Tuesday, 12 July 2011

What is Full Fiscal Autonomy ?

 In all the din about the upcoming (when?) referendum on "independence" and how many questions can/will be asked, one of the possible options being posited is something called "Devolution Max". Devolution Max, as far as I can tell, is co-terminus with the idea of "Full Fiscal Autonomy", the idea that all revenues raised in Scotland are spent in Scotland.

I have to say, I have never been clear how this idea was supposed to work. I have never actually seen a definition of the main elements, not least how we define the limits of the separate "Scottish" economy, what we should treat as "Scottish" income for tax purposes, and how the implied different tax structures in Scotland and England can be accommodated within a single UK fiscal and monetary framework.

Today there is a letter in the Herald by Prof. Arthur Midwinter, a seasoned and respected economist and commentator on Scottish economic affairs. He says, inter alia, that;   

"....devolution max..... is a theoretical model, unworkable in practice. Devolving all tax powers is incompatible with the central management of the economy, and the principles of the UK’s fiscal framework..."
Which is what I always suspected.... It is not clear to Prof Midwinter how this theory can be lifted off the page and turned into a real-life, everyday, working economic framework.

I suspect if it is ever pursued, the result will be years of confusion and the divesrion of energy away from spending and investing the fruits of the economy toward arguments about frontiers between actual income streams, who owns them and to what extent, and who and how they were to be taxed and at what levels.

At the very least, it would provide fertile ground for conflict between Scottish politicians and the "English" Treasury and Westminster generally. So even if it fails, and Scotland's economy and political discourse hamstrung for years, the Nats would be quite happy at the outcomes.

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