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Unformatted text preview: the political sensitivity of these matters.
The 2001 UK General Election, the first to take place with devolution in place, was remarkably dull until enlivened by a
fractious and confused controversy about ‘fiscal autonomy’. The trigger was a letter urging fiscal autonomy (Cross et al.,
2001), published in the Scotsman newspaper. The problem is that several meanings could be attached to this term.
First, the meaning is clear if Scotland were an independent state, though that was not generally the context of this
discussion. Second, fiscal autonomy could mean that the devolved Scotland would receive all the tax revenue collected
by the UK revenue departments and identified as having emanated from Scotland, with there being no power to vary UK
rates. In such a case, a crucial question is whether there would be fiscal capacity equalization and/or needs
equalization; the letter itself condemned equalization as inefficient and unfair, and stated that the direction of transfer
runs from Scotland to England. Third, fiscal autonomy could mean that Scotland would have power to vary all or some
tax rates, in which case questions of whether there would be equalization of fiscal capacity and/or for needs, whether
there would be separate tax administrations, and whether such rate variation would be admissible within a EU member
state, all arise. It became apparent that those in the media and politics advocating fiscal autonomy in the second or third
meanings included some, hitherto opposed to devolution and the tartan tax, who believed that such an arrangement
would bring large and welcome reductions to devolved expenditure because of a revenue shortfall, as well as those who
supported fiscal autonomy as a means of securing higher devolved expenditure.31
The focus in the United Kingdom should be upon fiscal accountability at the margin, not upon the proportion of
expenditure which is financed from own resources. To concentrate upon the latter is to misjudge the UK fiscal system.
Even without the traditionally centralized fiscal psychology of the Treasury and the desire of the present Chancellor of
the Exchequer to micro-manage functional spending departments, the growing extent of international (IMF) and
supranational (Ecofin) surveillance of general government-based indicators means that a high level of own resources
would not be any guarantee of autonomy at the margin.
30 31 272 The limitations on this power were spelled out in the 1997 White Paper: ‘Should self-financed expenditure start to rise steeply, the Scottish Parliament
would clearly come under pressure from council tax payers in Scotland to exercise its [capping] powers. If growth relative to England were excessive
and were such as to threaten targets set for public expenditure as part of the management of the UK economy, and the Scottish Parliament
nevertheless chose not to exercise its powers, it would be open to the UK Government to take the excess into account in considering the level of their
support for expenditure in Scotland’ (Scotti...
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