A former senior Civil Servant writes

Saturday’s Daily Record (20/02/2016) includes an item written by Professor Jim Gallagher about the long- running negotiations between the Treasury and the Scottish Government on the Fiscal Framework which will underlie the Scotland Bill when it comes into force.

Gallagher, we are often told, is an expert on devolution and all matters appertaining to government. His Wiki entry tells us that he “was Whitehall’s most senior civil servant concerned with devolution until he retired in June 2010, as Director-General for Devolution in the Cabinet Office, the No 10 Policy Unit and Ministry of Justice” (https://en.wikipedia.org/wiki/Jim_Gallagher_%28civil_servant%29). He is now a Research Fellow at Nuffield College in Oxford, as well as, since 2005, being a Visiting Professor at Glasgow University. The man clearly has considerable background in this matter.

It is therefore worrying that he can come put his name to an article which is little more than a deception followed by, followed by a gross over-simplification, followed by an error (lets be nice). Let’s take a few in order

  1. Perhaps the most serious, I think, comes right at the beginning. Starting from the unremarkable observation that the Scotland Bill will hand over all powers to Scotland over income tax in Scotland, Gallagher slips from that to the assertion that “now that we in Scotland get to keep all our own income tax, should we get a share of England’s income tax too?” (http://www.dailyrecord.co.uk/news/politics/devolution-expert-jim-gallagher-asks-7399820#sfc1F8dTghqTi1l4.99)

    In putting this forward, it is as if Gallagher is asking us to believe that government, anywhere in the world, survives purely on income tax. This is not what the negotiations are about.

    The proposal to allow Scotland not only to set, but to keep all of its income tax (as well as getting half of the VAT raised in Scotland) which will require a suitable deduction to be made from the block grant. The Smith Commission’s emphasis on “no detriment” means that that income tax deduction made in the first year when Scotland has full control of income tax, must be indexed for future years The question has been how we do this?

    The Treasury has put forward some possibilities which have been found wanting by the negotiators from the Scottish Government, as their proposals are perceived to disadvantage Scotland. They are hardly alone this, since, as Nicola Sturgeon wrote in a recent letter to David Cameron, the method of indexation proposed by the Scottish Government is “considered to be the best way of satisfying the Smith Commission’s principles, not just by the Scottish Government, but also by committees of both the House of Commons and the Scottish Parliament, the broad consensus of academic opinion, the STUC and four out of the five parties represented on the Smith Commission.” (https://www.holyrood.com/articles/inside-politics/nicola-sturgeons-letter-david-cameron-fiscal-framework-negotiations)

    But that issue notwithstanding, where will the money come from to pay the block grant?

    Gallagher is trying to tell us it will come from “English income tax”, which is just rubbish. It might come, for instance, from the corporation tax which is earned in Scotland from our normal economic activity – things like excise duty on whisky – or National Insurance (which despite the name is not hypothecated). Or perhaps from oil tax revenue, when the oil price reverts to more accustomed levels. The more assiduous of you might have noticed that OPEC has agreed to stop adding to the glut on the world market by freezing production (http://www.reuters.com/article/us-global-oil-idUSKCN0VO01K) – the price rose by 7% on a single day. This won’t get oil back to where it was a couple of years ago, but it has been suggested that it might lead to actual cuts in production over the next few months (http://oilprice.com/Energy/Oil-Prices/Why-OPEC-Production-Freeze-Could-Pave-The-Way-For-Actual-Cuts.html) and the return of a healthier flow of oil tax revenue to Westminster.

    All of these are sources of tax revenue, which flow directly from Scotland to Westminster now, and will continue to do so even after the implementation of the Scotland Bill and whatever form the fiscal framework might take.

    So when a supposed expert tries to tell us that the balance of the block grant will be paid from “English income tax”, when the fact is that it will come from normal taxation, some at least of which, if not all, will have come from Scotland, then there is clearly something up with his argument.

  2. Next Gallagher tells us “With tax powers you get risk – how many taxpayers there are and how much tax they pay. If you don’t want those risks, don’t ask for tax powers. And remember, risk cuts both ways” (http://www.dailyrecord.co.uk/news/politics/devolution-expert-jim-gallagher-asks-7399820#y0ivDVYh5coa7lgf.97) which is true enough Professor, but only if we ignore two slight problems.
    1. Risk is something we are all accustomed to. I might look out the window and think “it won’t rain” and not take an umbrella. If I am wrong, my risk is that I get wet. The whole essence of insurance is paying others to take on risk for you – for instance damage to your home, or in the event of a car accident. But just as it is my decision whether or not to take an umbrella, it will be my decision, AND the decision of the insuring company to agree that they will take on my car insurance risk. We are all free social actors. However, Scotland isn’t in that position, as a whole plethora of powers that will affect economic – and given its significance to the fiscal framework negotiations and Gallagher’s argument , population growth – will remain with Westminster. Put briefly we are being asked to take on risk, without having control of the full range of policy options which might affect our economic and/or population growth.

      To take a specific example, Universities Scotland and the Scottish Government are seeking powers to allow new graduates at Scottish Universities who are from outwith the EU, to remain in Scotland for at least a year after graduation (http://www.universities-scotland.ac.uk/blog/post-study-work-visas-when-it-works-and-when-it-doesnt/), rather than having to leave at the end of their course unless they find work, as proposed by the Home Office. Or what about economic policy? How much influence is exerted here by the City of London and how much by Scotland? If I were to drive my car carelessly then my insurance premiums would go up. But that would be because of my behaviour. In Scotland’s case, whether our population goes up is not entirely in our control, so it seems a strange argument that we should bear the risks, but without control of all the factors that contribute to that risk.

    2. What happened to “pooling and sharing”? The “broad shoulders of the UK”? Essentially what Gallagher is saying is – “To be strictly fair to English taxpayers, we shouldn’t. After all, if we pay more income tax, they won’t get any benefit from it.” (http://www.dailyrecord.co.uk/news/politics/devolution-expert-jim-gallagher-asks-7399820#sfc1F8dTghqTi1l4.99)

      No, wrong again Professor. While clearly it would be unfair for Scotland to be in a “heads we win, tails we don’t lose” situation, the notion of pooling and sharing has to mean that under certain circumstances – for instance if Scotland does lag behind the rest of the UK – then we do get some of tax raised outwith Scotland (though as above, we aren’t just talking about their income tax, but about the taxation raised within the UK to pay the block grant).

      Gallagher might find merit in Ruth Davidson’s suggestion of “a guarantee of no less than Barnett for five years, reducing risk further. (http://www.dailyrecord.co.uk/news/politics/devolution-expert-jim-gallagher-asks-7399820#sfc1F8dTghqTi1l4.99) but what happens after five years? No more pooling and sharing is it?

  3. Gallagher is also exercised that “As well as per capita indexation, [Nicole Sturgeon] made welfare demands – £600million to administer the benefits that Holyrood can run from 2017.That’s just to pay for the bureaucracy, on top of the £2.5billion cost of the benefits themselves, which the Treasury cover anyway. Administration usually costs three to four per cent of the benefit bill but the SNP want nearly 25 per cent.” (http://www.dailyrecord.co.uk/news/politics/devolution-expert-jim-gallagher-asks-7399820#sfc1F8dTghqTi1l4.99). The problem here is that this is just not true.

    Let’s quote her directly from her letter to David Cameron. The relevant section is

    “based on information provided by DWP and our own analysis of published data from DWP’s Personal Independence Payment and Universal Credit business cases, we estimate ongoing administration costs to be approximately £200m annually, and set up costs to be between £400m-£660m.” (https://www.holyrood.com/articles/inside-politics/nicola-sturgeons-letter-david-cameron-fiscal-framework-negotiations).

    In other words, the £600 million which Gallagher refers to is not “to administer the benefits”, but for set up costs, for the Scottish Government has, at the moment, no Welfare responsibilities, and thus has no administrative infrastructure for this purpose.

    Moreover, if we accept Gallagher’s claim that £600 million is 25% then the £200 million running cost must be 8% – still above the 3 or 4% which Gallagher claims would be normal for administration, but much closer (and for the record Sturgeon was also clear that Swinney would be prepared to compromise on these figures). In return the Treasury has offered £50 (fifty) million pounds to cover transition costs. How well does this meet the Smith recommendation of “an increase in Scotland’s block grant equivalent to existing UK expenditure in Scotland, including administrative savings and a share of the implementation and running costs “sufficient to support the functions being transferred”. (https://www.holyrood.com/articles/inside-politics/nicola-sturgeons-letter-david-cameron-fiscal-framework-negotiations)?

How shocking is it that someone of the experience of Jim Gallagher (senior civil servant in the Cabinet Office), and with his academic expertise (Senior Research at Nuffield College) should put his name to an article which is misleading in relation to where the revenue for the block grant comes from, in relation to the nature of risk, and in relation to welfare costs quite simply wrong about what Sturgeon had sought from the Prime Minster?

Yet should we be surprised? We have known for some time the clear Unionist sympathies of Sir Nicholas McPherson, the Permanent Secretary at the Treasury, something which provided George Kerevan last week with the ammunition for a thorough demolition of his “neutrality” (http://www.thenational.scot/comment/george-kerevan-nick-macphersons-quiet-but-calculated-sabotage-of-the-democratic-process.13722), if that fantasy still existed. As Kerevan notes “It is unheard of for a senior civil service mandarin to enter the political arena so brazenly.”

However, perhaps there was a sign at a very early stage in Gallagher’s article of what was likely to follow. This was when he referred to (in line 3), “the argument between the SNP and the UK Government” (http://www.dailyrecord.co.uk/news/politics/devolution-expert-jim-gallagher-asks-7399820#sfc1F8dTghqTi1l4.99) Why, Professor, the SNP and the UK government? Or am I being a trifle touchy here? If you think so then allow me to reword this, and then we will see what you think – “the argument between the Scottish Government and the Conservative Party”. That would seek no less influence on the reader, but be equally accurate, as John Swinney might be a member of the SNP, but is acting in his capacity as Finance Minister of the Scottish Government. In the same way, Gregg Hands might be a Conservative Party member, but is acting in his role as Chief Secretary to the Treasury. Why Gallagher expresses himself this way becomes obvious toward the end of his article, when he concludes

“It’s becoming pretty clear that the SNP won’t promise another referendum after the next Holyrood election. They think they’d lose. But without it they’ll have nothing to talk about. So maybe their aim is to reject the fiscal framework, whatever is offered and so derail the new powers in the Scotland Bill.” (http://www.dailyrecord.co.uk/news/politics/devolution-expert-jim-gallagher-asks-7399820#sfc1F8dTghqTi1l4.99)

First of all, it’s not exactly clear at all – never mind “pretty clear” – that another referendum during the next Holyrood Parliament would be lost. In fact, it might be argued that given the relative weakness of Cameron’s renegotiation of the UK’s EU membership, thus raising the possibility of a UK vote to leave while Scotland votes to remain, another referendum is seen as quite possible by many commentators.

Secondly, and more importantly, what point is there in securing new powers if we don’t have the necessary resources to exercise them properly?

So the reason for the reference to the SNP, rather than the Scottish Government in his opening is not accidental. Indeed, it is part of the whole piece of the argument to put responsibility on one side in a negotiation, and to explain this by reference to the claimed bad faith of that political party, seeking to further its own political ends. Of course, “political party following self-seeking political strategy” is hardly news. But secondly, Gallagher himself says that a deal which was advantageous to Scotland would be “a hard sell to MPs in northern England, who get much less spending than we do” (http://www.dailyrecord.co.uk/news/politics/devolution-expert-jim-gallagher-asks-7399820#sfc1F8dTghqTi1l4.99) In other words there are political ends being pursued by the UK government (not the Conservative government), but that is not remarkable, only that the SNP (never the Scottish Government) is doing this.

Then again, given Gallagher’s connections to Better Together during the referendum campaign (http://www.bbc.co.uk/news/uk-scotland-25657929), maybe not such a surprise really?








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