Commission on the Future Governance of Scotland

Scottish Conservatives scottishconservatives.com

1.

INTRODUCTION

I firmly believe that Scotland will Scotland but right across the vote No on September 18, but in . the event of a Yes vote to break up the United Kingdom this document In 2013 I was invited by Ruth will serve no purpose. The United Davidson to chair a Commission Kingdom will have changed that would look at the issues facing irreversibly. A No vote is a vote of the , devolution confidence in the partnership that and the relationship with has united the interests of all the Westminster. She asked us to people of these islands for produce ideas for the future centuries. The question of governance of Scotland that could separation will have been settled be brought forward in a and politics in Scotland can move Conservative manifesto for on to more constructive and fertile Scotland in the General Election of ground. This report is written on 2015 and beyond to the Scottish that premise. Parliamentary elections in 2016.

As a nation, we must avoid future These proposals are our own. They damaging and divisive debates on are offered to the Party in the spirit separatism. The political parties in which they were commissioned and the Parliament of the United – to provide a Unionist perspective Kingdom will need to grasp a No on devolution and a direction in vote as an opportunity to build a which constitutional policy can stronger Union with clear divisions develop. Our aim is to make of responsibility and Scotland the best it can be. These accountability. People in Scotland proposals are offered as a basis and elsewhere in the United for discussion with all those, Kingdom need more considered including other political parties, information on how the political who believe in a prosperous union works and serves them. The Scotland with a strong Parliament relationship between Scotland and in a stronger United Kingdom. the rest of the United Kingdom is no longer at ease with itself. It needs to be if Scotland is to Lord Strathclyde prosper. A No vote calls upon us Chairman of the Commission to build a stronger Union with Glasgow powerful institutions not just in May 2014 2.

EXECUTIVE SUMMARY OF • Scottish versions of the Personal from local to central government KEY RECOMMENDATIONS Tax Statements should be issued should be reversed and real by HMRC, highlighting taxes devolution should be given to Empowering the Scottish people to under the control of the Scottish individuals with a greater role shape Scotland within the security Parliament. for civic society and local of a United Kingdom sits at the government. very heart of what it means to be • Responsibility for the state a modern Scottish Conservative. pension should remain with the The Future Everything we propose in this UK. report is aimed at strengthening • A Committee of all the our ties and reinforcing our • There is a case for devolving Parliaments and Assemblies of relationships. housing benefit and attendance the United Kingdom should be allowance; additionally there is created to consider the The Scottish Parliament is a a case for conferring on the developing role of the United powerful body. It is responsible for Scottish Parliament the power to Kingdom, its Parliaments and the large majority of domestic supplement welfare benefits Assemblies and their respective spending in Scotland, running the legislated for at UK level. powers, representation and health service, Scottish education, financing. policing and criminal justice, as Parliamentary and Governmental well as many more areas of public Reform life. Our proposals point to a strengthened Scottish Parliament in • New rules should be considered a strong United Kingdom. by the Scottish Parliament to improve legislative scrutiny with Financial stronger checks and balances without a Second Chamber – for • The Scottish Parliament should instance providing for Chairs of become responsible for setting key Committees to come from rates and bands of income tax the Opposition. throughout Scotland. • Senior civil servants from • A new Scottish Fiscal Scotland, as part of their career Commission should be created, progression, should be expected independent of Government, (and supported) to serve in and should be charged with other Departments of State in producing official macro- the rest of the United Kingdom. economic and fiscal forecasts in Scotland. • The centralisation of powers 3.

The Conservative Party is and always has been the party of the Union.

1. THE CONSERVATIVE PARTY the whole of the Union – and the Government. The Conservative AS THE PARTY OF THE whole of the United Kingdom – Party is determined that the UNION including the interests of Wales Scottish Parliament should succeed and Northern Ireland. For too and thrive in the interests of all The Conservative Party is and long, conversations about Scots. always has been the party of the Scotland’s future have proceeded Union. As Alan Trench has recently on the false premise that it is only These are not mere words: the written for the IPPR, “The union is a the relationship between Edinburgh Coalition Government has Tory accomplishment – first under and London, or between Holyrood delivered on them. As explained in Queen Anne in 1707, then under and Westminster, that matters. We more detail below, the Scotland Pitt the Younger (with Ireland) in return to this point in the final Act 2012 added to the already 1801”. At root, each Union had – Chapter of this report. formidable powers of the Scottish and still has – two fundamental Parliament and, for the first time in goals: to create a larger economic The genius at the heart of the British history, it provides that a market for jobs and enterprise and Anglo-Scottish Union of 1707 is portion of income tax will from to assure the common security of that it allows both nations to 2016 be the responsibility in everyone within the state. blossom within a shared state. The Scotland not of the Treasury in Union was not and never has been London but of the Scottish The Conservative Party is and an incorporating Union, requiring Ministers in Edinburgh. The Prime always has been flexible about Scotland to assimilate as if she Minister and Deputy Prime Minister how the Union should be were nothing more than a northern wrote in 2010, “It is absolutely encouraged to evolve. It was Lord region of – or even an right that Scotland has a greater Salisbury’s Conservative English colony. On the contrary, degree of fiscal autonomy … We Government that established the the Union is founded on the are determined to ensure that the Scottish Office in 1885, and it principle that Scottish institutions Scottish Parliament is empowered was a Conservative Prime Minister maintain their distinctive identity. to meet the needs of the Scottish (Baldwin) who appointed the first Throughout the Union this has people and that it is properly Secretary of State for Scotland to been true for the Church, for accountable to them”. the Cabinet in 1926. education, for Scots law and for the Scottish legal system. And, When these actions are taken We also have a long tradition of since devolution, it has been true within the context of Conservative understanding that our Unionism also of the Scottish Parliament. policies on empowering individuals embraces not only Scotland’s and decentralising power relationship with England but also The Scottish Parliament was throughout the rest of the UK, it is her relations with Wales and created under Tony Blair’s Labour clear that empowering the Scottish Northern Ireland. In taking a Government but its powers and people to shape their own nation proudly Unionist approach to responsibilities have been within the security of a United issues of government in Scotland it considerably extended under Kingdom is not just something we is essential that we retain in view David Cameron’s Conservative-led are willing only grudgingly to 4.

We have based our recommendations on strong Conservative principles of responsibility, transparency and accountability.

accept, it is something that sits at the very heart of what it means to be a modern Scottish Conservative.

Our report builds on this tradition and provides a Conservative perspective on the challenges that today’s arrangements present us with. In our deliberations, we examined the political, fiscal, social and institutional elements of the Union, offering considered proposals for improving each. Throughout our report, we have based our recommendations on strong Conservative principles of responsibility, transparency and accountability, which we believe are required for a sustained relationship of all four parts of the UK. Everything we propose is aimed at strengthening our ties and reinforcing our relationships. 5.

The two fundamental purposes of the Union are creating a large, single and fully integrated economic market for jobs and enterprise and assuring the common security of everyone within the state.

2. SCOTTISH DEVOLUTION in Scotland is now, and since Under the Scotland Act 1998, UK AND ITS CONSEQUENCES 1999 has been, the responsibility ministers can act to give greater of the Scottish Parliament. effect to Acts of the Scottish The Scottish Parliament is a Parliament and, where they deem remarkably powerful body. Since Under devolution what the United it appropriate, Scottish Ministers its inception in 1999 it has been Kingdom Government provides for may allow particular rules for responsible for more than 60% of Scotland is defence and security, Scotland to be made in public expenditure in Scotland, international relations and foreign Westminster. Examples of this with Westminster being policy, social security and macro- flexibility and mutual cooperation responsible for the remainder. economic policy, including the stretch as far as legislation Indeed, there are very few such currency. The UK Pound in concerning the Commonwealth Parliaments anywhere in the world particular has been immensely Games, dangerous dogs, adult with greater spending powers than successful. It has been a source of care and the regulation of those which Holyrood has enjoyed economic stability and security for everything from financial since 1999. Scots for centuries, allowing Scots institutions to the water we drink. and Scottish businesses to make In effect, the Scottish people Many of the matters of most saving and investment plans for the currently have two governments concern to Scots are already the future with confidence. These are acting in their interests and responsibility of the Scottish the areas that are linked to the two frequently they feel the benefit of Parliament. It is worth highlighting fundamental purposes of the Union the support of the UK Government that these are matters over which mentioned above: creating a legislating in support of the ministers in the UK Government large, single and fully integrated Scottish people. have no say. This is true, for economic market for jobs and example, for health care in enterprise and assuring the The spirit of mutual co-operation is Scotland; for the Scottish common security of everyone one of the successes of devolution, education system, from nurseries within the state, both in terms of even if for party political reasons and schools to universities and defence and social protection. We that co-operation is not always colleges; for Scottish criminal strongly believe these are the broadcast. John Swinney in 2009 justice, including policing and policy areas that glue our Union argued in the context of a prisons; for the civil justice system together and are best provided at Westminster Bill on the regulation in Scotland; for Scottish culture, UK-level. Economic prosperity and of financial services that “There is sport and tourism; for transport in collective security are two of the no added value in separate Scotland; for the Scottish most fundamental reasons why, for legislation as Scottish interests are environment; for agriculture, more than 300 years, the Union reflected in the [UK] Bill and a forestry and fishing; and for local has delivered for Scotland. separate process would be government in Scotland, including complex and require further time housing, regeneration and the Twin hallmarks of Scottish and resources to achieve the same local planning framework. In other devolution are its flexibility and its policy aim”. Likewise Kenny words, nearly all domestic policy spirit of mutual co-operation. MacAskill in 2010 argued in the 6.

It is up to Unionist politicians across the political spectrum to ensure that Scots understand and appreciate just how powerful, effective and influential their Parliament is.

context of the reform of the law of between Holyrood and gap’ – the difference between bribery that “Uniformity across the Westminster; the annual Scottish what Holyrood spends and the UK would provide a more effective Social Attitudes Survey reflects a revenues it is able to raise. and workable framework than similarly bemused picture. would be possible if separate bills It is inevitable that there will be a were introduced in the two We are in no doubt that more needs fiscal gap of some degree. There Parliaments”. We agree. Whilst to be done to explain to the people is no federal system in the world in there are many areas of domestic of Scotland the extent of powers held which the sub-state legislature Scottish policy that are by the Scottish Parliament. We do raises all of the money it spends. appropriately the responsibility of not expect the current Scottish Nevertheless, our aim should be to the Scottish Parliament, in other Government to do this. It is up to close it to some degree. Why? respects – as even SNP ministers Unionist politicians across the Because, seen from this recognise – it is in Scotland’s political spectrum to ensure that perspective, devolution has not interest for matters to be dealt with Scots understand and appreciate just worked. In this respect, devolution at Westminster. These are further how powerful, effective and has failed to achieve what was reasons why we continue to be influential their Parliament is. hoped for and anticipated: better together and why Scottish namely, a mature Scottish politics independence would be contrary The ‘Fiscal Gap’ that was no longer based on the not only to the interests of the In our view, the key challenge is to grievance culture of old. The sad United Kingdom as a whole but ensure that devolved powers are fact is that, even after 15 years of also to Scotland’s national interest. used more responsibly, more devolution, it is still far too easy for transparently and with far greater Scottish Ministers to blame difficult The Scottish Parliament plays a accountability to the Scottish financial decisions on others. This hugely significant role in the electorate. Whilst the Scottish is both unhealthy for the Union constitutional life of the United Parliament has spending powers and unattractive for Scotland. Kingdom. Its powers are comparable with those enjoyed by Closing the fiscal gap through the substantial by any international the Canadian Provinces and means of fiscal devolution would comparator but they have not been greater than those of the German create a more responsible Scottish clearly communicated to the Länder and the Australian States, politics and would help to remove Scottish people. As a result, the its powers to raise the money it this grievance culture from it. national conversation about spends are relatively limited. devolution is often based on a Whereas more than 60% of It is also, of course, core false premise. Lord Ashcroft’s identifiable public spending in Conservative thinking that those extensive polling (Cameron’s Scotland is the responsibility of the who spend public money should Caledonian Conundrum: Scottish Scottish Parliament – its budget is do so responsibly, transparently Voters and the Conservative Party) approaching £36 billion – and should be fully accountable found in 2013 that only 14% of Holyrood is currently responsible for it. The Commission’s proposals Scots have a very good idea of for raising only a fraction of that are therefore based on those three the current division of powers sum. We refer to this as the ‘fiscal principles. 7.

Financial Transparency responsibility for publishing the public finances. These are just two The contrast between UK and annual document, Government examples of where transparency is Scottish Government financial Expenditure and Revenue Scotland urgently needed. transparency could not be more (‘GERS’). striking. Within days of the 2010 Much has been made of North election, the UK Government High-level statistics, however, will Sea oil and gas receipts over the established the independent Office rarely reach individuals beyond the last few decades. Whilst we know of Budget Responsibility to provide political bubble. Financial that even at its highest North Sea analysis and forecasts of public transparency has to be pursued on revenue did not cover even the finances and to aid in the budget an individual level too. That’s why Scottish welfare bill, the impression process. A Scottish equivalent is in Chancellor of the Exchequer remains in some quarters that a the process of being established George Osborne announced that huge source of revenue is now – the Finance Committee of from October 2014 around 24 exploited by Westminster and the Scottish Parliament is million people will receive a denied to Scotland. It is in fact the examining the establishment of a personal tax statement from HMRC strength of the United Kingdom Scottish Fiscal Commission (not to setting out how much tax they paid that allows for such significant be confused with the Scottish in the previous year and how it investment in the North Sea, which Government’s advisory Fiscal contributed to public expenditure. is underlined by the independence Commission Working Group). The We recommend that Scottish concerns recently expressed by precise remit and operation of this taxpayers receive a Scottish some of the biggest energy body is still being decided, version of the statement, which companies in the world – BP and although we strongly agree with could also highlight taxes under Shell. the Finance Committee’s view that the control of the Scottish the Scottish Fiscal Commission Parliament. Latest GERS figures show that must be independent from the Scottish oil revenues dropped from Government and should be invited The Scottish Government has been £10bn in 2011/12 to £5.5bn in to provide official macro-economic characteristically opaque when 2012/13. The £4.5bn drop is the and fiscal forecasts in Scotland. describing Scotland’s fiscal equivalent of the entire Scottish The Scottish Government already position, especially in the run up to schools budget. This revenue publishes ‘experimental’ data in its the referendum. Scottish Ministers volatility (ranging from £4bn to annual Government Expenditure are regularly using terms like £12bn in recent years) is self- and Revenue Scotland publication “relative fiscal surplus” and evidently better absorbed in a – including provisional Scottish highlighting Scotland’s yearly larger entity and makes it GDP data. GERS methodology has balanced budget as evidence of unfeasible for devolution. However, been challenged on a number of John Swinney’s prudent fiscal clearly communicating Scotland's occasions in the past. stewardship – by-passing the facts fiscal balance sheet might go a Consideration should be given to that the latter is a legal obligation long way to address the whether the newly-created Scottish and the former was in the context misperceptions that currently exist. Fiscal Commission could take of an £8bn black hole in Scottish 8.

While block grant adjustments will by HMRC, highlighting taxes always be complicated, we need under the control of the Scottish to ensure that devolved policy Parliament. choices have a direct link to the money available to the Scottish • Scotland’s fiscal balance sheet Exchequer. It must be the case that should be clearly communicated good governance and policies that to the public. drive prosperity are felt by the population that elected those decision makers. Otherwise all efforts to establish fiscal accountability are wasted. It must be a condition of any further fiscal devolution that a robust and stable long-term mechanism is devised, which will demonstrate a clear link between Scottish fiscal policy choices and expenditure in Scotland.

Recommendations:

• The Scottish Fiscal Commission must be independent from Government and should be invited to produce official macro- economic and fiscal forecasts in Scotland.

• Consideration should be given to whether the Scottish Fiscal Commission could take responsibility for publishing the annual document, Government Expenditure and Revenue Scotland.

• Scottish versions of the Personal Tax Statements should be issued 9.

The SNP centralise; Conservatives decentralise.

3. DECENTRALISATION not to local communities but based on the idea of co-operation directly to Alex Salmond. This is across different levels of Devolution has been a core Tory typical of the way the SNP have government, with borrowing value for decades. It is central to sought to govern: they seek to powers for infrastructure investment Conservative thinking that power hoard power in Edinburgh programmes, outcome-based fiscal should be devolved away from whereas we seek to distribute it incentives or local skills funding governments and Parliaments to down to the lowest possible level. models being put in place across people and to communities. Since The SNP centralise; Conservatives UK cities. the 1980s our right-to-buy policy decentralise. For the SNP the only has empowered almost half a power centre that matters is the Localism means devolving power million people to buy their homes Scottish Government; as close to people as possible. The in Scotland. Likewise, our reforms Conservatives seek to drive power Coalition Government has to employment law devolved down to individuals, to introduced widespread reforms to power away from trade union neighbourhoods, and to local community bodies and their barons and gave it directly to communities. There is a paradox in powers to take over unused assets individual trade union members. In the Scottish Government’s clamour or to challenge the council to take the present Coalition, the localism for more powers for itself whilst over service delivery. Further agenda has pioneered the ignoring the very same calls from reforms have been introduced to devolution of more powers to local authorities across Scotland. strengthen the role of local councils and neighbourhoods, communities in the planning giving local communities far Throughout our deliberations we system. The Community Right to greater control over local have been eager that our Bid and Community Right to decisions. recommendations will aid growth Challenge are now finally being and prosperity in Scotland. Our considered in Scotland as well. Local government in Scotland, vision is for an energised and Localised planning reforms, however, is a devolved prosperous Scotland, fit to compete however, are not on the Scottish competence under the Scotland with the best in the 21st century, Government’s agenda. Act 1998 and the contrast of where all have a stake. The Conservative localism in England devolution of powers to citizens is In 2010 the UK Government and Wales with the way local a vital part of this process. published a paper on Building the government in Scotland has been Big Society. It said: centralised under the SNP could The Coalition’s City Deals not be more striking. Whereas programme, which is planned to “We want to give citizens, under the Conservatives voters in include Glasgow as well as many communities and local government England now elect their own local others across the United Kingdom, the power and information they Police and Crime Commissioners, is another example of how need to come together, solve the under the SNP the police and fire significant powers can be devolved problems they face and build the services in Scotland have been closer to citizens. Whilst City Deals Britain they want. We want society centralised and made accountable vary from city to city, each is – the families, networks, 10.

We consider that the future of devolution should embrace not only devolution to Scotland, but also devolution within Scotland.

neighbourhoods and communities Recommendations: that form the fabric of so much of our everyday lives – to be bigger • Consideration of Scotland’s and stronger than ever before. constitutional future must Only when people and embrace devolution and communities are given more power decentralisation within Scotland, and take more responsibility can as well as Scotland’s we achieve fairness and relationship with the rest of the opportunity for all”. United Kingdom.

This is what Conservatives • Initiatives such as City Deals, understand by devolution: not the enhanced local accountability of centralisation of power in public services and public Edinburgh, but its effective servants, and other means of distribution throughout all the revitalising local democracy are communities that make up this essential to good governance in great country. Unlike the Scottish Scotland. Government, we consider that the future of devolution should • Powers over matters such as embrace not only devolution to planning controls should be Scotland, but also devolution driven down to the lowest within Scotland. possible level of community government. It is not our remit to offer detailed proposals for reform of local government in Scotland, but we believe the issue must be examined under a clear set of principles. If the relationship between Westminster and devolved legislatures is to be based on responsibility, transparency and accountability, so should the relationship between devolved legislatures and local tiers of government. 11.

4. INSTITUTIONAL REFORM overall majority raises significant reform of how committees operate issues in terms of transparency and and a review of how Parliamentary It is 15 years since the Scottish accountability in a Parliament with Questions function could make Parliament’s first meeting in May no revising chamber. significant improvements. 1999. It is an institution that is maturing, but one that is not That may be partly mitigated if Most importantly, committees without its faults. The Commission government backbenchers are should be encouraged to consider therefore took an opportunity to individually minded and prepared their obligation to the Scottish examine the institution itself as well to challenge party orthodoxy or Parliament and the public. It is as its relationship to Westminster, controversial proposals. Recent notable that select committees at as part of our work. experience in this respect has been Westminster divide along party discouraging. One exception in lines only rarely: committee Scottish Parliament February 2014, notable because members tend to leave their party A Parliament exists for many of its rarity, was the willingness of loyalty in the corridor. Committees purposes but one of the most the Justice Committee, by majority, are at their best when they act in fundamental obligations is to hold to question the highly controversial the Scottish Parliament’s interests the incumbent government to Scottish Government proposal to and in the interests of the public account. That responsibility falls to abolish corroboration. Despite the rather than in the interests of MSPs, from all parties and from leadership of the SNP Convenor, parties. If necessary, the rules of none. But even the most able and who was strongly opposed to the the Scottish Parliament should be assiduous MSP will be frustrated in proposal, the SNP committee changed to ensure this. the task if the structures and members declined to support her. processes within the Parliament fall Recommendations: short of what is required to It is our view that the Scottish achieve that aim. Parliament needs procedural • Convenors of mandatory reform in order to strengthen its committees such as Finance and Since the start of the Parliament in ability to hold the government of Public Audit should be elected 1999, devolved government has the day to account. This by committee members from one comprised 8 years of Lab/Lib Dem strengthening of accountability is of the opposition parties. Coalition, 4 years of SNP minority particularly important as the government and 3 years of an Parliament matures and secures • In the selection of questions for overall SNP majority. The greater power within the Union. the Parliamentary Oral Question democratic right of an overall Sessions, the principal majority party or a coalition to The Parliament’s shortcomings opposition spokespersons should form a government is undisputed. would not be addressed by more be guaranteed slots in the A coalition by its very nature has MSPs. Instead, we need to make portfolio questions. its own checks and balances as more effective the procedures and does a minority administration. processes available to the existing • General Questions should be However, a government with an number of MSPs. We believe that allocated to parties on a basis 12.

proportionate to the size of the Inter-Parliamentary Relations services ‘commissioned’ by each of group. The Calman Commission examined the four countries, the institutions the relationships between devolved being accountable to multiple • Where for good reasons, a and central institutions at length. legislatures. A joint committee questioner is unable to lodge a We are inclined to agree that inter- could tighten these relationships, question, discretion should be governmental relations have been and open the door for expanding given to the Presiding Officer to exercised more or less successfully this approach to other areas in the permit a colleague of the in the 15 years of devolution. The interest of efficient and expert questioner to lodge a question. Memorandum of Understanding service delivery. between the United Kingdom • The Monday noon deadline for Government, the Scottish Ministers, submission of questions to the the Welsh Ministers and the First Minister on the following Northern Ireland Executive reflects Thursday should be deferred to the benefits of mutual cooperation. noon on Tuesday. The Joint Ministerial Committee as well as bilateral departmental relations (sometimes underpinned Civil Service by concordats) exist to further Civil servants obviously play a key cooperation on an executive level. role in the development and commissioning of policy. We Inter-parliamentary relations, believe that the Scottish however, are unsatisfactory. Government and Parliament should Granted, the Sewel Convention be able to call upon the best and (Holyrood giving formal consent to brightest from across the Civil Westminster legislation affecting Service UK wide. We also believe Scotland) is a mechanism that is that the rest of the UK would used frequently, but few other benefit from a Scottish view and formalised relationships between accordingly recommend that civil the two Parliaments exist. The servants who expect to reach the Calman Commission higher echelons of their profession recommended a joint liaison in Scotland should spend a part of committee be established and we their career development in other believe this proposal should be re- parts of the UK. The Civil Service examined after the General should operate a scheme to ensure Election. that not only is this possible but attractive for Scots to spend time Furthermore, there are institutions in Departments of State outside (e.g. Electoral Commission) which Scotland. operate across the UK, with their 13.

The Scottish Parliament should be responsible for setting the rates and bands of personal income tax in Scotland.

5. TAX and the higher rate at 38%). The 60% of domestic tax revenue Scotland Act 2012 does not (excluding North Sea revenue). Scotland Act 2012 devolve to the Scottish Parliament Another reason is that it is a high- The Scotland Act 2012 creates a powers over the setting of income visibility tax. People notice it and new duty to set a Scottish rate of tax allowances or thresholds. income tax has a high degree of income tax. Under this scheme the political salience. Elections can be basic and higher rates of income The Scotland Act 2012 won or lost on the basis of what tax will be set by Westminster at additionally devolves two further political parties say about income ten percentage points lower for taxes to the Scottish Parliament: tax. Scottish taxpayers than for other Stamp Duty and Landfill Tax. From taxpayers in the UK. It will then be 2015 the new Land and Buildings The Scottish Liberal Democrats’ for the Scottish Parliament to Transaction Tax and the new Home Rule and Community Rule decide whether to make up the Scottish Landfill Tax will be Commission concluded in 2012 difference fully (so that income tax collected by a new body, Revenue that “Income tax paid by Scottish rates will be the same in Scotland Scotland. The Scottish rate of taxpayers should be almost entirely as for the rest of the UK) or by a income tax, by contrast, will be the responsibility of the Scottish lesser amount (so that income tax administered and collected by Parliament”. The Devo Plus group rates will be lower in Scotland) or HMRC. has likewise stated that the Scottish by a greater amount (so that Parliament should have “the income tax rates will be higher in There is one final feature of the freedom to set the rates across all Scotland than in the rest of the fiscal provisions of the Scotland bandings of income tax in UK). Act 2012 to note. The Act Scotland”. And the IPPR have introduces an important new found that “The case for outright Under the 2012 Act the power will power enabling further taxes to be devolution of personal income tax be subject to the “lock-step”: devolved in the future by Order in … is a strong one”. We agree: the whatever decision the Scottish Council: i.e. without the need for Scottish Parliament should be Parliament makes for one rate of fresh primary legislation. This is a responsible for setting the rates income tax will have to be made highly significant power, which we and bands of personal income tax for the others as well. So, rates return to below. in Scotland. could be put back to 20%, 40% and 45%, or could be set lower Since 1999 the Scottish Parliament (e.g. at 19% and 39%) or higher Income Tax has had extraordinary freedom to (e.g. at 21% and 41%), but under When considering fiscal devolution spend public money. Its budget is the Act the Scottish Parliament has beyond the Scotland Act 2012, large and the rest of the United no power to adjust the rates much of the focus has been on Kingdom imposes no constraints differently: it could not set the income tax. One reason for this is on how the Scottish Parliament lower rate at 19% and the higher that the big three taxes (VAT, spends its budget (within the limits rate at 42%, for example (nor income tax and national of its legislative competence). We could it set the lower rate at 20% insurance) together account for consider that it is time for 14.

There should be serious examination of the case for a share of VAT receipts raised in Scotland being assigned to the Scottish Parliament.

Holyrood to enjoy a similar VAT closely linked to the UK-wide freedom with regard to its tax- Devolution of VAT is unlawful in EU welfare state. Given that we raising powers. Conferring on the law (which requires each Member recommend (subject to certain Scottish Parliament as much State to set a uniform rate across exceptions considered below) that freedom as possible with regard to its territory). This is unfortunate, as the UK’s social security system the setting of income tax rates is a VAT – like income tax – is in should continue generally to bold move. It is a huge step in the principle suitable for devolution. operate at UK-level, this would development of the Parliament’s Sales taxes are commonly militate against the devolution of powers. And that we are decentralised – even down to local employees’ national insurance proposing it without reservation is level – in countries such as contributions. Devolving a sign of our confidence in the Canada and the US. Further, VAT employees’ NI contributions would maturity of the institution. is a growth tax, which supports the also risk making the Scottish sorts of services devolved Parliament’s budget overly reliant This does not mean that the United governments provide. Were it not on employment income. To devolve Kingdom Government would have illegal under EU law, we would employers’ NI contributions would no role as regards income tax have been inclined to recommend be possible in theory but difficult in paid by Scottish taxpayers. The that VAT be devolved to the practice. It would involve a definition of ‘income’ for the Scottish Parliament. However we significant change to the operation purposes of the Taxes Acts should recommend that, as an alternative, of the NI system and would remain consistent across the United there should be serious impose additional burdens on Kingdom, for example. Likewise, examination of the case for a employers, particularly on large income tax on investments, share of VAT receipts raised in businesses that employ people dividends and savings should Scotland being assigned to the both in Scotland and in the rest of remain a matter for UK Ministers, Scottish Parliament. This would the UK. For these reasons, we do for practical reasons and in order mean that Scottish Ministers would not consider that national to safeguard the integrity of the get the benefit of any increase in insurance should be devolved. We UK’s single market in financial economic activity in Scotland and note that the Scottish Liberal services. We also consider that would thereby reap a fiscal reward Democrats and the Devo Plus allowances such as the personal were their economic policies to group reached the same allowance – i.e. the threshold at prove effective. conclusion, as did the Calman which income becomes taxable – Commission. should continue to be set for the National Insurance whole of the UK by the UK National insurance (‘NI’) Corporation Tax, Capital Gains Government. But, beyond these comprises two taxes: employees’ Tax and Inheritance Tax fundamentals, the key decisions as contributions and employers’ We do not recommend the to the rates at which the income of contributions. Devolution of devolution to the Scottish Scots should be taxed and income national insurance is unattractive Parliament of Corporation Tax, tax banding should be for the for a variety of reasons. Capital Gains Tax (‘CGT’) or Scottish Parliament. Employees’ NI contributions are Inheritance Tax (‘IHT’). Each of 15.

these taxes should remain the reason unsuitable for devolution. Governments but it does not responsibility of the United The devolution of alcohol and require a fresh Act of the UK Kingdom. This is for a variety of tobacco duty, leading to the Parliament. The White Paper, reasons. Numerous studies have possibility of differential rates in Strengthening Scotland’s Future, noted that Corporation Tax is the different parts of the UK, could published by the UK Government least suitable of all taxes for trigger an increase in illicit in 2010, explains how the power devolution: it is not economical to trafficking. That they are levied at to devolve further taxes by Order collect on a small scale; it relates the point of production or will work. The process is to activity that can easily be importation, rather than at the straightforward. We see no reason transferred across borders; it is point of sale, also militates against why it should not be used where highly volatile; and it does not their devolution: if devolved they the Scottish Ministers are of the generate a reliable yield. In any could be, at best, only an indirect view that the UK’s smaller taxes event its devolution would be means of advancing public health and duties should be devolved. It complex in law, not least because policies in Scotland. is an important part of the of issues relating to the EU law on flexibility of our devolutionary state aid. It may be, however, that there are arrangements which has already equally (or more) powerful been legislated for. CGT and IHT are low-visibility arguments to be made that go the taxes. Most citizens never other way, and that a number of encounter them. Neither is a high- the UK’s smaller taxes, levies and yield tax in Scotland. For these duties could be considered for and other related reasons, these devolution. Indeed, we consider taxes are not suitable for that Air Passenger Duty should be devolution. devolved. Originally conceived as an environmental measure, Air Smaller taxes: Air Passenger Duty; Passenger Duty is site-specific to Climate Change Levy; Excise, Fuel airport location. We believe that and Vehicle Duties, etc. Scotland, with a relatively small These are relatively minor taxes, number of airports, would be responsible between them for better able to manage this tax raising less than 10% of tax locally. In our judgement there is revenues in the UK. Even if they no need for fresh legislation in were devolved in their entirety this order to allow this to occur. We would make only a modest referred above to the provision of contribution to the task of closing the Scotland Act 2012 which the ‘fiscal gap’. Some of these allows further or new taxes to be taxes and duties relate to activity devolved to Holyrood by Order in that is highly mobile (e.g. fuel duty Council. This requires the and betting duties) and are for this agreement of the Scottish and UK 16.

There is a case for building greater flexibility into the way the Scotland Act 1998 deals with social security schemes and welfare benefits.

6. WELFARE decrease, not grow even larger. the state pension to be Further, there is a powerful substantially different in Scotland As we have seen, the Union is a argument rooted in the UK’s single from the rest of the United flexible and pragmatic coming market that pension provision Kingdom. together of four distinctive parts of should remain at UK level and the United Kingdom sharing in should not be devolved. It is an Throughout this report, however, collective security and a single important component of freedom we have highlighted the flexibility market. This includes social security of mobility within the UK that that is built into Scotland’s and the state pension. Our social citizens should be free to retire devolution arrangements, and we union underpins economic union wherever they wish: there is no have argued that aspects of this and we believe it is important that expectation that people should flexibility should be used to the two are not detached from retire where they have worked. engineer greater tax devolution. each other. That workers in Finally, we note that even in highly We consider that there is a case Gateshead and Glamorgan decentralised or federal systems, for building greater flexibility into contribute through their taxes to the centre usually remains the way the Scotland Act 1998 the benefits paid to jobseekers in responsible for social security and deals with social security schemes Glasgow – and vice versa – is pensions provision. For all of these and welfare benefits. At the hugely important to what glues us reasons we consider that moment, what the Act calls ‘social together. responsibility for the state pension security schemes’ are reserved to should remain with the UK. Westminster. This means that the By far the largest share of the Scottish Parliament has no welfare budget is taken up by the It is a key plank of our social legislative competence regarding state pension. To provide for the union that social security payments social security schemes. In contrast state pension in Scotland would be are paid according to need, and to the flexible way in which tax a very significant burden on not geographical region. The devolution has started to develop Holyrood’s budget. Further, the Calman Commission referred to a under the Scotland Act 2012, the Scottish Social Attitudes Survey need for ‘fairness’ across the 1998 Act’s strict reservation of strongly suggests that there is little United Kingdom and we agree. In social security schemes to appetite in Scotland for the state our view social security payments Westminster is rather rigid. It may pension to be different in Scotland should generally remain at the UK be that a better approach would and the rest of the UK. There are level. We note that the Liberal be for the Scottish Parliament to two additional arguments against Democrats and the Labour party have the power to supplement devolving the state pension. Were are likewise agreed that social existing welfare benefits legislated this to be done it would increase security provision should continue for at the UK level. Everyone in the the ‘fiscal gap’ (because it would largely on a pan-UK basis. We UK – wherever they live – should vastly increase the spending for detect no public appetite in be entitled to at least the social which the Scottish Parliament is Scotland for jobseekers’ security provided for in UK responsible). We are concerned allowance, for maternity pay, for legislation at Westminster. But, if that the fiscal gap should disability living allowance or for the Scottish Parliament were to 17.

Where a particular cash benefit is closely related to a devolved policy area there is a stronger case for its devolution.

take the view that, from its own Given that attendance allowance is resources, the UK entitlement closely related to these devolved should be supplemented in functions, it should be considered Scotland, it may be that Holyrood for devolution. ought to be able to legislate accordingly.

In addition, where a particular cash benefit is closely related to a devolved policy area there is a stronger case for its devolution. Examples include housing benefit and attendance allowance. Housing is devolved, and we can see the case in favour of the proposition that controlling housing benefit may play a role in the development of housing policy. A counter-consideration, however, is that under the Welfare Reform Act 2012, housing benefit is to become one component of the new Universal Credit (‘UC’). It is likely to be administratively highly complex (and expensive) to disentangle the housing benefit element of UC for Scottish recipients in order to devolve responsibility for that one component of UC to the Scottish Parliament. None the less, if it can be done there is a case for devolving housing benefit.

Likewise attendance allowance. This is a benefit paid to disabled people aged 65 or over who need help with personal care. Social care is devolved, as is health. 18.

We therefore call for the creation of a Committee of all the Parliaments and Assemblies of the UK.

7. THE FUTURE POST-2015 extensive work on the West Lothian development of our constitutional GENERAL ELECTION AND Question, reporting in 2013. We settlement beyond that which we BEYOND urge the Government to explore the have proposed in this report will ways in which the need to be considered on a UK- This report is written in the recommendations of the McKay wide basis. Westminster will need expectation that Scottish people Commission may best be to be included but so, too, will the endorse the United Kingdom on 18 implemented. other legislative bodies of the September 2014. While we take United Kingdom and the different nothing for granted, we are In our view, it is important that any parties and political traditions confident that Scots will grasp the sense be resisted that MPs for represented therein. We believe that chance to give their support to our Scottish, Welsh or Northern Irish by so doing we will discover that 300-year long partnership of constituencies somehow perform the ties that bind us are far stronger nations. any lesser a function than MPs than those that wish to pull us representing seats in England. The apart. As a final recommendation, Faithful to the brief we were given, establishment of stable constitutional we therefore call for the creation of our focus has been on Scotland. arrangements for the future of the a Committee of all the Parliaments Our recommendations can be UK must address this. It would be and Assemblies of the UK. This new implemented as soon as the result unfortunate if the feeling were to Committee would examine the role of the 2015 General Election is gain ground that there were two and central importance of the known. But the Commission believes classes of MP. Even under a scheme Parliament of the Union and how to that a No vote in September should of enhanced devolution, such as we build on the respective powers, be the impetus for a re-examination have proposed in this report, MPs representation and financing of the of what devolution and the Union for Scottish constituencies will devolved bodies in a manner which mean beyond Scotland: i.e., in continue to have significant is fair to all parts of the United England, Wales and Northern responsibility for safeguarding the Kingdom. Ireland. In recent decades our interests of those whom they relationships have been considered represent. Scottish MPs are and We expect assurances from all too much in silos, without sufficient must remain as qualified as any political parties (including the SNP) regard of the effects of constitutional other to hold high government that this Committee should be set change in one part of the country office, including the offices of Prime up soon after the General Election on the remaining ones. The time Minister and Chancellor of the and there is no reason why some has come for this to stop. Exchequer. preliminary work could not be carried out before that. However we The West Lothian Question, in We believe there is a case for a set no timetable on its deliberations particular, looms large at renewed and stronger Union. but believe that a free process of Westminster: what should be the However, it may be that once our thought and debate will provide the role of Scottish MPs in debates and proposals and recommendations right kind of constitutional votes on matters which, in Scotland, have been implemented, we will framework to suit all the people of are the responsibility of Holyrood? have reached the end of devolution the United Kingdom for very many The McKay Commission undertook on a unilateral basis. Further years to come. 19.

ACKNOWLEDGMENTS

Members of the Commission Secretaries to the Commission

Rt Hon Lord Strathclyde (Chair) Jack Perschke (Former Scottish Office Minister Marek Zemanik and Leader of the )

Tom Allison (Chairman of Peel Ports and director of Celtic FC) The Commission is very grateful to all who engaged with us Rt Hon Alex Fergusson MSP throughout our deliberations, (Former Presiding Officer of the particularly to those who sent in Scottish Parliament) written submissions, spoke to us personally and attended our Baroness Goldie MSP evidence-taking sessions. Our (Former Leader of the Scottish special thanks go out to our Conservative and Unionist Party) advisors, Professor Tomkins and Professor Trench, whose expertise Roy Martin QC helped guide us through this (Former Dean of the Faculty of process. Advocates)

Nosheena Mobarik (Former Chair of CBI Scotland)

Independent Advisors to the Commission

Professor Adam Tomkins FRSE (John Millar Professor of Public Law, University of Glasgow)

Professor Alan Trench (Honorary Fellow, School of Social and Political Science, )

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