Thursday, April 20, 2006

Autonomous Thinking

In what was a busy and varied working day in the life of RR, yesterday also saw me attending the lunchtime launch of a new academic paper on the subject of fiscal autonomy for Scotland. The paper is written by two senior economists – Ronnie MacDonald and Paul Hallwood – and tackles the subject of fiscal autonomy for Scotland from an entirely economic perspective. Knowing, as I do, just how excited some of the Bond’s readership gets over matters appertaining to Scotland’s economic and political relationship with the Union, I felt it incumbent on me to bring to your attention the publication of this important paper.

It is a fairly easy read, and comes to the very firm conclusion that complete fiscal autonomy for Scotland would be likely to raise economic welfare in Scotland. The reasoning is straightforward. Transferring responsibility for raising the (tax) revenue that finances Scottish public spending from London to Edinburgh will carry with it incentives for Scottish politicians of whatever hew to manage public spending more efficiently. That is, to minimise the tax burden and (under one view) thereby to unlock greater economic energy from which all benefit. The present mechanism for financing Scotland’s public spending (the Barnett formula) by contrast, provides no such incentive. In this set up not only is the Scottish Executive free from responsibility for raising the revenue it spends (this arriving as the bloc grant from London), but even if the Scottish Executive manages the economy well, and Scotland’s rate of economic growth rises as a consequence, the rewards from this success accrue to the UK Government (via higher tax revenues flowing from Scotland) and not to the government that engineered the success. So why bother too hard? Ergo – the incentives to improve Scotland’s economic (and social) performance under the status quo are bad, while the incentives under fiscal autonomy are good. It’s a neat little paper and worthy of close consideration. There are still some details that worry me (e.g. why, in economic terms, retain the Union at all?), but this paper is a good place to begin to address them. And what about the remainder of the UK? Well, the Barnett largesse (sic) coming to Scotland vanishes. This is, presumably, good – particularly for some of our readership (and you who I’m talking about, don’t you?). Ah, but under full fiscal autonomy the Petroleum Revenue Tax largess flowing the opposite direction also, at least in principle, vanishes too.

I don’t know Paul Hallwood personally, but I do know Ronnie MacDonald very well, he and I being close friends in, and graduates of, the same degree programme long ago in the 1970s. And let me tell you – not only is he a pretty damned smart economist, he was one hell of a guitar player back then. And I mean seriously good. Indeed good enough to be invited to re-locate to London and become a career session guitarist! Oh – and a great landscape photographer to boot. And a really nice guy. Anyway, go have a read at this paper. It’s a good contribution to an important topic. Let’s hope it generates a discussion worthy of its analysis!

5 Comments:

Blogger voice-of-reason said...

The "incentives for Scottish politicians" argument is theoretically the most attractive, yet in reality it is potentially the most catastrophic. With the 2007 elections looming large and the and likes of Nicol Stephens, Nicola Sturgeon and Colin Fox waiting in the wings of power fiscal autonomy cannot bode well for the future prosperity of the Scottish nation.

The comprhensive lack of maturity which this chamber has exhibited thus far makes me shudder at the thought of these polticians being given a free hand in tax matters. With the exception of the smoking ban I believe many would be hard pressed to name a policy area in which the Scottish Executive has out-performed Whitehall. With extensive powers over both health and education the Executive has done little to reduce waiting lists or reform education.

It is my firm belief that the Scottish Parliament should demonstrated the ability to use the powers currently at their disposal before they are entrusted with anymore.

Thursday, April 20, 2006  
Blogger roadrunner said...

Well, far be it for me to defend the Scottish Parliament, although I would maybe point to the Land Reform Act, free care for the elderly, student fees, and the Abolition of Poinding and Warrant Sales Bill as particular favourites of mine which most certainly would not have been enacted via Westminster.


On the 'free hand in tax matters' issue, here I think the expectation is that a combination of capital market discipline (encouraged by the no bail-out proposal in the paper) and a form of 'golden rule' whereby borrowing by the Executive could exceed 3% of GDP, may assuage some of the more alarmist concerns. But perhaps not.

In the final instance, much of this depends on how 'sold' one is on the status quo means of financing Scotland's public spending. There are many who'd argue that by not having to answer to the electorate for its spending decisions, that the Executive is encourages to assign resources to pet projects, politically motivated ends, and buddy quangos. Not good, as I'm sure you'd agree.

Friday, April 21, 2006  
Blogger roadrunner said...

Sorry - the golden rule means that borrowing could NOT exceed the 3% ceiling..

Friday, April 21, 2006  
Blogger voice-of-reason said...

Interesting arguments as usual RR.

Naturally I would have liked to develope this debate further; going beyond fiscal autonomy to address some of the finer points of our Quasi-Federal Constitution. However I am blocked from posting and find myself confined to the realm of commenting. This not only infringes upon my right to free speech but also deprives this blog of a much needed moderating influence. Particularly at a time when I find that amongst other things the incumbents are advocating 'nukes' for Iran.

Consequently this will be my last contribution to this blog. Until my full rights are restored I urge all people to boycott this site in support of my cause.

P.S. fiver says BB deletes this comment before anyone can read it

Sunday, April 23, 2006  
Blogger BondWoman said...

V-O-R - there's nothing wrong with your posting "rights" apart from your own inability to work out how to do it. This can be demonstrated - but like most things in life for a fee. Cheeky bugger. Trying to saying yer rights is being infringed... I ask you. Whatever next.

Sunday, April 23, 2006  

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