by John McEldowney
The referendum held in Scotland on 18th September 2014 on Scottish independence is a significant event that will prove to be of major constitutional significance for the United Kingdom as well as for the devolved administrations in Wales, Northern Ireland and London for years to come. The NO vote in favour of the 307 year old Union gained a comfortable 55% majority over the YES, in favour of independence of 45%. Electoral turn-out was one of the highest seen in the UK at over 85% of the electorate. In the East Darbartonshire constituency the turnout was 91%. Sixteen year olds were given the vote for the first time.
It is clear that Scotland’s vote to remain the United Kingdom has settled,at least for the immediate future, the claims of Scottish Nationalists for independence. Mr Salmond the Leader of the Scottish Nationalist Party and First Minister of the Scottish Parliament, resigned the next day and Mr Cameron the UK’s Prime Minister announced that pledges for further devolved powers for tax raising and borrowing would be honoured in a bill giving greater autonomy to Scotland. Details of the powers and plans are sketchy but include “extensive powers for the Scottish parliament over income tax rates, spending and welfare with a permanence given to the Scottish Parliament”. In addition the implications of the referendum would also be considered at the same time as the Scottish devolved powers, in terms of “re-balancing” the UK’s unwritten constitution in favour of equal powers between the existing devolved administrations but also to include England.- with a promise of greater devolved powers to England’s local authorities and devolution to the English regions. This had originally been proposed by the Labour Government in 2003 but failed to gain momentum as the powers proposed were rather modest and the enthusiasm at the time rather weak. A referendum held in 2004 in north- east England resulted in the rejection of such devolved arrangements. The Scottish referendum has awakened a sense of “Britishness” but equally a sense of being English and as the largest of the four kingdoms a sense of wealth that is being used to subsidise poorer regions.
The Scottish referendum has also raised once again the West Lothian question as it is known. Is it legitimate for MPs representing non –English constituencies to vote on matters that will only affect England? Politically this is difficult to reconcile for many who question whether it is fair for Scottish MPs to vote in Westminster, the UK Parliament, on devolved matters such as education when English MPs are unable to vote on Scotland’s education arrangements as the matter has been devolved to Scotland. There are party implications as the Labour party wins the majority of Westminster seats held by Scottish MPs with little prospect of the Conservative Party ever winning these. The Labour party effectively needs Scottish MPs to win an election to form a UK government. If there is a restriction on Scottish MPs voting on English matters it is likely that the Labour Party will struggle to win sufficient support for many of its policies.
Aside from the political dilemmas facing the major parties there are serious constitutional issues at large. There is the suggestion that if devolution is rebalanced in favour of English regions and local government the UK will move towards a form of federal state. This is clear if the strengthened devolution arrangements for Scotland, Wales, and Northern Ireland are considered. Then the UK will cease to be a unitary state, as it presently is, and emerge as a form of quasi federalist state that is likely to have to consider a written constitution with all that this entails. There are also serious issues surrounding the financing of the new arrangements that question how effective the UK’s central authorities will be in setting policy and defining economic progress in the face of strengthened devolution. For example in the quantitative easing arrangements undertaken by the Bank of England, as the lendor of last resort as well as the setting of interest rates the Bank of England is answerable to the UK Parliament and the Treasury with the UK’s Chancellor of the Exchequer pre-eminent. How will such arrangements be taken forward with so many revenue and spending plans transferred to devolved administrations?
The Emergence of Devolution in 1998
The creation of the Scottish Parliament, National Assembly for Wales, and Northern Ireland Assembly requires consideration of the financial relationship between the UK’s financial system of control and the devolved administrations.1 The general principles are contained in A Statement of Funding Policy issued by the Treasury. These are: that responsibility for overall fiscal policy, and in the drawing up of budgets and public expenditure allocation is retained within the UK’s Treasury; that the UK government funding of devolution will normally be determined through departmental spending reviews; and that devolved administrations will make decisions for funding particular activities within the overall totals.
The UK Parliament will vote the relevant provision for the devolved administration by means of a grant. At the devolved level additional elements of the budget will come from locally financed expenditure, funds from the European Commission, and borrowing undertaken by local authorities. In the case of Scotland, additional funds may arise from tax raising powers under devolution through the Scottish Variable Rate of Income Tax (though these powers have not as yet been exercised) and also through non-domestic rates. These arrangements have given the Scottish Parliament and committees an opportunity to scrutinize the spending plans and priorities of the Scottish Executive. There is a three-stage process from April to June (Year 1) and September to December (Year 1) and January to February (Year 2). There are some striking innovations such as the Finance Committee that oversees the consultation process within Parliament and an annual evaluation report allowing strategic planning throughout each year of the spending review period. The Executive submits a provisional expenditure plan (an annual evaluation report) and this is considered by the Scottish Parliament, along with a report of the Finance Committee. The Executive prepares a draft budget in September including spending plans for the following financial year. Based on comments made and information received, it is possible for the Finance Committee to make out an alternative budget, but within spending limits set by the Executive. In December, the Finance Committee prepares a report which is debated in plenary session and this allows amendments to be made to the Executive’s spending plans. There is an annual Budget and accompanying Bill presented in January by the Executive. This provides parliamentary authority for spending in the coming financial year. Once the Bill is introduced it is given a speedy passage as only members of the Executive are able to move amendments. The advantages of this system are that there is more transparency than is the case with the UK Parliament and an opportunity for fuller debate and reflection on spending plans; and that counter-proposals may be made through the Finance Committee.
It is clear that in respect of devolution, the UK government retains a number of techniques of overall financial control.2 These include the right to make adjustments to the budgets to devolved administrations, and the assumption that devolved administrations will carry any additional or unforeseen financial burdens. The UK government retains responsibilities for the receipt and disbursement of funds from the European Union.
It is generally assumed that any changes in the budgets or financial arrangements for devolved administrations funded from the UK’s tax revenues or by borrowing will depend on the spending plans of the comparable departments of the UK. The requirement of apparent ‘parity’ is achieved in general through the Barnett formula.3
The Barnett Formula determines changes to expenditure within the assigned budgets of the devolved administrations. Under the Formula, Scotland, Wales, and Northern Ireland receive a population-based proportion of changes in planned spending on comparable UK government services in England, England and Wales or Great Britain as appropriate.4 The formula works on the principle that changes to the planned spending of departments of the UK government are calculated and applied against a comparability percentage and against each country’s population as a proportion of the UK’s population. The Barnett formula is under scrutiny and is unlikely to survive changes to the devolution settlements in Wales and Scotland. The Welsh Assembly undertook an Independent Review chaired by an economist Gerald Holtham, and the Holtham Commission has recommended that the formula be replaced.5 The Silk Commission has taken matters further, recommending that the Barnett Formula should be replaced and that Welsh ministers should have powers and responsibilities for raising 25% of its own budget, including borrowing and income tax raising powers6 and taken forward in the Wales Bill 20147 but subject to a referendum. In the case of Scotland, the Calman Commission8 has undertaken similar studies arguing for greater transparency in funding arrangements between the UK and Scotland with a needs assessment introduced across the UK as part of the formula. The Scottish Referendum9 result Wales and Northern Ireland are considering their options in the light of decisions about the Barnett formula in general. 10
The Scottish referendum has thrown into the constitutional “melting pot” a series of difficult questions that have to be addressed. The most fundamental is whether there should be an English devolved Parliament added to the re-balanced strengthened devolution settlements for Scotland, Wales and Northern Ireland that are now being promised. At the time of writing the details and time-table are vague but promised to be brought into law before the next election in May 2015.
It will be remembered that the McKay Commission11 recommended setting up a constitutional convention to consider the implications of devolution on the UK. In the aftermath of the Scottish referendum the House of Lords Constitution Committee will review the implications on Scottish MPs and Members of the House of Lords.12 All this will take some time. In terms of the West Lothian question the Commission had expressed some sympathy with the principle that decisions that affected one part of the UK should be taken by the consent of the majority of the electorate for that part of the UK. In fact McKay dismissed the idea of an English Parliament for English matters. Instead, rather tentatively it recommended some way of counting the votes of MPs in the House of Commons noting their constituency and their votes when making legislation in the House of Commons. The information might be used to determine whether or not legislation was approved by representatives from the relevant region that is affected or not. This would make it procedurally impossible for a vote to be carried when it was based on Scottish, Welsh or Northern Ireland MP’s voting on English matters. This is a reasonable idea as it is based on a concept of representation but in practical terms hard to enforce.
The Scottish referendum may have settled Scotland’s membership of the union defined by the United Kingdom. It has led to a major constitutional crisis over what membership is likely to mean and how regional devolved administrations are to work within a structure that does not seem to have recognized that the nature of devolution itself has irrevocably changed the UK’s constitution. A written and most likely Federal constitution is the most likely solution but it is far from clear that this is the option that will be agreed by the political parties. “Representative” government at Westminster is being questioned as it has for too long lagged behind the signs that the electorate are looking for a more satisfactory way to be governed than from London. There is not much time for a solution to be found but the economic pressures on the debt ridden UK economy indicate that a new constitutional settlement is needed rather urgently. Equally there are lessons for a UK government embarking on a referendum on EU membership that such a vote may have unintended consequences, not least creating political uncertainty and economic instability. The UK’s unwritten constitution that has proved its pragmatism and flexibility may need re-thinking in the light of the consequences of the referendum in Scotland on independence.
1. House of Commons Research Papers; Public expenditure by country and region SN/EP/4033 ( 29th July 2014).
2. See Iain McLean and Alistair McMillan, ‘The distribution of public expenditure across UK regions’ (2003) 24(1) Fiscal Studies 45–71.
3. The Barnett formula was first adopted in the 1978 PES under Joel Barnett, then Chief Secretary to the Treasury. Scotland’s Parliament, Cm. 3658; Scotland Act 1998; Serving Scotland’s Needs: Department of the Secretary of State for Scotland and the Forestry Commission: The Government’s Expenditure Plans for 1999–2002, Cm. 4215 (March 1999). A Voice for Wales, Cm. 3718; Government of Wales Act 1998; The Government’s Expenditure Plans 1999–2002, Departmental Report by the Welsh Office, Cm. 4216 (March 1999). Belfast Agreement, 10 April 1998; Northern Ireland Act 1998; Northern Ireland Expenditure Plans and Priorities – The Government’s Expenditure Plans 1999–2002, Cm. 4217 (March 1999). HM Treasury, Funding the Scottish Parliament, National Assembly for Wales and Northern Ireland Assembly (31 March 1999). In Scotland, Northern Ireland, and Wales local authorities may borrow within set limits to fund their capital expenditure. There are some exceptions to the Barnett formula, as where various categories of expenditure are the sole responsibility of the devolved administration. HM Treasury, Funding the Scottish Parliament, National Assembly for Wales and Northern Ireland’s Assembly (31 March 1999) para. 3.3.
4. See House of Lords, Select Committee on the Barnett Formula, 1st Report Session 2008–09, HL 139 (17 July 2009).
5. Calman Commission, Independent Commission for Funding and Finance for Wales (2009). Holtham Commission, Replacing Barnett with a needs-based formula (June 2009).
6. Commission on Devolution in Wales ( Chair Paul Silk) Empowerment and Responsibility: Financial Powers to Strengthen Wales ( November 2012) See: John McEldowney, “ The Impact of Devolution on the UK Parliament” in A. Horne, G. Drewry and D. Oliver eds., Parliament and the Law Oxford: Hart Publishing 2013 pps. 197-219.
7. HM Government, Wales Bill: Financial Empowerment and Accountability March 2014. Cm. 8388. House of Lords Library Notes, Wales Bill (HL Bill 34 of 2014-15). The Bill provides a structure for the devolution of stamp duty.
8. Commission on Scottish Devolution, Serving Scotland Better: Scotland and the United Kingdom in the 21st Century Final Report (The Calman Commission) (June 2009).
9. House of Commons Research Papers: Impact on the UK of Scottish independence: social security and tax credits SN06957 ( 7th August 2014).
10. Northern Ireland Assembly, Funding the United Kingdom Devolved Administrations, Paper 82/10 (20 June 2010).
11. Mckay Commission: Report of the Commission on the consequences of devolution for the House of Commons, March 2013.
12. House of Commons Library: The McKay Commission: Report of the Commission on the consequences of devolution for the House of Commons SN/PC/06821 ( 14th February 2014).