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politics, scotland

What the F is federalism anyway?

READ IAIN ON TUESDAYS, THURSDAYS AND SUNDAYS ONLY IN THE HERALD AND SUNDAY HERALD.

30/9/14

So, you’ll have had your devo max. This is now called “independence by stealth” by Scottish Tories’ leader Ruth Davidson, who seems to have appointed herself guardian of the Scottish constitution. She told the Conservative Party conference that “devo max is a non-starter”, even though most Scots thought that was what they were voting for.

This will not please the 1.6 million who voted Yes or many of the 2.1m who voted No because they believed politicians who promised a qualitative change in Scotland’s relations with the UK; home rule, not just the phasing out of the Barnett Formula and its replacement with income tax.

David Cameron may not have noticed, but the Yes campaign has not gone away. Thousands of Scots are spontaneously organising demonstrations outside the Scottish Parliament. The SNP membership has almost tripled in two weeks, as has the Green Party’s. There is a rolling independence campaign focused on a joint platform for the 2015 General Election. Social media is alive with organisations demanding radical change.

By rejecting devo max out of hand, Unionists are missing what could perhaps be their last chance to avoid a confrontation. It cannot just be back to business as usual. The Smith Commission must look beyond narrow party interest and map out a stable federal solution to the crisis of the UK state. Scotland does not need to be told what taxes it should and should not raise, and certainly not by the representative of a party that has only one Scottish MP.

The Daily Record’s Vow – which seems to have become the founding text of the new UK constitution – does not specify which taxes or powers are to be devolved, only a mechanism and a timetable for their delivery. The Liberal Democrats support federalism, as do the Green Party and now also the SNP, which accepts the referendum result and is participating in the Smith Commission on behalf of devo max. Civic groups in Scotland, such as the STUC, also want home rule.

As for Labour, Gordon Brown repeatedly used the F-word, as in his Loanhead speech, when he promised “the nearest to federalism that is possible in a country where 85 per cent of the population live in one part of it”. He also called publicly for home rule. Now we are being told he did not really mean either.

My colleague David Torrance wrote in Monday’s Herald that Mr Brown only meant the piecemeal tax changes proposed by the Unionist parties. But that was not what David Torrance was saying in June when he applauded Gordon Brown for calling for “federalism in all but name”. He said the former Prime Minister’s conversion to the federalism was explicit in his book, My Scotland, Our Britain, where Mr Brown calls for a declaration of Scottish sovereignty, such that the power of the Scottish Parliament would be entrenched in a codified constitution. Mr Brown is still calling for this today.

Federalism is not some nationalist trap but a rational and stable solution to demands for regional autonomy. Most of the world’s population live in federal countries. It is an obvious solution in Britain precisely because, as Gordon Brown rightly observed in his book, the UK is already a multinational state in which Scotland only participates as an expression of its pre-existing right of self-determination. Yet Westminster still believes it alone exercises sovereignty, as is spelled out in the 1998 Scotland Act. This is why Mr Brown rightly says there must be a codification of the true relationship.

So federalism is not “independence by stealth”, as Unionists such as Ruth Davidson and now Professor Alan Trench are trying to argue. The bottom line of federalism is that defence and foreign affairs are shared. There is also overall currency and economic regulation, a codified constitution, separation of powers, a supreme court and tax sharing and redistribution (fiscal transfers). This is essentially what maximum devolution means and I suggest it is what most Scots would like to see.

It is for a Scotland with substantial economic autonomy within the overall “wrapper” of the United Kingdom: a UK with a common face to the world, common security, a common currency and unified economy, along with sharing and pooling of resources to ensure social solidarity. There are many ways of achieving this.

Federalism is not a particular formula for tax sharing, but a constitutional assertion of divided sovereign power. If Scotland becomes a sovereign state in a federal union then it ceases to be a devolved creature of a unitary UK state and would rightly claim the power to decide itself how to finance its activities from an array of taxes and not just ones dictated by Unionist politicians. It would do this clearly in negotiation with the central UK authority, but it would do so as of right.

Professor Trench says only those powers should be devolved that are “compatible with Scotland remaining in the UK”. Well, most taxation powers would be compatible with Scotland remaining in the UK, as would most of the powers in Schedule 5 of the Scotland Act, such as broadcasting and the Crown Estate.

If income tax can be devolved, as the Tories and he argue, then why not other taxes? There is no logical reason why National Insurance, corporation tax, capital gains tax and inheritance tax cannot be devolved. Race to the bottom? Well, that surely applies to income tax too since, as Chancellor George Osborne promised this week, the Tories plan to cut income tax in Scotland as they phase out Barnett. VAT perhaps has to be set at a UK and EU level, but the revenue raised can be assigned to Holyrood.

What about oil revenues? Well, look at Alaska, where citizens are given a dividend annually as their share of tax receipts from hydrocarbons; or Alberta in Canada, where oil revenues go to a pension fund. What is crucial in a federal system is not the specific taxes, but the right of the federal government to raise its own taxes over the top of the state, and the ability of a federal authority to intervene and effect redistribution if necessary between states through fiscal transfers.

But Lord Smith is not looking at federalism. Instead, the Commission is becoming a struggle between Labour and the Tories over who governs England. Gordon Brown says Mr Cameron set a trap when he proposed income tax devolution because it would mean Labour could not vote on income tax levels in England. Well, that is not necessarily the case. Under a system of English Votes For English Laws (which even Mr Brown suggested in his book) taxation would not simply become an “English” matter. But the point surely is that this is not an issue for a commission determining the constitutional future of Scotland.

Meanwhile, Scottish voters in their tens of thousands are voting with their party cards. Public discontent is very real and should not be ignored. If the political parties do not deliver on the spirit, as well as the letter, of their vow to the Scottish people then they will be seen as betraying the democratic process. And we all know where that leads.

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About iain2macwhirter

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