The Devolution Deficit

Craig DalzellDespite plenty of warning before the elections, new Chancellor Rachel Reeves has suddenly discovered a massive “hidden” black hole in the UK’s finances and she needs to make “difficult choices” to fix it. This is hardly to excuse the last 14 years of Conservative rule – it’s not as if they made a particular secret about their attempts to hollow the nation out for their own benefit – but as Robin has explained, political figures never seem to make “difficult choices” that would make things difficult for those who can afford it.The scrapping of the pensioner winter fuel allowance for those deemed well off enough to get by without it (the threshold of “well off” being those who have an income equivalent to roughly half that of a full time minimum wage job) is going to result in a rise in cold weather deaths and hardships and health costs very likely to exceed the cost of the “savings” to the welfare bill and the “savings” of around £1.5 billion a year are pretty miniscule on the scale of a UK budget – certainly not nearly enough to make a measurable dent in public investment in insulating homes and otherwise improving building standards to the point that no-one, young or old, need ever face cold weather hardship again.In the shorter term, this policy shows the weakness of devolution in its current format. The winter fuel allowance is one of the social security measures that has been devolved to Scotland – a sensible measure given the markedly different climate in Scotland compared to further south and given that housing (the inadequate provision of being the major cause of fuel poverty) also being devolved. However, while the power to deliver the allowance is devolved the finances behind it are not and Scotland will be dependent on Block Grant funding to continue its provision.The Block Grant is the core body of funding for devolved parliaments in Scotland, Wales and Northern Ireland and while each have (to greater or lesser degree) the powers of direct taxation and revenue generation, none are “fiscally autonomous” in that the revenue they generate from devolved taxation fully balances with the expenditure required to deliver all of their devolved outgoings.The level of the Block Grant is determined (via a Fiscal Framework far too complex to unpick here) chiefly by measuring the amount that the UK Governments spends on delivering public services in England (or in England & Wales where Wales lacks devolved powers in areas like justice). Whenever £1 is budgeted for an English public service, a fraction of that – based on population plus some adjustments – is added to the Scottish Block Grant. The Scottish Parliament is not in any way bound to spend that money on the SAME service as in England – If the UK Government boosts the English education budget, it’d be perfectly legal for the Scottish Parliament to spend its extra funding on healthcare, for example – but the political pressure to do so is strong and the implication of devolution is that it essentially is designed so that it “works best” if Scotland DOESN’T spend its Block Grant uplifts on something other than that which caused them. The critique that devolution has created a Scottish Parliament that is merely allowed to administer UK Government policy isn’t entirely without merit.And this is what we’re now seeing with the winter fuel allowance. The proposed cut in spending will translate – according to the Scottish Government – to a loss of around £100 million to the Block Grant and so if the Scottish Government wants to continue with the old policy of delivering the allowance to all pensioners regardless of income (or even if they merely want to raise the “affordability” threshold to something above abject poverty) then the money will have to be found somewhere else. This could mean a budget cut to a Scottish devolved service or a devolved tax increase. Or it could mean just hoping that there will be Block Grant uplifts due to public spending increases elsewhere. This last option is unlikely as it would go against the UK Government’s own manifesto promises to NOT generally increase public spending until they’ve “grown the economy” and the one major area where they have committed substantial spending increase does not create Block Grant uplifts – the military.Labour’s campaign during the election was heavily leveraged around the idea of increasing military spending up to 2.5% of GDP – a figure five times higher than their proposals for foreign aid spending. From current levels and assuming no increases to GDP, that equates to an additional £13-£15 billion per year – over half of the purported “£20 billion black hole” that we must, apparently, find cuts for. Once again, there’s always enough money for war.The result of funnelling public money from Block Grant uplifting policies like health, social security and civilian policing and moving that money into non-uplifting policies like the military will mean cutting the devolved Scottish budget even if overall UK public spending remains equal.None of this is new. Common Weal warned about these risks a decade ago into our submission to the 2014 Smith Commission but those warnings were soundly ignored by those – including the Labour party – who favoured keeping the existing Fiscal Framework. A better solution would be a more federal funding model (the Labour party nominally supports a Federal political framework, but not the funding side, which is another reason why it won’t work without the UK Government accepting that it is no longer the sole wielder of power in the country) where both the devolved nations AND the UK Government are both roughly fiscally autonomous. Under this model, the Scottish Parliament would have enough power in revenue to run all of its own devolved affairs. The UK Parliament would administer federal taxes for the provision of UK-wide projects or reserved projects within a devolved nation, and finally there may be some kind of levelling system paid by the richer nations and regions and transferred to the poorer ones either as direct cash to the devolved parliaments or via the UK spending more in those nations in reserved areas. All of this would essentially eliminate the problem of devolved nations being forced to make cuts or changes as a result of the UK Government making its own choices about policies that don’t directly affect those devolved nations and that basic result should be unobjectionable even to those who support the continuation of the Union (if not, I’d presume they’d equally support a scenario where Holyrood making a cut to a devolved power resulted in the UK Government having to pass a cut on to England? Of course, that would be absurd, wouldn’t it?).Devolution, as it currently stands, is entirely premised on a top-down and dominate-subordinate model of governance where the UK Parliament has the power to do what it likes but in some areas it’s the devolved parliaments who have to deal with the consequences either of passing things like the incoming cuts on, or finding the money from elsewhere, and doing so with fewer powers over tax and borrowing to avoid them. Democracy means making choices and if people do insist of voting for a government that will cause those cuts then that’s up to us, but if our devolved governments continue to be forced to cut services as a result of the choice of another government who doesn’t even have the power to implement those cuts here then the Union cannot be in any way fit for purpose. Not for old pensioners who'll now face a colder winter than they need to. And not for anyone else either.