Fiscal devolution and reducing inequality

Fiscal devolution is about more than just transferring powers from one parliament to another. It has to be part of a strategy to reduce inequality in Scotland.

That was the key message in my Sunday Times (£) column yesterday. I set out the options for fiscal devolution and my own preferred option as described in the Red Paper on Scotland and UNISON Scotland’s ‘Fairer Scotland – Devolution’ paper. This approach devolves all property-based and income taxes, including the power to vary the rate in each band. Business and consumption taxes are retained at UK level, because business tax competition simply leads to a race to the bottom.

I also took the opportunity to rebut some of the recent criticisms of fiscal devolution, including the impact on the Barnett formula and the risk that further devolution will lead to independence. Both in my view miss the point completely.

However, the main thrust of my column was that powers, including fiscal devolution, have to be for a purpose. That purpose is a fairer and more equal Scotland because more equal societies perform better on every measure.

The Yes campaign and the White Paper makes much of the OECD 2011 paper that appears to show the UK as the fourth most unequal society in the developed world. However, this selective use of the paper only deals with income inequality. The OECD paper actually emphasises the role of public services in reducing inequality. The paper says:

But public services improved their impact on reducing inequality. Social spending in the UK relies more on public services (such as education, health etc.) than on cash transfers: spending on services amounts to over 15.4% of GDP while spending on cash transfers is some 10%. These services reduce inequality more than almost anywhere else, and this impact has increased over the 2000s.”

This is why the strongest argument for fiscal devolution is that Scotland is suffering from the financial consequences of English public service reform as the Tories shrink the state. Having the power to develop our own public service model is weakened if the financial rug is pulled from under it. University privatisation and NHS cuts are two recent examples. The IPPR ‘Devo More’ paper makes a similar point.

The OECD key policy recommendations are also noting:

  • Employment is the most promising way of tackling inequality. The biggest challenge is creating more and better jobs that offer good career prospects and a real chance to people to escape poverty.
  • Investing in human capital is key. This must begin from early childhood and be sustained through compulsory education. Once the transition from school to work has been accomplished, there must be sufficient incentives for workers and employers to invest in skills throughout the working life.
  • Reforming tax and benefit policies is the most direct instrument for increasing redistributive effects. Large and persistent losses in low-income groups following recessions underline the importance of government transfers and well-conceived income-support policies.
  • The growing share of income going to top earners means that this group now has a greater capacity to pay taxes. In this context governments may re-examine the redistributive role of taxation to ensure that wealthier individuals contribute their fair share of the tax burden.
  • The provision of freely accessible and high-quality public services, such as education, health, and family care, is important.

The Yes campaign would of course argue that we could do all of this with independence. There is a certain irony that the SNP’s currency union could actually result in greater financial control from ‘London’ than fiscal devolution. The SNP (Stewart Hosie’s line in the last BBC debate) would still have us believe that Scandinavian levels of public services are possible on current tax rates. Scandamerica is simply not a credible proposition for anyone who is serious about tackling inequality.

All the polls make it clear that the majority of Scots want to see greater devolution short of outright independence. Scottish Labour has to go with that majority by arguing for the fiscal powers that can help deliver a vision of the fairer and more equal society. Anything short of that really would encourage a drift to independence.

One thought on “Fiscal devolution and reducing inequality

  1. What I find difficult to understand about this line of argument and the third way stance of the Red Paper Collective is that the merits or otherwise of DevoMax (no matter how compelling) is an irrelevance when the upcoming Scottish Referendum is about straight Yes/No vote.
    And from my perspective, the No Campaign led by Labour Party grandee, Alistair Darling, is all about maintaining the status quo, unbalanced Britain, the Westminster gravy train, banging-the-drum, waving the Union Jack, jingoistic nationalism and jam tomorrow promises. As such, it is wholly negative and unappealing and certainly not in the interests of working and unemployed people who are paying a heavy for Austerity which is like to continue unabated no matter which party wins the 2015 election.
    But f f a Yes vote resulted in a more predistribution economy and social justice and in the removal of Trident nuclear weapons from Scottish territory, great I say. Especially if these billions were spent (both sides of the border) on productive industry, economic regeneration, skills training, job creation and on much-needed social houses.
    Over the past 35 years we have witnessed growing inequality and social exclusion under the leadership of Tory, Labour and Liberal politicians who then move on to welcoming arms of the city, big money and the unelected House of Lords. Alistair Darling is already enjoying the fruits of the Westminster gravy train. Last year, on top of his MP’s pay and generous expenses he picked up £172.550 for 15 speaking engagement which included one day payday of £30,000, courtesy of Bank of America, Merrill Lynch and JP Morgan Chase.
    With those inducements support for the status-quo is understandable, but is no reason for the rest of us to be persuaded by what a banker no matter how eminent Mark Carney might be. After all, we the 95% of Scottish and UK citizens have paid dearly for the decisions taken by bankers, the political elite and senior politicians such as Alister Darling.
    National self-determination and devolving power closer to the people is something all democrats and socialists could and should support including this life-long Labour voter and the Red Paper Collective.
    In making these points it is important to emphasise that a Yes vote is not necessarily a vote for Alex Salmond and the SNP. And it is for these reasons that this North Yorkshire Sassenach (and former Labour Party member and lifelong Labour Party voter) is urging his son and daughter-in-law. Who live in Bonny Scotland to vote YES.

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