Devo Plus: A New Union

The Devo Plus group have published the third in their series of papers.

‘A New Union’ includes specific recommendations for the delivery of the long term constitutional relationship. They include:

  •  the Westminster Parliament permanently vesting the power to legislate for non reserved matters in Scotland to the Scottish Parliament;
  • the Scottish Parliament established permanently to that it can only be dissolved if it so agrees;
  • the authority of the Scottish Parliament to raise the majority of its expenditure recognised in statute; and 
  • means of adjustment to the agreement, and resolutions of dispute recognised in statute.

 The key aim is to secure a constitutional framework whereby the Scottish institutions of government are permanent and exist in their own right – not simply for as long as a Westminster Parliament desires it. They argue this will give those who vote No in the referendum a secure route to greater devolution. It requires the parties who do not support independence to sign up to a Statement of the New Union, include the principles in their 2015 manifestos and then delivering in government.

There is a clever attempt to get around A.V. Dicey’s classic public law statement that ‘Parliament is not bound by its predecessor’. The mechanism is to use the Statute of Westminster 1931 precedent in relation to the dominions. They also point to the watering down of Dicey in recent years. This section reminded me of the classic first year law student essay that I and many others had to write. I suspect nice argument, but no, is the answer.

The focus as ever with Devo Plus is on process, not what the powers are to be used for. When they touch on substantive issues it is inevitably about tax. The concept of ‘moral hazard’ underpins Reform Scotland, the group’s backers, approach. I disagree that this should be the driver. However, it is a well argued paper and solid contribution to the debate.

 

Laffer Curve economics fail again

In both of my recent Red Paper contributions I have been critical of the SNP’s adoption of Laffer Curve economics. This is the theory that by cutting, in their case Corporation Tax, overall tax revenues will increase. 

The term “Laffer curve” was reportedly coined by a writer for The Wall Street Journal after a 1974 afternoon meeting with Arthur Laffer, Dick Cheney and Donald Rumsfeld. With supply side economics it inspired Reaganomics. You would have thought none of these names would be people a respectable left of centre political party would want to be associated with!

The other big supporter of Laffer Curve economics is George Osborne – again not someone normally associated with SNP thinking. He also has focused on Corporation Tax and as a result the UK rate has been falling heavily from 28% in 2010 to 23% by 2013.

The Independent ran a story last week, ‘Britain’s missing billions’ following the publication of the latest UK public finance figures. They said:

“Yesterday’s public finance figures were a tale of two countries: the public paid more and corporations paid less. Last month Treasury receipts from VAT and income tax – which we all pay – rose by 6.4 per cent relative to October 2011. But corporation tax receipts – levied on the profits of the largest firms in the land – fell by 10 per cent on the same month a year earlier. In October companies poured £7.8bn into the state’s coffers, down from the £8.7bn they handed over last year. And this shortfall was not just a monthly aberration. Since George Osborne delivered his Budget in March companies have paid £24.9bn in corporation tax, 9.8 per cent less than the £27.6bn they handed over in the same period of last year.”

Tax justice expert Richard Murphy sums it up well:

“So much for the Laffer curve then. As I’ve always said: we’re already on the upward sloping part of the Laffer curve. That means cutting rates means less tax. And as night follows day, that’ s what is happening. So much for Laffer. So much for the right wing advocates of Laffer. So much for George Osborne. Now shall we have some plain common sense on this issue in future?”

I have never understood either the economics or the politics of the SNP’s adherence to Laffer Curve economics. However, I do understand that it doesn’t work and the latest UK figures demonstrate that, yet again.

Gordon Brown on fiscal implications

Gordon Brown made his first significant intervention in the constitutional debate over the weekend. Not surprisingly, he puts some focus on the fiscal implications, covering similar ground to my contribution in the last Red Paper booklet.

He starts with the solidarity argument. He says that today there is a 4 per cent difference between Scottish income per head and English income per head. That is much smaller than other EU countries or the USA, concluding that as a union it has delivered the same economic and social rights, “We have guaranteed that when one part of the UK is in difficulty the rest of the UK will come to their aid.”

However, he somewhat over eggs the case with the claim, “In the last hundred years the union thanks to Scottish ideas of fairness and opportunity has become a union for social justice”. Sadly, we still have enormous differences in wealth and health across the UK, largely because we have not tackled the issues of social justice. It is legitimate to ask, as I did, what the SNP would put in its place, but the union hasn’t delivered either.

He is on much stronger grounds when attacking the SNP economic plans. “Why under their plans the rest of the Uk and not Scotland will decide the interest rates we pay, the costs of the mortgages we hold, the rates at which business lends money, why under their proposals Scotland has no power over setting the inflation target, controlling the money supply, deciding crisis measures like quantitative easing.” Indeed, I argued that such a system would give us less say over economic policy and put even more power in the hands of the City. Gordon Brown makes the same point rather more sharply, “Under their plans all the decisions in an economic crisis would be made for Scotland by a separate government and bank from the rest of the UK , a form of self-imposed colonialism more reminiscent of the old Empire.”

Again, he slightly over eggs the argument with his claims that Scottish income will be unable to pay pensions and public service pay. Most objective studies accept that while the oil revenues are at today’s levels, Scotland’s income slightly exceeds expenditure. It is valid to question the wisdom of of relying on volatile oil revenues and the long term financial implications when oil revenues fall.

He ends his speech with 20 questions that the SNP needs to answer. Some frankly better than others, but he is right that the SNP cannot rely on high level platitudes without commissioning the detailed studies we need to make a reasoned judgement. Or as Gordon Brown puts it, “It is like being on the programme ‘Blankety Blank’ with the blanks still left to be filled in.”

I can’t really picture Gordon on Blankety Blank, but we get the point!