Fiscal Deal Woes

Jan 12, 2016 Add a comment

In the latter part of November 2015 the question of the fiscal settlement suddenly achieved a very high public profile. In large part, this was due to the publication of the report of the House of Lords Economic Affairs Committee on 20 November (HOL 2015) which highlighted the potential very serious effects for Scotland if wrong decisions were made about the fiscal settlement, and argued that it was impossible to scrutinise the provisions of the current Scotland Bill properly until the details of the proposed settlement were known. About the same time, the IFS report was published, looking at options for adjusting Scotland’s block grant. Since the question of block grant adjustment will be at the very heart of the fiscal settlement, one might naturally expect that the IFS report will prove influential in the current negotiations.

What is argued in the first four sections of this paper is that the IFS report represents a flawed assessment of the options for adjusting the Scottish government block grant: and that there are significant dangers for Scotland of falling into a fiscal trap if the current negotiations take the IFS report as a basis.    Section 5 of this report then goes on to look at a range of block grant adjustment options, covering a much wider perspective than the narrow focus of the IFS report. The conclusion reached is that the type of option on which the IFS concentrate, which would involve Scotland having to match the economic performance of the rest of the UK or face severe penalties, poses unacceptable risks for Scotland in the light of the Scottish government’s limited economic powers.   JRFCuthbertSmithpaper Jan 2016

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