The draft legislation published in response to the report of the Smith Commission makes much of the concept of 'no detriment' - that the actions of one government should not harm another. However, explains CCC Director Michael Keating, that is considerably easier said than done.
Both the Smith Commission and the new UK Government document Scotland in the United Kingdom emphasise the need for ‘no detriment’ in any new settlement. This essentially means that neither government should suffer from decisions taken elsewhere and has two aspects.
The first concerns the initial transfers of powers and adjustment of the block grant so that nobody loses out in the process. It is straightforward in principle but requires some very difficult calculations and predictions in practice.
The second is that in future neither government should suffer financially from policy decisions made by the other. A reverse variant is that each government should get the full benefit from its own policy decisions. While fair in principle, it is a minefield. Scotland in the United Kingdom spells out the implications of this in the field of welfare such as the effects of tax changes on welfare or ‘passporting’, where a devolved benefit may be linked to a reserved one. More difficult is what to do should Scottish employment polices cut unemployment and reduce demand for welfare, which would benefit the UK (which pays the main benefits) but not the Scottish budget. The paper mentions this one but does not resolve it. Another example arises in on-shore gas and oil licensing, which is now to be devolved. The Scottish Government might take a restrictive line on this (including on fracking), since it is the UK Government that would lose the potential revenues (these being reserved).
Detriment could be read more widely to cover tax competition. So if Scotland were to abolish Air Passenger Duty and divert traffic from Newcastle to Edinburgh airport, England might complain about the lost revenue. Wealthy residents could be lured across the border by different taxes on high incomes.
It has been suggested that, as long as the Barnett formula exists, decisions on student fees and NHS organization in England affect Scotland, a view shared by both unionists and the SNP and which bedevils the issue of English Votes for English Laws.
My colleague Robert Young of the University of Western Ontario tells me that this kind of detriment happens regularly in Canada. The federal government tightens sentencing rules and criminals spend longer in provincial jails. Provinces cut infrastructure spending, and the federal government pays more in unemployment benefits. Changes in the shared income tax base are set by the federal government but affect provincial revenues.
Even more potentially wide-ranging is the underlying assumption that the overall level of public spending in Scotland should be broadly in line with that of the rest of the UK, including spending cuts. As the paper puts it, ‘Therefore the fiscal framework must require Scotland to contribute proportionally to fiscal consolidation at the pace set out by the UK Government across devolved and reserved areas.’ This appears to go beyond the requirement that any extra expenditure in Scotland be financed by Scottish revenues (which is already covered by the balanced budget requirement) and might be read in conjunction with the Conservative Party’s ambition to reduce public spending to around 35 per cent of GDP. In that case, it is not just the SNP but the Scottish Labour Party that might have concerns.
Determining what should count as detriment will remain politically contentious and technically complex.