Today academic researchers published a new report with a colleague from the Scottish Parliament’s Information Centre (SPICe) looking at levels of understanding of Scotland’s new budget powers. This blog is written by Professor Graeme Roy, who led the research project, together with Ross Burnside in SPICe and Stuart McIntyre from the University of Strathclyde.
We find that whilst levels of financial accountability have become ‘broader’, this has arguably been at the expense of ‘depth’. There remain gaps in the public’s understanding of the core elements of Scotland’s Budget process. We also track how well the new powers are being scrutinised and find that, whilst progress has been made in key areas, a number of factors have meant that the level of scrutiny is not at the level that many MSPs and public officials would like.
With Scotland’s Fiscal Framework to be reviewed next year (following an independent report to both governments), it’s important that alongside various technical debates about the operation of the powers we don’t lose sight of the need to continue to make broader improvements in the quality of discourse on these issues so that these new spending and tax powers benefit Scotland to the fullest.
In this blog we set out some of the key themes that emerged from our report.
Scotland’s new fiscal powers
Shortly after the 2014 independence referendum, Lord Smith of Kelvin was tasked with setting up a cross-party commission to recommend new fiscal powers for the Scottish Parliament. After much deliberation, it was agreed that several taxes and social security powers would be transferred from Westminster to Holyrood – see Figure 1.
Figure 1: How have the tax powers of the Scottish Parliament evolved?
The hope was that this would increase the autonomy of the Scottish Parliament to take different decisions, should they wish, on all manner of economic and social policy issues. At the same time, by devolving responsibility not just for spending money but also raising taxes, it was hoped that this would improve financial accountability.
The new fiscal levers include powers to vary income tax thresholds and bands on earned income in Scotland, the devolution of taxes including Air Passenger Duty, greater borrowing powers and responsibility for over £3 billion of social security (including in areas such as cold weather payments, Sure Start and a range of benefits tied to ill-health and disability). Crucially, this included the ability to introduce new ‘Scotland-only’ benefits, which the government has done in establishing its new Child Payment.
Taken together, this represent a radical re-framing of fiscal devolution in the UK. Whilst many will argue that these new powers do not go far enough, the fiscal levers available to the Scottish Parliament are now hugely different to those granted to it in 1999.
Lord Smith recognised that such a transfer of powers would require a step change in capacity to inform, scrutinise and debate fiscal issues. In his report, he acknowledged that with ‘new responsibilities over taxes, welfare and borrowing the Parliament’s oversight of Government will need to be strengthened’ and that ‘a challenge facing both Parliaments is the relatively weak understanding of the current devolution settlement’.
The purpose of our research was to assess, five years on from the transfer of these new powers, whether these changes in understanding, scrutiny and accountability had occurred.
Improved understanding and scrutiny in some areas but lack of progress elsewhere
In the report we set out some areas where significant progress has been made, but also areas where there remains scope for improvement.
We undertook a survey of 1,000 adults in Scotland to assess their level of understanding of fiscal issues in Scotland. This was backed up by a survey of MSPs in the Scottish Parliament. Finally, we conducted in-depth interviews with a number of senior MSPs and officials from across the UK to gather their reflections on progress on levels of understanding and scrutiny.
We found that whilst the public have a high understanding of the 1999 devolution settlement, levels of understanding of the new powers was more limited. For example, the vast majority of respondents understood that the Scottish Parliament was ‘most responsible’ for the NHS and Education and the UK Parliament ‘most responsible’ for defence and foreign affairs. However, 1 in 4 of our respondents still believe the UK Government is ‘only’ responsible for income tax in Scotland despite the Scottish Parliament having implemented a new Scottish-specific system for tax rates and tax bands. Only 1 in 2 voters reported being aware that the Scottish Parliament’s powers over taxation had increased.
Turning to MSPs, as one might expect, there were mixed views on whether scrutiny (and financial accountability) had become more effective since 2016.
Figure 2: Do you believe that there is sufficient parliamentary time and resource to effectively scrutinise the Scottish Budget and Fiscal Framework? Survey of MSPs
More broadly, the majority view amongst the key individuals that we spoke with was that whilst budget scrutiny had got ‘broader’ to include taxation, this had arguably been at the expense of ‘depth’. Scrutiny has arguably become less detailed and incisive, particularly on the structural challenges facing the public finances in Scotland. A number of explanations were given for this finding.
First, some pointed out that it would be unreasonable to expect a change overnight, particularly given challenges around Brexit and interruptions stemming from the Covid-19 pandemic. This view also was correlated with an expectation that the quality of budget debates will improve over time.
Second, a number of our interviewees, however, were sceptical about the long-term outlook for these debates, in part, due to the complex arrangements that underpin Scotland’s new budget powers. Scotland’s Budget framework is now a mix of block grant, block grant adjustments, devolved taxes, shared taxes, assigned taxes with various rules governing levels of borrowing (including for what purpose and how quickly it must be repaid). This makes asking simple questions like ‘has the decision to raise income taxes on higher earners been good or bad for the economy and tax revenues’ difficult to answer in a straightforward manner.
Third, there was a consensus that whilst the volume and detail of information now available in Scotland to study budget issues had improved, there were still gaps. For example, a lack of clear line of sight between draft plans and outturn spending in important policy areas was cited as a concern. Information on key long-term trends, opportunities and challenges had got better but had still some way to go to be fully effective.
Fourth, one common area of concern was around the timing of the budget process. The nature of Scotland’s new Fiscal Framework is that it remains closely intertwined with UK fiscal decisions. Recent years have seen a series of disruptions to the traditional UK Budget cycle. With fiscal devolution, the impacts of this disruption can be significant. We have seen this manifest itself in the curtailment of the Scottish Parliament’s timetable to analyse, debate and scrutinise key budget decisions.
Finally, some concerns were expressed over capacity both in terms of parliamentary time and resource to scrutinise the Budget but also of the wider ‘fiscal community’ to undertake detailed analysis of budget proposals and commitments. This is an area for continued investment, particularly if demands for even greater autonomy continue.
Our findings suggest that, whilst progress has been made, there is still some work to do in communicating the new roles and responsibilities of the Scottish Parliament, especially the recent tax and welfare related changes.
A number of structural reforms would help. The recent decision to remove the ‘Constitution’ brief from the Finance Committee should free up more time to discuss Budget issues. This, and the inclusion of public administration in the Finance Committee’s new remit, might also support more in-depth scrutiny of the decision-making process that underpins spending decisions, as opposed to simply how much is being spent and on what.
There is also a sense from our interviewees that it would be helpful if the UK Government provided greater recognition of how its decisions – and crucially any change to the timetable for its annual autumn budget process – impact upon fiscal devolution. The ability of the Scottish Government to publish its Budget on time and on the Scottish Parliament to undertake meaningful scrutiny of that budget depends upon this. Improvements can also be made to the provision of budget information.
Our findings suggest however, that alongside these more structural reforms, we perhaps need to do more to create a culture that supports effective scrutiny of budgetary decisions (by both governments) within our parliamentarians and wider academic, public policy and journalist communities. Whilst issues of budget scrutiny are ‘worthy but not headline grabbing’, it is an important part of a well-functioning policy and political process.
This will always be a challenge given the complexity of Scotland’s budget framework, but greater focus upon year-round scrutiny, continued efforts to improve transparency of budget data and a greater clarity of focus amongst Committees would be welcome reforms.