There is rare cross-party consensus on one matter in Scotland: devolution is not working. But the parties disagree on the causes. The SNP and Greens insist that it’s Westminster’s fault, if only Scotland was independent then all would be well. The Tories argue that the SNP needs to focus on the ‘day job’ instead of incessant battles with London. Labour and the Liberal Democrats think that devolved government might require some reforms but a more competent government is needed.
There is a more fundamental problem. It has less to do with powers and more to do with devolution being stuck with a dated mindset. The Scottish Parliament was established to address a ‘democratic deficit’. Scotland, the argument ran, had policies imposed on it by a government it did not elect. The emphasis was on what it would not do. There would be no poll tax. Devolution would ‘stop Thatcherism at the border’. Devolved competences would be those of the old Scottish Office. Vague commitments to a fairer, more progressive, or even a radical Scotland, were largely ignored. Little debate was heard on how this would be achieved.
There was a further weakness in how devolution was conceived (conceived in both senses – how it was brought into being and how it has been understood). This was evident in the listing of matters retained (in Schedule 5 of the Scotland Act 1998) with the rest devolved. It might make sense legally but was a problem from a public policy perspective. The idea of separate, discrete areas of competence for each ‘level’ of government has informed, or more accurately misinformed, understandings of devolution from the start. The Scottish Parliament would ensure that there was ‘Scottish control of Scottish affairs’. ‘Scottish control’ meant a Parliament elected by the Scottish electorate and ‘Scottish affairs’ meant Scottish Office responsibilities. But the Scottish Office had been part of the Cabinet system of government, an integral part of Whitehall. It was never a completely autonomous body. Nor could devolved government be completely autonomous.
Barnett a stop gap
At best, an assumption was made that the Scottish Offices’ responsibilities, accumulated over a century through haphazard ad hocery, were appropriate. The financing of the Parliament was a case in point. Devolved government would be funded in much the same way as the old Scottish Office, using a formula that had been designed by Treasury officials (though named after then Chief Secretary to the Treasury Joel Barnett) as a stop gap to get through a fiscal crisis in the late 1970s. Generous expedient to avoid the cumbersome public spending process was inherited and is still, though in reduced form, the means of determining Holyrood’s block grant.
Nothing oils the wheels of intergovernmental relations, and helped embed devolution as part of the furniture of government, more than real term growth in spending. The early years of devolved government coincided with a period of unprecedented growth in public expenditure across the UK. The Scottish Parliament benefitted hugely from a buoyant economy, a strong UK tax base and the generous mechanism allocating funds to the Scottish Parliament. There was little need to use the very limited tax powers available, which were more symbolic than real anyway, not least as the administrative costs would limit their value.
But devolution was ‘not just for Christmas’, as Michael Forsyth, the last Tory Scottish Secretary before devolution, had warned. The good times ended with the ‘Great Recession’ of 2007/08. That this coincided with the end of ‘party congruence’ – Labour in office in Edinburgh and London – only added to problems.
The situation today is very different. Holyrood has gained significant fiscal powers. The block grant has consequently been adjusted to take account of tax raised and kept in Scotland – Scotland could not expect to have its cake and eat it – and also new welfare responsibilities. Risks and rewards have been devolved. Funding of Scottish public services now requires a strong Scottish tax base and that in turn requires a thriving Scottish economy. There is now a more direct relationship between Scotland’s economic performance and public service performance.
Scotland now finds itself with higher levels of taxation but less money to spend on public services. The reason for this is that the Scottish economy, which is relatively weak compared the UK economy as a whole, does not provide an adequate tax base to fund public services at the same level as would have been the case under the old system, even with modest tax increases.
A radical change in governing mindset
But the Scottish governing mindset remains stuck in the early period of devolution when the focus was largely on spending rather than generating tax income through a growing economy. There was little incentive to address economic weaknesses so long as the grant flowed from the Treasury, though a weak Scottish economy placed burdens on demands for public spending. There is much laudable talk of a wellbeing economy and a fairer welfare system. But this has not been aligned with economic growth, with potentially dire consequences for public services. While most economic metrics suggest Scotland is the third most prosperous part of the UK, the problem is that Scotland still lies well behind London and the South East, the economic motors of the UK economy.
A major shift in the governing mindset is required by the Scottish Cabinet and across the Scottish Government to take account of the very different fiscal environment devolved government now finds itself in. Warm words about a wellbeing economy are not enough to sustain existing spending. Leaving aside mounting pressures on public services, it is a damning indictment that the Scottish Government struggled to find officials to fill the key posts of Directors General Economy and Net Zero, a few years back. Fortunately, that has since been rectified. But much more needs to be done to address decades-long weaknesses in business start-ups, neglect of the College sector and training needs, and productivity.
More ‘give-and-take’ on the part of UK and Scottish Governments
What has been lacking is a review premised on the need for improved public policy processes and outcomes. This is less exciting than the bidding processes at the heart of electoral competition or the blame games at the heart of British vs Scottish nationalism. As a starting point, we need to recognise that constitutional change in and of itself cannot address our ‘wicked problems’, those deeply entrenched problems that do not lend themselves to easy ‘solutions’ but require the involvement of a wide range of ‘levels’; public and other bodies, often struggling to agree on cause and thereby response. Poverty, climate change, sustainable economic development, demographic change, drug deaths, cannot be addressed in silos. There needs to be more ‘give-and-take’ on the part of UK and Scottish Governments replacing the zero-sum game of constitutional politics. This would be true regardless of Scotland’s constitutional status. Independent Scotland would still operate in a wider UK economy, affected by decisions made in London.
It is difficult to imagine another major overhaul of devolved finances any time soon, not least as this would be resisted by the Treasury, which leaves three alternatives. Significant cuts in Scottish public spending or significant increases in taxation but these would be deeply unpopular though some combination will be inevitable if the third is unsuccessful. The Scottish Government needs to prioritise measures to grow the Scottish tax base. And growing the tax base will not be done by the Scottish Government and its agencies alone. It will require much closer cooperation with Whitehall Departments and at local level.
The most effective public health outcomes follow from citizens engaged in well paid, secure and satisfying employment. The ‘gig economy’, short term contracts and zero hour contracts contribute to mental and physical ill-health and unstable employment and thereby to weaken the Scottish tax base. That requires coordination and cooperation with government in London. A prosperous economy creates a strong, sustainable and growing tax base that contribute to public finances. A weak economy creates demands on the Scottish public purse and leaves the Scottish Government short of income. Economic growth and decent public services are intimately and unavoidably connected.
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