Feature: what the Smith Commission Report means for the constitution

Written by Mark Rowe on 21 January 2015 in Feature

The government is driving ahead with Scottish reform – but could more powers for Holyrood change the face of Whitehall as we know it?

So far, the government’s pledge to fast-track reform in Scotland in the wake of the referendum is keeping to its timetable. The cross-party commission chaired by Lord Smith of Kelvin reported to parliament at the end of November, and civil servants north and south of the border have worked to the tight deadline of 25 January – Burns Night, appropriately enough – to produce draft legislation.

The Smith Commission represented a consensus of sorts between the coalition, the Labour Party and the Scottish National Party, as well as the Scottish Greens, Scottish Conservatives and Scottish Liberal Democrats. In his foreword to the report, Lord Smith said the recommendations would “result in the biggest transfer of power to the Scottish Parliament since its establishment”.

Iain McLean, official fellow in politics at Nuffield College Oxford, describes himself as “pretty impressed” by Smith’s report. “It’s remarkable that he got five-party agreement considering the starting points of those involved,” he says. “It was impressive the way that they managed to reach any agreement at all in the timescale they had, and given how far apart the three Unionist parties were on the devolution of welfare and income tax. Smith has come up with quite a significant package of future powers and other changes.”

Smith certainly grappled with some of the major issues, if not to the total satisfaction or agreement of all parties. His proposals include handing complete power to the Scottish Parliament to set income tax rates and bands; giving Holyrood a proportion of the VAT raised in Scotland, and passing UK legislation that will state that the Scottish Parliament and Scottish Government are permanent institutions. Significantly, Smith proposes that MPs across the whole of the UK will continue to decide the UK’s budget, including income tax.

Holyrood will also control disability living allowance and the housing elements of universal credit, including the under-occupancy charge (bedroom tax). This amounts to control over £2.5bn out of £17.5bn spending on welfare.

Other proposals include devolving the licensing of onshore oil and gas extraction underlying Scotland. The Barnett formula, which determines public expenditure from the UK government for Wales, Northern Ireland and Scotland, will continue: new rules – yet to be published – will define how this formula will be adjusted to reflect the devolution of additional powers.

According to the Institute for Government, Smith’s proposals will leave Scotland with control of 38% of all tax revenue raised in Scotland, and with responsibility for 63% of all spending. “In terms of devolved tax powers, this is significantly more than before,” says Akash Paun, a fellow at the IfG. “This is not an insignificant pledge.”

Yet there is little unanimity over whether the commission – while it has kept to the promised timetable – has actually delivered what was hastily pledged before the referendum. The new SNP leader, Nicola Sturgeon, said: “I welcome what is being recommended, I hope the Westminster government... will now deliver all of these proposals. But I think the verdict of the Scottish people will be that it is not enough, it doesn’t live up to the vow, it doesn’t deliver a modern form of home rule.”

If the political parties cannot agree on how the Smith Commission moves things on, it’s fair to say that political experts also interpret its content in different ways. “The commission was delivering on the things that were promised by the three pro-Union parties when they were panicking before the referendum, so in a sense its contents are not surprising,” says Dr Andrew Blick, lecturer in politics and contemporary history at King’s College London. “But whether the Smith Commission had any legitimacy to do these things is quite another matter. It wasn’t an elected body and its conclusions were pre-determined.”

Meanwhile, Professor Michael Keating, director of the ESRC Scottish Centre on Constitutional Change, is sceptical, describing the commission as “at most a contribution to the debate – it doesn’t really resolve anything”.

“The commission has massive implications for the whole of Whitehall. Different parts of Whitehall will be affected in different ways and we will see a very centralised institution being divided up”

Keating feels the commission offers Scotland specific, limited powers, rather than sweeping control of wide areas of policy. “It’s very curious – Smith says Holyrood can legislate on gender equality, a very narrow, specific power, rather than the whole field of related issues.” It’s as if, he suggests, Scotland is being fed drumsticks, rather than a whole chicken.

Keating also believes the commission fails to deliver the pledges made by the parties ahead of the referendum. “The talk was of handing over full tax powers. But there is no mention of national insurance, or dividends or other taxes. Income tax is a tax that has recently – because of lower earnings – not proved buoyant.”

McLean, on the other hand, sees many positives in the report, and argues that, by handing some tax powers to Scotland, the commission will ensure that future debates on Scottish independence will allow closer scrutiny of the economic case. “I predict quite a bit of growing up for the Scottish Parliament,” he says. “Politicians will no longer be able to promise the earth and not have to pay for it. A future debate about independence for Scotland will take place in a greater culture of financial reality.”

The Smith Commission also leaves many questions unanswered, using what Paun calls the “deliberately vague language on things that may prove difficult when it comes to the final details”.

It’s pretty clear that any finessing of the Barnett formula has been placed in a drawer marked for later attention. “How the Barnett formula will work out in the new complex fiscal context is something to be fully decided,” says Paun. “They only had two months, so this wasn’t something that Smith was going to be able to suddenly resolve.”

McLean argues the Barnett formula sits uneasily with devolution. “It’s a paradox,” he says. “If you are offering fiscal autonomy and, at the same time, the continuation of the Barnett formula, then you have to ask how you unscramble those two things.”

Scotland can expect to see its funding allocation whittled down over time, says McLean. “The original intention of the Barnett formula was to reallocate needs, not to give Scotland more money,” he says. “I suspect politicians could [choose to] be a little devious about this, talk about Barnett as if it means more money for Scotland, but in reality and over time ensure that funding for the regions converges, as it was always intended to do.”

Blick agrees that the implication is that “Scotland will get less over time,” but he’s left wondering about the political questions this will raise. “Are the SNP going to be happy with that? In public they won’t be, but on a political level they might be delighted as they could portray this as a case of Scotland getting a worse deal than was promised.”

Yet while politicians may scrutinise the minutiae of the Barnett formula and the many other issues addressed by the Smith Commission, it is the civil service that, as usual, will have the nuanced task of making everything work.

“The commission has massive implications for the whole of Whitehall,” says Blick, who envisages a scenario where some responsibilities within a department will move north of the border while others remain in Whitehall. “Different parts of Whitehall will be affected in different ways and we will see a very centralised institution being divided up.”

“While politicians may scrutinise the minutiae of the Barnett formula and the many other issues addressed by the Smith Commission, it is the civil service that, as usual, will have the nuanced task of making everything work”

McLean is confident that Whitehall can deliver the necessary legislation in time for Burns Night, but questions whether the mechanics of government can be operating in time to facilitate the equally swift transfer in powers. Media reports have suggested that Revenue Scotland – formed under the Scotland Act 2012 – is not yet in a position to cope with the promised new tax powers. More widely, Keating is concerned about the quality of thinking that may be involved with such a tight timescale. “They can draw up the legislation, but they won’t have the time to do all the modelling and simulations, the thinking that is required.

“It was put together hastily without the mature consideration that was required. The commission was not allowed time to think these things through maturely. The result is that everyone is unhappy. It’s a result of having to deliver on the vows made before the referendum or they will lose credibility.”

Other tensions may emerge. Blick points to the Smith proposal that foreign students be allowed to stay on in Scotland after they graduate. “What will the Home Office have to say about that, with its targets for immigration? And English universities may argue it puts them at a disadvantage.”

All this leads Blick to wonder whether the civil service, and perhaps the UK, is at something of a crossroads. “During the referendum you had a Scottish Government seeking to leave the UK – yet it was served by UK civil servants who were ultimately employed by a prime minister who wanted to keep Scotland part of the union. There needs to be a Scottish civil service working for the Scottish government – they already have that arrangement in Northern Ireland.

“There’s a case to move to a federal civil service working for the UK government, and separate civil services working for the regions.”

Paun, though, points out that the SNP did not seek a separate civil service in their list of demands from the Smith Commission. “The SNP asked Smith for pretty much everything else,” he said. “In 2007 they had a commitment to the devolution of the civil service, but their experience of working with the civil service has been very positive. They realised the civil service was not an agent of unionism. By being part of a shared institution, professional and informal networks help on all sides. If you break that up, things will become more difficult.”

McLean believes the civil service may be strengthened if the Smith Commission is implemented in full, as the parts of the budget the Scottish Government will control will be much clearer. “I think this makes it more likely that a unified civil service will survive. It makes policymaking and advice for the Scottish Government more realistic. Any awkward feelings between the different parts of the civil service [during the referendum] have been reduced.”

Keating also sees the civil service now operating in a less heated environment. “The tensions are much less acute than they were,” he says. “Civil servants aren’t being subjected to the extreme pressure they were at the time of the referendum.”

The move to transfer powers – even if few agree on their merit – has been conducted at a ferocious gallop. Yet, like Becher’s Brook at the Grand National, May’s general election awaits around the corner: it could lead to a significant reworking of Smith’s proposals, either enhancing them further, or emphatically diminishing them. “We are feeling our way in the dark, we really don’t know what’s going to happen,” says Keating. “People supporting the Smith Commission will have difficulty getting all the proposals through. The next UK parliament could be extremely fragmented. There will be very discontented Tory backbenchers. It could be the 1970s all over again. The parties may decide they want to keep their political capital for the issue of Europe.”

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