Scottish Fiscal and Economic Studies (ScotFES) - Submission to Smith Commission 2

Published: 6 November 2014

Many people have interpreted Gordon Brown’s comments prior to the referendum, as well as the so called “Vow” made in the Daily Record, as some commitment so “Devo Max”. My submission to The Smith Commission on further devolution for Scotland assumes that we are indeed aiming for the maximum level of devolution possible, and asks where this must fall short of the common understanding of Devo Max.

Devo Max is usually interpreted to mean full Home Rule for Scotland within the UK, so that the only governmental functions for Scotland that remain at the UK level are defence, foreign affairs, as well as a single currency and free trade area. Scotland would raise all its own taxes and pay the UK government for the services it provides, such as defence.

However, this framework runs into many of the same criticisms that afflicted the proposals for an independent Scotland sharing the pound Sterling with the rest of the UK. The question now is different, since it is unambiguously the case that enhanced devolution for Scotland will mean retaining a common currency area with the rest of the UK: so Scotland WILL be sharing the pound. However, to make a success of divergent polities within a common currency area, it is a requirement that we learn the lessons of the Eurozone crisis and seriously consider the constraints imposed on these divergent polities by the need to maintain macroeconomic stability.

My submission argues that whilst devolution can be extended greatly from its current form, an automatic, formulaic system needs to be built that responds to business cycle fluctuations and asymmetric shocks. Such a system is necessarily “less devolved” than Devo Max.

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