THE NEED FOR AN ENGLISH PARLIAMENT

Below are extracts from a speech given by Iain MacLean at a Demos conference [Scotland 2020], last year, regarding the future of Scotland.

Iain MacLean is Professor of Politics at Oxford University and a Fellow of Nuffield College. He is the author of The Legend of Red Clydeside and numerous papers and studies on devolution, finance and representation.

‘The tap which controls the flow of UK tax proceeds into Scotland will be turned off soon. I don’t know when, but certainly before 2020. Before it is turned off, there has to be a mature public debate in Scotland on what should take its place. Until recently, the Scottish defining narrative of the Barnett Formula has been that Scotland deserves all it gets and that anyone who questions that is no better than Edward II ... But the plucky Scots are threatened by the demon English who are imposing a wicked Barnett Squeeze on them. In England, the defining narrative reverses the roles. The Scots are a bunch of mean and arrogant whingers, featherbedded by the Barnett Formula that allows them to sup turtle soap with gold teaspoons while the English have to beg for a crust in the streets of Newcastle.

Things are at last getting a bit more grown-up, with all the Opposition parties, and some leading economists, saying they want fiscal autonomy (sometimes full fiscal autonomy). But they mean utterly different things. Some of them are more plausible than others. Once you understand what full fiscal autonomy would involve, you might prefer something quite different, such as a Grants Commission to distribute funds to the four countries (or the 12 regions) of the United Kingdom ...’

Scotland has enjoyed a higher public spending per head than England since about 1900. For that there has been one big reason, and it is not the one that people think. People think that Scotland gets more because it is colder, poorer, and has more difficult geography than England. All of these things are true (although 100 years ago and now, it was not much poorer than England). But the reason for higher spending is that Scotland poses a credible threat to the United Kingdom. In the 1880s, when formula funding started, it was named the Goschen proportion after the Chancellor of the Exchequer in Lord Salisbury’s Unionist government. The big problem was Ireland, not Scotland. To try (vainly in the end) to keep Ireland in the Union, the Unionists threw money at it. This was called Killing Home Rule by kindness. Not many people in Scotland wanted to secede, and almost none of them were violent. But governments decided to placate them too, starting with the crofters of Skye, who got the Crofters’ Commission (1886 and still with us) to settle their land grievances and prevent them festering as in Ireland ...

By the time the ghost of Goschen finally vanished in the 1970s, public spending per head in Scotland was about 20 per cent above that of England (and substantially higher than in Wales, which was as poor and almost as sparsely populated as Scotland, although it has fewer midges). The secretary of state could protect the Goschen proportion because he had a credible threat at his back. He could tell the Cabinet that unless they protected Scotland’s spending share the Nationalists would start winning elections, and where would the United Kingdom be then? All secretaries of state have done this, but the supreme practitioners have been Tom Johnston (Lab, 1941-5), Willie Ross (Lab, 1964-70 and 1974-6), Ian Lang (Cons, 1990-5) and Michael Forsyth (Con, 1995-7). It is easier for Conservatives, because theirs after all is the Conservative and Unionist Party. Although public spending in England was squeezed during the Thatcher administrations, the gap with Scotland stayed as wide as ever.

In Summer 1974, Prime Minister Wilson overruled Willie Ross and Labour’s Scottish executive, and announced that the party favoured devolution. This was to head off the expected SNP triumph in the polls. In fact, the electoral system did for them more effectively than Wilson. In October 1974, the SNP got 30 per cent of the vote to the Conservatives’ 24 per cent, but only 11 seats to the Conservatives’ 16. Labour retained the majority of Scottish seats on a minority vote. Nevertheless it had been a very close shave. On 35 per cent of the vote, the SNP would have swept the board, won more than half the seats in Scotland, and started to negotiate independence. Therefore, Labour prepared its flagship devolution plans. The Treasury started to prepare for life after devolution, and conducted (some would say bullied the Scottish and Welsh Offices into) a Needs Assessment ...

But by 1979, devolution was dead. An English backlash caused a government defeat which killed the original flagship bill in 1977. Separate bills for Scotland and Wales were then enacted, but the rebels added sections requiring a referendum on the plans, with a “Yes” vote not to be confirmed unless at least 40 per cent of the electorate voted Yes. In Wales, the referendum led to a crushing No; in Scotland to a faint Yes, far below the 40 per cent threshold. The government fell on a Conservative-SNP confidence vote, and the reign of Mrs Thatcher began.

However, the Treasury’s other preparative step has lasted. This was the Barnett Formula, so named (by David Heald in 1980) after Joel Barnett, the Chief Secretary to the Treasury form 1974 to 1979. Barnett’s officials designed the Formula as a temporary expedient to reduce Scotland’s relative spending advantage until a needs-based formula could be introduced. Lord Barnett, as he now is, told a Commons select committee that he expected “his” formula would not last more than “a year or even 20 minutes”. It has not only lasted, but was embedded into the 1997 devolution settlement ... However, the Formula is not statutory. It is not in the Scotland and Wales Acts, and it could be revoked unilaterally by a future UK government ...

The Barnett Formula is not about needs. It is just based on relative population. It leaves unchanged the baseline block grant from year to year. It merely stipulates that for every £1 of extra spending in England each year, Scotland (and Wales and Northern Ireland) will get an increase in their block grant proportionate to their relative populations ...[The original] population proportions were too generous to Scotland (and too mean to Wales) until altered by that hammer of the Scots Michael Portillo in 1992 to the correct population proportions. Now they are rebased every spending review for the next two years. So they track Scotland’s (declining) share of the British population, but with a time-lag that works in Scotland’s favour.

...the property of this formula is that in the long run it will converge until spending per head is the same in all four countries of the UK ...

The long run has been longer than anyone anticipated in 1978. Up to 1999 there was no perceptible convergence, even though the Barnett Formula supposedly operated throughout. Elsewhere we have given some technical reasons for this, but the main one is political. For all but the last two years of that period, the Conservatives were in office. As the pre-eminently unionist party, they so feared a nationalist threat to the continuation of the United Kingdom that whenever Barnett threatened to produce embarrassing results they bypassed it and found a way to supply off-Barnett goodies to Scotland. The change of government in 1997 caused no immediate change because of Chancellor Brown’s hair-shirted decision not to increase the Conservatives’ planned spending totals. If there is no increase in England, there is nothing for Barnett to bite on.

So Barnett began to bite only when the Labour government started to increase public spending in England. This grew most in the spending reviews of 2000 and 2002, and less but still substantially in the spending review of 2004. The three territories (as the Treasury calls them) are getting their population share of the extra largesse. But, as a proportion of the baseline that they were getting before, the extra is less than in England. Barnett convergence (in Scotland known as the “Barnett squeeze”) is in progress.

... Barnett cannot last because it has no friends outside Scotland. Also it is a lousy formula.

... The English regions, especially but not only the poorer ones, hate Barnett because they think it embeds privilege for Scotland. The campaign is strongest in the North East, engine-room of the 1977 defeat of the Scotland and Wales Bill. It is only too obvious there that spending per scholar is much higher in Duns than in Alnwick, and spending per patient is much higher in Berwickshire than in Berwick-on-Tweed. Strictly speaking this difference is not only due to the Barnett Formula, but also to the formula for distributing public expenditure around the regions of England - also broken. But English politicians will continue to put the blame on Barnett ...

More important still, Wales and Northern Ireland have changed sides ... Barnett never did Wales any favours. As her baseline spending was below her needs, the Barnett squeeze would take Welsh spending further and further below needs. Instead of converging towards relative need, it would diverge away from it. Under the Conservatives, this was masked by the generosity of the Unionist secretaries of state. Under Labour, the quiescence of Welsh Labour is more puzzling. It may be because their eyes were mistakenly fixed on the tawdry prize of EU Objective One status, which will be broken by 2006. Objective One areas are the poorest areas in the European Union. An artificial confection called West Wales and the Valleys has Objective One status. But with ten new member states, all poor, in 2004, no area in the UK will qualify for Objective One in future grant rounds ...

Northern Ireland has no elected government at the time of writing, but its civil servants have become anti-Barnett militants. They argue that (even leaving aside security, which mostly does not come under Barnett) Northern Ireland has high spending needs because of its young population, with more children and more of them staying on (in two separate school systems, it has to be added). They believe that by 2006, the block available under Barnett will be insufficient to fund Northern Ireland’s needs ...

Academic commentators insist that the formula is a very poor way of distributing block grant. Unless Scotland becomes independent, there will always be a distribution of block grant to Scotland from the UK government. But the Barnett arrangement breaks every rule in the public finance economist’s book. It is bad for the UK and bad for Scotland. It is bad for the UK because it distributes grant in a way unrelated to need. It fails to give the UK government control over things it should control and gives it control over things it should not ... They control the amount of public sector debt and borrowing in the UK. But the UK government cannot control what the devolved administrations do - under the devolution settlement they can switch their block grant between current and capital spending at will.’

And:

‘More profoundly, the Barnett arrangements give no incentives for efficiency. Wales and Northern Ireland have no power to tax at all. Scotland has only the 3p in the pound Scottish variable rate of income tax, so far not used. As the Scottish Executive cannot control the amount of money it gets, it might as well just spend it all. Faced with a choice between spending that will make the Scots richer and spending that will not, it has no incentive to choose the former, because it will not see any of the enhanced tax revenue that will result. For that reason, the recent discussions of fiscal autonomy for Scotland are welcome.

Fiscal autonomy comes in two main shades, a nationalist version promoted by SNP politicians, and a devolutionist version promoted by some Conservatives, some Liberal Democrats and some academics.

The nationalist version is just Scottish independence. If the Scots vote for independence in 2007 or later, they should have it. But they should not have any illusions about it. Some ingenious sums due to Alex Salmond MP purport to show that Scotland subsidises England. They rest on very dodgy foundations. In particular they assume that almost all North Sea oil revenues would flow to an independent Scotland, and that they would stay robust. But they would not all flow to Scotland; they fluctuate wildly (between £1billion and £5billion per annum in the last decade) and they are in long term decline ...

Scotland would begin life with a seriously imbalanced budget. It could not sustain public expenditure £8billion ahead of tax revenue. If oil revenue stayed at its 2001/02 peak of £5.2billion and if an independent Scotland got 70 per cent of that, the fiscal gap would close, but only to £4.4billion. To put this sum into perspective, the Treasury estimates that a 1p change in the Scottish variable rate of income tax in 2002/03 could be worth approximately plus or minus £230million. The entire 3p in the pound would therefore yield about £700million - a trivial contribution to closing the fiscal gap.

I am all for Scotland having full fiscal independence. But the Scots should choose it in full awareness of what it would involve.

Turning to the Conservative version of fiscal autonomy, I will describe it in words they would not necessarily use. Nor do you have to be a Conservative to support it. The Scottish Liberal Democrat conference backed it, against their leaders’ advice, and some Labour figures such as Wendy Alexander have started to raise the flag cautiously for what she calls fiscal federalism. The UK has one of the largest vertical fiscal gaps (also known as vertical fiscal imbalances - VFI) in the democratic world. A vertical fiscal gap exists when one tier of government has the power to raise tax and another has the duty (or the pleasure) to spend it. The Scottish Executive has the power to vary the standard rate of income tax by up to 3p in the pound ... The Welsh and Northern Irish assemblies have no power to tax, and none is proposed for the English regional assemblies either. Local government, which in the three territories is funded from their Barnett blocks, in England is funded by another set of broken formulae. Here again VFI is unusually high by international standards. Local government spends about 25 per cent of the identifiable public spending in England, but raises only about 4 per cent of the tax receipts because it has access to only one tax base, namely domestic real estate, taxed via the regressive and unsatisfactory council tax.

VFI is a bad thing. It reduces the incentives for central and local government to tax efficiently, and it encourages politicians to play games against one another. Especially, to play blame games. If citizens are unclear who provides which service then each tier of government can blame the other. As Scotland is not fiscally autonomous, Scots politicians can turn from the difficult task of blaming their problems on the English ... When [Barnett] disappears, as it must, they will face a tougher world. If the Scottish Executive raised more of what it spent, say the fiscal autonomists, it would face the tougher world immediately, to maybe short-term pain but long-term gain. Scots politicians and Scots citizens would face the true costs and the true trade-offs between public services and tax savings. Fiscal autonomy would require radical change.’

Iain MacLean then lists some of the ways in which fiscal autonomy could be implemented in Scotland, Wales and Northern Ireland - but not to an English parliament - which should each have the same power to tax. That ‘a certain proportion of, say VAT and income tax receipts’ should be retained by the devolved administrations. Iain Maclean further advocates the introduction of a ‘more progressive and more comprehensive’ taxation of ‘real estate’.

He then continues:

‘This regime would introduce fiscal federalism to the UK ... Fiscal federalism reduces VFI by making each tier of government responsible for raising what it spends - or at least a higher proportion of what it spends. The Scottish variable rate of income tax would not be serious fiscal federalism even if implemented, because it could only fund a laughably trivial proportion of Scottish public expenditure. Serious fiscal federalism requires the Scottish Executive to raise a serious amount of tax revenue, and/or requires the UK government to assign a serious proportion of its tax revenue to Scotland (and Wales and Northern Ireland) ...

If the emperor of fiscal autonomy, once stripped of any comfort blankets, is naked, then the other viable alternative to Barnett is a needs assessment regime. But "needs" are what philosophers call an essentially contested concept. Every location in the UK would claim that what it happened to lack, it needed. Where needs formulae already exist, in local government and health funding, we see the results of decades of lobbying embedded in the needs formulae. For instance, the Scottish local government needs formula includes a weighting for miles of road built on peat. The English school needs formula includes a weighting for ethnic minority pupils. If you have a lot of roads built on peat and a lot of ethnic minority pupils, you can readily see why you need more public spending per head. If you do not, you may not.

A future territorial needs formula must ... ensure that each comparable citizen of the UK is treated equally wherever he or she lives; and it must be compatible with economic efficiency. The second criterion requires that there be no incentives to politicians to make their territory appear "needy" - something for which the present English regime (and it must be said, the present EU regime) is notorious ... There would need to be a Territorial Grants Commission, modelled on the highly successful Commonwealth Grants Commission of Australia. It would be an arms-length body like the Electoral Commission or the Committee on Standards in Public Life - appointed by politicians, but thereafter unable to be intimidated by them. Its commissioners would be appointed by agreement between the UK government and all the territorial governments, including those of London and any other self-governing English regions. Its staff would be public servants drawn or seconded from the relevant agencies such as the devolved administrations, the Treasury, the Office for National Statistics, and the Office of the Deputy Prime Minister. Each territory with an elected government would have one vote at meetings, and there would be a mechanism for ensuring that those English regions without elected assemblies also got votes.’

Iain MacLean then sets out some suggestions for the conduct of the decision making of his proposed Territorial Grants Commission. He concludes:

‘Scotland in 2020 will be more fiscally autonomous than it is now. That may have its painful side. But it should produce a self-confident, fiscally mature country, not the nation of spongers and whingers that is sometimes portrayed in the southern media. A country I would be proud to retire to.’

Given that this is a Scotland 2020 conference, Iain MacLean can be forgiven for looking at matters from a Scottish point of view.

Nevertheless, he has raised a number of important points which need consideration.

To start with, simply advocating English votes on English laws [EVEL] in the House of Commons is not a solution. It comes nowhere near to addressing the issue of the present devolution settlement. EVEL is a typical Tory fudge, and those who advocate it are merely ducking the issue and trying to con the English public.

Importantly, the problem regarding the English subsidy to Scotland is not a recent one at all, nor is it the result of the Barnett Formula. English monies have been pouring into Scotland for more than a century. The prime responsibility for this rests with the Tories. The policy is a failure in that it has reduced many in England into poverty [eg those old people who have their homes seized and sold by the state to pay for nursing home costs, when such costs are fully paid by the government in Scotland] and yet has failed to achieve its objective, which is to buy off the Scots.

Nationalism in Scotland is a major force, as is widespread Anglophobia amongst the Scots. The Tories were completely wiped out electorally in Scotland in 1997 although they have since managed to secure a solitary MP. Despite this fact, and the failure to placate the Scots by shovelling English money at them, the Tories remain blindly committed to pursuing the same policy. They have learnt nothing.

The Tories remain committed to pouring ever larger sums of English money into Scotland [see the English Rights Campaign entry dated 29 March 2005, 26 May 2005 and 5 June 2005] and are a part of the problem and not the solution.

For any government to be giving parts of the UK extra money simply to buy votes leads to bad governance. It is also morally wrong.

Iain Maclean gets into difficulty when it comes to some arbitrary assessment of ‘needs’, as he himself recognises. Whose needs? What are the needs? And who decides? The EU has had a corrupting effect in this, as Iain Maclean realises.

Scotland is one of the wealthiest regions of the UK. There is absolutely no reason at all why the English should be expected to give money to the Scots so that they might have a higher standard of living than the English themselves.

The current English subsidies to Scotland and Wales are running at in excess of £20billion annually [the Scottish deficit is £11.3billion per annum, and the Welsh deficit is £8.9billion]. As elections are due to take place in Scotland and Wales in 2007, it is to be expected that these subsidies will increase sharply as Labour try to buy votes.

There is no particular reason why Northern Ireland should be swamped in English subsidies either. If the Irish Catholics hate the English so much that they support terrorist organisations, then we should stop insulting them with our money. With power comes responsibility, and they should take more responsibility for their own actions.

Iain MacLean asserts that ‘there will always be a distribution of block grant to Scotland from the UK government’. But this is not necessarily so. If there is genuine fiscal autonomy, especially to deal with the vertical fiscal gaps which Iain MacLean identifies, then there is no reason at all why Scotland should continue to receive any English money.

The UK government has no money of its own. It is English money which is distributed to fund the deficits in Scotland, Wales and Northern Ireland - none of whom are meeting their own internal expenditure. It is English money which funds the interest payments on the national debt, overseas aid, defence, payments to the EU etc.

If the UK becomes a fully federal union, then Scotland, one of the wealthiest regions in the UK, will be expected to meet its own bills - as Iain MacLean is wary of. Lord Steel is also wary of this in his latest report too and advocates a new Barnett Formula [see the English Rights Campaign entry dated the 15 March 2006].

For the avoidance of doubt, the English Rights Campaign is in favour of an English Parliament in a federal Britain.

The issue of the vertical fiscal gap is very important. Successive governments have fiddled around with the allocation of grants to both local government and the Scots, Welsh and Northern Irish. This is bad governance and it must be brought to an end. With the power to spend money, must come the responsibility to raise that money.

But for there to be fiscal devolution and autonomy, then there must be a parliament to devolve matters to. That necessitates an English parliament to deal with England. Direct rule of England by a British parliament is not consistent with dealing with the vertical fiscal gap at all. There needs to be a clear division of responsibility between British matters and English matters, British money and English money, and British MPs and English MPs.

Tony Blair may represent an English constituency in the British parliament, but he is Scottish. This is the same for many others. Malcolm Rifkind has openly stated where his true loyalties lie [see the English Rights Campaign entry dated the 19 August 2005]. It is not good enough to adopt the stance of ‘he’ll do’ when it comes to the MPs for an English parliament and merely adopt the current British MP for that constituency. There needs to be a positive vote for the MPs to represent the English in an English parliament.

It is to be noted that the Scots have a tendency to blithely assume that all the North Sea Oil is their’s. That is not so. Iain MacLean allocates 70% to Scotland. Whatever the exact figure is, the fact is that the Scots will need to either increase taxes or cut government expenditure. That is a matter for them to decide.

What is unacceptable, is for both Labour and the Tories, with Lib Dem approval, to be happily taxing the English into penury in order to transfer huge sums to Scotland to enable the Scots to spend money they do not have, and so attain an even higher standard of living for themselves.

The English Rights Campaign would disagree with the suggested Territorial Grants Commission idea. The Scots, Welsh and Northern Irish should be responsible for their own internal expenditure come what may. Block grants should come to an end. That must surely be the only responsible way forward. The buck should stop with all the countries of the UK for their own internal expenditure. Each country should be forced to take that responsibility.

All that remains to be decided, is to what extent the English alone should continue to fund UK expenditure such as servicing the national debt, overseas aid, defence and payments to the EU etc.