The Political Economy of Financing Scottish Government

The Political Economy of Financing Scottish Government

Considering a New Constitutional Settlement for Scotland

Studies in Fiscal Federalism and State–local Finance series

C. Paul Hallwood and Ronald MacDonald

Can the UK survive widespread dissatisfaction in both Scotland and England with the financing of public spending by Scotland’s parliament? This timely book explains how fiscal autonomy could raise economic growth and efficiency in Scotland – to the benefit of both Scotland and the rest of the United Kingdom. The authors discuss how other reform proposals – which amount to cutting Scotland’s block grant – would fail as they would not be seen in Scotland as legitimate. They conclude that fiscal autonomy would be accepted as it reduces Scotland’s democratic deficit in public spending, and would go a long way toward reducing vertical and horizontal imbalances in the UK.

Preface

C. Paul Hallwood and Ronald MacDonald

Subjects: economics and finance, public finance, regional economics

Extract

We have argued for the last five years that the method of financing spending by the Holyrood government is seriously undermining not only the resilience of the UK as a political entity but also the efficiency of public spending in Scotland, Scotland’s rate of economic growth and the strength of the private sector in Scotland. At present the financing method is a bloc grant handed down from Westminster to Holyrood. We note that while a good deal of political support has got behind ideas for tax devolution, much academic opinion remains of the view that the system is working quite well and only a little tinkering is required. Various, usually small, modifications to the present ‘command and control’ bloc grant system have been suggested. The ‘command’ element in it is that the Westminster government commands the size of the annual bloc grant, and the ‘control’ element is that tax devolution (outside of the small ‘tartan tax’ variance) is ruled out by law. Thus, there have been suggestions to cut the size of the bloc grant by about 10 per cent, or, to link its size to an inverse regional per capita ‘gross domestic product’ formula, or, a direct per capita social security spending formula, or, to set up ‘targets’ (equals more ‘control’) to somehow raise the efficiency of public spending in Scotland, or, to set up a non-partisan grants commission (equals a different ‘command’ vehicle) that will somehow achieve desired levels of efficiency in public spending. In this book we...