralisation

within Scotland.” They pick out planning controls

as a matter which should be devolved as locally as

possible.

In tandem with these new powers, the Tories call

for the establishment of an independent Scottish

Fiscal Commission to provide official macro-

economic and fiscal forecasting. They also support

the creation of a Scottish equivalent to HMRC’s

new personal tax statements, to better inform the public of what taxes the Scottish Parliament is

levying, and how attendant revenue has been disbursed.

They want Scotland’s fiscal balance sheet to be clearly communicated to the public, and for there to

be a clear link between the policies enacted by the Scottish Government and public expenditure in

Scotland.

UK Prime Minister David Cameron

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The Liberal Democrats, in line with their

explicitly federalist constitutional

preferences, support the devolution of

income tax rates and bands to the Scottish

Parliament, alongside the full devolution of

Air Passenger Duty.

They would also devolve capital gains tax

and, whilst they would reserve corporation

tax to Westminster, the proceeds thereof

would be returned to the Scottish Parliament.

They make no mention of doing the same for VAT revenues and acknowledge the impossibility of

actually devolving sales taxes inside the EU.

National Insurance would also be reserved because of its close connexion to the welfare system,

which the Liberal Democrats would continue to operate on a pan-UK basis.

With regards to welfare, the party supports very little by way of new powers for Scotland.

Employment benefits and pensions would both be reserved to London in order to ensure “the

retention of a single United Kingdom welfare and pensions system, supporting free movement and

residency across the United Kingdom with a common set of living standards and entitlements”.

They would also reserve housing benefit, which all four other members of the Commission would

fully devolve, although they would require any changes to it to require a “formal consultation”

with the Scottish Government.

The Liberal Democrats support an increase in the financial autonomy of Scottish local government,

and want to mirror changes they envision taking place in the Scottish Parliament by strengthening

the link between council policy and income.

To this end they call for local councils to be responsible for setting business rates and retain one

hundred per cent of the income raised - although the structure of business rates would continue to

be operated on a national basis from Edinburgh. Legislation would be enacted to force the Scottish

Government to cooperate with local government and maintain a “strong and effective” local

government system.

Additionally local communities would have the right to petition for the establishment of smaller

local government units, styled “burgh councils”, when they felt that their interests were not

adequately served by larger bodies. Whilst reserving financial regulation for the British

Government, in view of its “serving the single market and supporting employees and

consumers”, the Liberal Democrats would grant borrowing powers to Edinburgh and

enact a fiscal pact between the Union and Home Rule administrations to set responsible

parameters for the exercise of such powers.

Scottish Liberal Democrat leader Willie Rennie

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The Scottish National Party’s attitude

towards devolution is easiest to summarise:

devolve power wherever it is possible.

This stance encompasses every significant

fiscal measure. Full responsibility for income

tax would rest in Edinburgh alongside Air

Passenger Duty and - in a significant advance

on unionist proposals - corporation tax and national insurance. They also call for all Scottish VAT

receipts to be assigned to the Scottish Government.

The devolution of National Insurance, opposed by unionists as it would undermine a pan-UK

welfare system, is of a piece with the SNP’s ambition to create an entirely devolved Scottish welfare

state, with Holyrood responsible for all welfare expenditure, policy and administration and making

payments to the UK for reserved matters.

This includes both housing and employment benefits as well as pensions. The SNP also call for the

full devolution of any transport areas currently reserved to Westminster and for Scotland to set her

own energy policy.

Under Nationalist proposals the Scottish

Parliament would have a “sustainable

framework” for public finances which could

include borrowing powers, alongside a

compact with the British Government on the

overall approach to public finance. The

Barnett Formula would be retained during the

period of transition and would then serve as a

backstop should new fiscal powers fall short.

Although the Bank of England would

continue to provide monetary policy and

financial stability across the United Kingdom,

the Scottish Government would set

competition policy.

Regarding local government, the Nationalists state that new powers for the Scottish Parliament will

permit the Scottish Government to devolve more powers within Scotland. However they appear to

view the specifics of this as a matter for the Scottish Government, and to believe that powers must

first be passed to Holyrood before being devolved further.

SNP leader and First Minister Nicola Sturgeon

Former First Minister Alex Salmond in his final speech to SNP

conference, 14 November 2014

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The overarching ambition of the Green Party’s

proposals is that the Scottish Parliament and

local authorities should have the power to

design and raise the majority of their own taxes,

and as a consequence fund the majority of their

own spending.

In pursuit of this aim they support the full

devolution of income taxation to the Scottish

Parliament alongside Air Passenger Duty. They

are not seeking to directly devolve as many

taxes as the SNP, but moot that flat-rate taxes

such as VAT and corporation tax could have a

revenue percentage assigned to Edinburgh.

A presumption of devolution would prevail

with regard to welfare under the Green model,

with entitlements such as Jobseekers’ Allowance and National Insurance resting with the Scottish

Government.

Alongside this the Greens support further devolution of transport matters and a policy of

decentralisation within Scotland.

On financial matters, the Greens state that they want new powers “to create a jobs-rich, more equal

and more locally-based economy”, but their submission contains few specifics as to what this

entails.

Scottish Green Submission to the Smith Commission

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The Smith Commission website hosts the

submissions of over four hundred third-party

organisations. These range from explicitly political

groups, such as Clydebank Yes Alliance or United

Against Separation, to business, charitable and

cultural organisations.

The political groups adopted lines similar to those

of their champions amongst the Commission’s

party delegates, with separatists echoing Green

and SNP calls for maximal devolution, and UAS

arguing that the proposals of Labour and the

Conservatives (but not the Liberal Democrats)

constituted the greatest distance that devolution

could be carried by its present mandate.

Minor political party submissions, such as those of

the Scottish Socialist Party, are also included in

this list but, despite winning one of Scotland’s six

European Parliament seats in May, the UK

Independence Party does not appear to have made

a submission.

Many business submissions made headlines for

sharply contradicting the SNP’s ambition for

maximal tax devolution.

The Institute of Chartered Accountants Scotland (ICAS) also urged caution when considering the

subject. On the other side of industry, the Scottish Trades Union Congress (STUC) called for not

only substantial tax and welfare devolution, but for Scotland to be able to set “a distinctive policy

on immigration and asylum”, in a proposal which greatly exceeds those of the unionist parties but

does not go so far as the SNP.

Other charitable groups have supported the SNP demand for devolution of welfare. These include

Citizen’s Advice Scotland (CAS), which has also called for the Commission to expand both its

timescale and its remit. It argues that the Commission should run beyond the 2015 general election

because “it is not speed that is of the essence but thought and discussion”.

Along with its formal submission, Scottish local government group COSLA worked with its

counterparts in the rest of the United Kingdom to write a letter, sent to Lord Smith as well as

Leader of the House of Commons William Hague, calling for substantial further devolution of

power to local government across the United Kingdom.

Daily Telegraph, 6 November 2014