Project overview
This project addresses questions arising out of the Smith Commission, which recommended further devolution of tax and welfare powers to Scotland.
In order to further devolve these powers, both the block grant given to the Scottish Government and the wider fiscal framework would need to be adjusted. Initially, this is relatively simple: the block grant should be adjusted to reflect the tax and spending devolved. But what about subsequently? The Commission and draft legislation say that the block grant adjustment should be ‘indexed appropriately’. They also set out a set of criteria (including the ‘no detriment’ principles) the new framework should satisfy. But what is an ‘appropriate’ system of indexation? Can any framework satisfy all the criteria?
Specifically, this project examines:
- How different systems of indexation affect the incentives and risks the UK and Scottish governments face.
- Issues in satisfying the various criteria, and trade-offs between the criteria.
- The implications for the wider fiscal framework (particularly borrowing powers). It uses theoretical and empirical analysis of the options and a review of experience in other countries.
This research is relevant to both policy-making and public debate. Existing fiscal arrangements face upheaval in the coming years. Getting the new fiscal framework and block grant adjustments right is key to ensuring devolution to Scotland (and to other nations and regions of the UK), is perceived as fair, and provides the right balance of responsibilities, incentives and risks to different levels of government. Given the divergent interests of, particularly, the UK and Scottish Governments, impartial, independent analysis is required.
