Devolution and the UKs fiscal constitution

1
Devolution and the UKs fiscal constitution

• Presentation for seminar on Regional Economic
  Disparities and Territorial Justice, 10-11 April
  2008
• Alan Trench
• School of Law, University of Edinburgh

2
What is the fiscal constitution

• All decentralised or federal states have several
  levels of govt responsible for delivering
  services and paying for those services
• The fiscal constitution is concerned with the
  relationship between these, and how that works
  given the division of powers between levels of
  government
• Therefore not purely concerned with tax and
  revenues (orthodox meaning), or the territorial
  distribution of funds (McLeans meaning) - but
  also with which govt spends public money and on
  what sorts of services
• And with how each govt is funded (whether by
  own-source revenues, grants, equalisation systems
  or what), and what the source of revenues means
  for the autonomy of govts and for the experiences
  of individual citizens (therefore linked to ideas
  of social citizenship, and the level/tiers of
  govt for that)

3
Devolution and the fiscal constitution

• The UKs fiscal constitution pre-devolution was
  partly that of a unitary state (single economy,
  tax system, benefits system and public finances),
  but also territorially differentiated in delivery
  of public services (characteristic of a union
  state)
• Seen in different ways by different disciplines
• With devolution, the UK acquired a more complex
  and decentralised fiscal constitution some
  functions (distributive ones) devolved, others
  (redistributive) reserved
• Devolved admins. only account for around 50-55
  per cent of total public spending in Sc/W/NI
• But there is much overlap between devolved and
  non-devolved functions (cf GERS table 3.5) as
  well as interplay between them
• And the block grant and formula system ties
  devolved administrations tightly into the UK
  system

4
What sort of shares of social spending do
Scotland, Wales, NI get?
5
The territorial distribution of funding

• By and large, Scotland and Wales get larger per
  capita shares of public spending than their
  population shares would merit
• Indeed, they bat above their weight in
  practically all areas and most English regions
  bat below their weight (cf PESA table 9.12)
• And in Scotland's case, than need would appear
  to imply (given high per capita GVA)
• But curiously of the high-spending policy fields
  (education, health, social protection) its the
  largely reserved social protection that shows the
  widest gap in other words, its a mainly
  UK-controlled function that continues to be most
  generous to Wales and NI (if not Scotland)
• And this amounts to a substantial form of
  redistribution that flows to W NI but on an
  interpersonal not intergovernmental basis

6
How devolution was supposed to work on a UK level

• No-one seems very clear about how devolution was
  meant to work at the UK level
• 3 possible models
• Different administration of common services
• A national voice
• A democratic bulwark against a return of
  mandate-less Conservative UK Govt (which would
  imply something approaching a federal
  arrangement)
• Laboru probably intended a combination of 1st 2
  in 1997 (and choice of Barnett reflects that)
• However, institutionally it didnt deliver any of
  these

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What devolution actually did

• Wholly devolve most distributive welfare state
  functions
• Retain at UK level most redistributive functions
• With no clear rationale for that at least, none
  clearly communicated
• And modest use of limited intergovt/UK-wide
  institutions and processes even though there was
  extensive overlap between devolved and
  non-devolved functions
• But a serious gap between expectations and
  reality in a number of respects, including
  economic performance and better/more open
  government
• And all this creates problems, as he model of
  policy overlaps, permissive autonomy and
  informal consensual IGR no longer works

8
Thinking constitutionally about finance

• Need to think about three aspects of finance
• Inter-territorial (what we do now)
• Inter-governmental (what GERS helps us do)
• Inter-personal with regional effects
• Need to be conscious how decisions by one level
  of govt affect those of others and ensure that
  the allocation of powers/functions takes that
  into account
• Onus of that on UK Govt, as largest govt (for E)
  as well as for reserved matters
• Need for clearer (less entangled) data GERW and
  GERNI (GER-RegE) as well as GERS

9
Policy overlaps

• The most important ones relate to how social
  security system interacts with other aspects of
  the welfare state (though there is also the
  economic development role of the dev. admins)
• System has become more centralised (UK-wide,
  and entrenched) since 1997, thanks to tax credits
  
• On one hand, social security appears generally to
  treat Sc, W NI well
• But attempts to target benefit precisely, based
  on the welfare state as it works in England,
  limit what the devolved can do
• Examples Long-term care for the elderly and
  attendance allowance, proposed local income tax
  and council tax benefit

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The implications of policy overlaps

• If the result is policy dysfunction, that doesnt
  just mean making bad policy. It also inhibit
  govts from doing their work generally which has
  implications for legitimacy of government as well
  as policy-making
• If they prevent either level of govt delivering
  its package of policies, they prevent either
  level being the focus of social citizenship
  also with implications for legitimacy
• If they constrain devolved autonomy (which the
  public believe is good), they call into question
  the point of devolution as a political project
  altogether
• As well as confusion about democratic
  accountability

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What does that mean?

• Need to think in terms of the fiscal
  constitution, and the broad perspective that
  entails
• Need to think hard about the structure of
  devolution, about both the powers and functions
  of each level of govt, and the financial system
  to support that
• That probably implies a need for greater
  separation in functions, and clarity in that
• As well as at least a measure of fiscal autonomy
• And a cruder, less targeted welfare state to
  permit more room for local variation in policy
• Which could exist in several variants certainly
  Labour and Conservative could take different
  approaches