Fiscal framework concerns raised by Holyrood committee
The effectiveness of further fiscal devolution will be largely dependent on Scotland’s revised fiscal framework, according to the Scottish Parliament's Finance Committee.
In a new report the committee expresses its concern that the UK Government's command paper on implementing the Smith Commission proposals for further devolution would involve a much greater level of constraint on the Scottish Government’s fiscal flexibility than the Commission envisaged.
Whilst recognising the need for Scottish Government policies to be consistent with the overall UK fiscal framework, the MSPs question the extent to which the proposed framework would allow the Scottish Government the flexibility to pursue distinct fiscal policies.
In particular, they conclude that there is a fundamental need to change the Treasury’s role as the sole decision maker on fiscal matters. This will require cultural change both within the Treasury and at all levels of intergovernmental relations.
The committee has also recommended that the Scottish Fiscal Commission should be responsible for monitoring the Scottish Government’s compliance with its fiscal rules and targets and should carry out its own forecasts.
Committee convener Kenneth Gibson MSP said: “Our report makes clear that progress on these matters will only be made if the UK Government – the Treasury in particular – actively demonstrates a willingness to work with the Scottish Parliament and Government in seeking agreement on a revised fiscal framework.
“There needs to be an openness and transparency in intergovernmental discussions and there must be meaningful consultation with both the Scottish and UK Parliaments. This process must not simply be left to the Governments to agree.”
The report also concludes that Scotland’s updated fiscal framework should include two fiscal rules. The first should be a balanced budget rule to govern the level of borrowing in the short to medium term; the second should be a rule to govern the medium to long-term limit on net debt. The level of borrowing powers for current spending will need to be significantly increased, commensurate with the risks faced by the Scottish Government post-Smith, and given the risks associated with volatility in the Scottish economy the committee does not believe that it is appropriate to have a cash limit on current borrowing.
Regarding the block grant, the increasing complexity of the funding model for Scotland "means that it is essential that the calculations of the block grant are open and transparent”, and “there needs to be a greater willingness within the Treasury to seek agreement with the devolved institutions on the methodology and operation of the funding model".