HL 55 - A fracturing Union? The implications of Financial Devolution to Scotland

Book excerpt: During the Committee's investigation into the devolution of public finances, Lord Palmerston's assessment of the Schleswig-Holstein question has often sprung to mind. Funding of devolved administrations, particularly with regards to Scotland, is a complex mix of social, economic and political questions; "You would not start from here", has been the lament of many of our witnesses. This inquiry was prompted by the Smith Commission agreement. The Scottish cross-party Smith Commission was established by the Prime Minister, following the September 2014 referendum on Scottish independence, to agree further powers which should be devolved to Scotland. The Committee was particularly interested in the proposals that seek to increase the financial accountability of the Scottish Parliament. The Smith Commission agreement will be delivered through the Scotland Bill 2015 and the renegotiation of the 'fiscal framework' by the UK and Scottish Governments. The fiscal framework sets out how Scotland, Wales and Northern Ireland receive funding from the UK Government and the institutional arrangements that govern the process. The renegotiation of the fiscal framework may also have implications for future funding arrangements for Wales and Northern Ireland. Negotiations on the fiscal framework have yet to be concluded. This report draws attention to certain problems we have identified that the UK Government and devolved administrations need to address: (1) The Absence of the Fiscal Framework; (2) Funding of Devolved Administrations in the UK; (3) Adjustment of the block grant for Scotland to reflect devolved income tax receipts; (4) the second 'no detriment' principle; (5) choice of devolved taxes; (6) borrowing powers; (7) transparency and scrutiny.