Crossroads

What happens next?

The outcome of the referendum, and the conduct of the Westminster parties during the campaign, means that the expectations of ‘devo max’ are extremely high. Ideas have been floated by the parties of what this might look like, but a hard negotiation lies ahead. Alex Salmond’s resignation press conference saw him express some disquiet at the lack of consensus and refusal of the Prime Minister to legislation in this parliament.

While the Westminster parties have put forward their respective plans, the SNP has yet to make a counter-claim. Only once this is public will we be able to discern the outlines of what devo max will actually look like, but for now we can anticipate the categories for negotiation and some of the likely sticking points.

At a simple level, devo max will transfer all those functions which were reserved to Westminster in 1998, with the exceptions of foreign affairs and defence. But in reality there will be areas in which implementation could take several forms.

The likely SNP strategy will be to make the negotiations as much about political outcomes as possible, leaving high constitutional talk out of the public debate. Thus changes to welfare powers will be about ‘abolishing the bedroom tax,’ while spending powers will be presented as safeguarding the NHS.


Tax

The 1997 referendum on devolution included a question on whether the Scottish Parliament should have tax-varying powers, which was answered ‘yes’ by 63% of those voting. The subsequent legislation gave the Parliament the power to vary income tax by up to 3p in the pound. Political reality has meant that these powers have not yet been used. But under legislation passed in 2012, more onus will be put on the Scottish Government to raise its own revenue from 2016, when it will be responsible for topping up the 10p tax raised by HMRC.

So the issues at stake in the new negotiations will whether these powers should be extended further, possibly as far as making Scotland entire independent in its ability to raise tax (although the tax-free allowance might remain set by Westminster). Other revenues, such as corporation tax, inheritance tax and taxes on investments might be either devolved for Scotland to set, raise and spend, or hypothecated (so that Westminster sets the rate but all revenue collected in Scotland stays in Scotland).

 

Barnett formula

The Barnett formula for public spending is understood by Treasury officials and a handful of MPs, but its effects are obvious and often resented. The adjustments to spending in Scotland, Wales and Northern Ireland as a result of spending decisions result in a substantially lower per capita spend in England than any of the other three nations.

However, a re-opening of the formula, now disowned even by its originator Joel Barnett, seems unlikely, despite decades of complaints from English MPs. All three UK parties pledged during the campaign to retain Barnett. (This is though likely to be a sticking point during the development and passage of legislation in Parliament).

 

Energy, oil and gas

Control of energy policy was to a large degree the cornerstone of the case for independence. Central to this was exploitation of North Sea resources. The Westminster parties will seek to retain reserved status of revenues from oil taxation, although a deal may have to be struck.

Despite the drive for independence of policy, the Scottish Government made it clear through the campaign that it wished to remain part of the UK renewables support structure. So while nominal responsibility for both generation and supply policy might be handed over to Holyrood, some form of cross-border cooperation will certainly remain in place.

Pensions and welfare

All three Westminster parties support retaining reserved powers over the basic state pension will remain reserved. But if Holyrood uses new devo max powers to set different tax thresholds, there could be significant implications for auto-enrolment and pensions tax relief.

The biggest welfare change is likely to concern housing benefit. It is highly likely it will be devolved, and will allow the SNP and Labour to declare the end of the ‘bedroom tax’ in Scotland, as well as secure funding for the provision of social housing. The Conservatives have been less enthusiastic, but their acquiescence with Brown’s plan suggests the benefit could well be devolved.


Broadcasting

Early in the campaign, then-Secretary of State Maria Miller warned of the switch-off of the BBC if independence took place. While this was always slightly over-stated, major changes now look unlikely. There have in the past been discussions about the idea of a Scottish Broadcasting Corporation, but its funding model always looked difficult. In reality, little is likely to change as a result of devo max, although the pressure will be upped on the BBC to retain regional quotas as part of its Charter review.


Westminster representation

It is highly likely that Conservative backbenchers will use these negotiations to open up the West Lothian Question. For the SNP, loss of Westminster voting rights on issues that do not concern Scotland will be a small price to pay. But for Labour, this might be less palatable. The party’s stated position is against ‘two tier MPs’, not least because 40 Labour MPs would be relegated to the second tier (and more if Wales is included).

Such weighty constitutional questions could in theory be whipped through Parliament meaning that Labour could be left without a real say in the outcome. But given the lack of mandate for any devo max settlement at all, and the reliance on Labour to drive home a no vote, Mr Cameron will be under significant pressure to come to an agreement with the opposition. What this looks like, though, is far from clear.