Scottish Referendum and the Smith Process: what’s next for Scotland?

W WORKING PAPERS 336 Scottish Referendum and the Smith Process: what’s next for Scotland? S ANDRINA F ERREIRA A NTUNES Scottish Referendum and the Smith Process: what’s next for Scotland? P ABLO B AR S ANDRINA F ERREIRA A NTUNES Universidade do Minho (Portugal) WP núm. 336 Institut de Ciències Polítiques i Socials Barcelona, 2015 El Institut de Ciències Polítiques i Socials (ICPS) es un consorcio creado en 1988 por la Diputación de Barcelona y la Universitat Autònoma de Barcelona, institución esta última a la que está adscrito a efectos académicos. “Working Papers” es una de las colecciones que edita el ICPS, previo informe del correspondiente Comité de Lectura, especializada en la publicación -en la lengua original del autorde trabajos en elaboración de investigadores sociales, con el objetivo de facilitar su discusión científica. Su inclusión en esta colección no limita su posterior publicación por el autor, que mantiene la integridad de sus derechos. Este trabajo no puede ser reproducido sin el permiso del autor. Edición: Institut de Ciències Polítiques i Socials (ICPS) Mallorca, 244, pral. 08008 Barcelona (España) http://www.icps.cat © Sandrina Ferreira Antunes ISSN: 1133-8962 DL: B-10186-2012 Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 3 INTRODUCTION Following a vibrant and energetic campaign, on the 18 th of September 2014, the Scots have decided to stay within the United Kingdom by a margin of 55,3% against 44,7%. Subsequently, on the 19 th of September 2014, David Cameron 1 has established the Smith Commission as part of the response to “The Vow” published on the Daily Record 2 , two days before the Scottish referendum. With a turnout of over 84%, the question of Scottish independence has probably been put to rest for years to come, but a new political debate on the constitutional future of Scotland and of the United Kingdom (UK) has been unfolded. The purpose of this paper is to bring more clarity over the political process before and after the referendum. In order to do so, we will proceed in four moments: first, we will identify what was at stake on each side of the Scottish campaigns; second, we will explore major aspects of the Scottish referendum and third, we will explain the Smith Process and its consequences for Scotland. Finally, in the last part, we will raise major conclusions regarding the political future of Scotland and the UK. As we are dealing with recent political events that lack strong evidence in literature, our research will be based on scientific analysis displayed by the Centre on Constitutional Change 3 since the beginning of this process even before the referendum. Additionally, these pieces of research will be further reinforced by the analyses of relevant official documents issued either by Scottish political parties involved into this political process or by the British government. By the means of a systematic analysis of these elements, we hope to deliver a consistent and coherent account of the political process. YES SCOTLAND VERSUS BETTER TOGETHER: WHAT WAS AT STAKE? The referendum was suggested by the Scottish National Party (SNP) in May 2011 – as the SNP achieved a majority position in government - and it has been legally recognized by the Edinburgh Agreement 4 signed between the Scottish and British government in October 2012. Nevertheless, the political debate has only started as the two opposing campaigns –Yes Scotland versus Better Together– came into play in May and June 2012 5 , respectively. Whereas Yes Scotland campaigned for the independence of Scotland and was supported by the Scottish National Party, the Scottish Green Party and the Scottish Socialists; Better Together campaigned for the No vote and was supported by the three pro-union political parties in Scotland: the Scottish Labour; the Scottish Conservative Party and the Scottish Liberal Democrats. 1 On belhalf of the British Government. 2 In http://www.dailyrecord.co.uk/news/politics/david-cameron-ed-miliband-nick-4265992 . 3 In http://www.futureukandscotland.ac.uk/. 4 The document can be consulted here: http://www.scotland.gov.uk/About/Government/concordats/Referendum-on-independence. 5 However,the offical campaign started on the 30th of May 2014. Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 4 During the campaign, all political parties sustained distinctive nuanced propositions for Scotland. Yet, the political debate has revolved around three major issues: fiscal competences, the welfare system (NHS, pension and healthcare) and the pound. In spite of the diversity of the proposals that have been exhaustively debated, many decisive questions have remained unanswered such as the pound, the future of the National Health System (NHS) and the European membership. In this section, we will summarize the arguments put forward by the major proponent of the “Yes” Campaign, that is, the Scottish National Party, and the arguments delivered by the proponents of the “No” Campaign, that is, Scottish Labour; Scottish Conservative Party and Scottish Liberal Democrats. The “yes” campaign: Yes Scotland Scottish National Party The Scottish National Party is the party who has incarnated the idea of political independence during the campaign. The SNP is in fact the party who governs Scotland since 2007 with Alex Salmond as the first minister. The SNP has reached a majority position in government in May 2011, which has allowed him to set the issue of political independence on the Scottish agenda as much as to trigger the referendum procedure to be held on the 18 th of September 2014. In other words, in the same line of thought of the Scottish government’s report of 2010 - “Your Scotland, Your voice” 6 - the SNP has once more reasserted the idea of political independence considering “devo max” as the second best alternative to political independence 7 . Additionally, in November 2013, the Scottish government launched a new report - “Scotland’s Future: your guide to an independent Scotland“ 8 – where the SNP made, once more, the case for political independence, equating demands of “self-government” with “good governance”. In this report, the idea of “Scotland’s future in Scotland’s hands” is constantly repeated in order to enhance Scottish’s opportunity to secure more selfgovernment for the benefit of Scotland‘s future. Very seemingly, demands of political independence have also been claimed in opposition to “bad” policy choices coming from Westminster. With the idea of political independence, Alex Salmond expected to reach full selfgovernment, which would allow Scotland to make all the decisions affecting its governance, ranging from external affairs to fiscal, social, economic, welfare and immigration policies. With this political message, Alex Salmond wanted to highlight British constitutional flaws, which prevents Scotland from performing better economically, socially and politically. In that sense, the emphasis has been put on the social and economic advantages of political independence, using consensual examples such as the “bedroom 6 The document can be consulted here: http://www.scotland.gov.uk/Publications/2009/11/26155932/16 . 7 “Devo max” would include full fiscal autonomy, as well as devolved powers over employment and competition law; regulation of companies, broadcasting; social security; equalities legislation; energy policy; marine regulation and formal participation rights in the EU policy making. 8 The document can be consulted here: http://scotgov.publishingthefuture.info/publication/scotlands-future. Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 5 tax”, the nuclear base in Trident or the impossibility to collect revenues from gas and oil extraction to justify its political cause. With insight, we could argue that Alex Salmond has definitely moved from a traditional nationalist approach, largely based on “cultural distinctiveness”, to a much more pragmatic approach, which gives more relevance to social and economic aspects of political independence. The “no” campaign: Better Together In a distinctive manner, the “No” campaign came into existence as a reaction to the political challenge of Alex Salmond. The three unionist parties have supported the Better Together campaign and Alistair Darling - a British Labour politician –was appointed as the chair of the campaign. As a consequence of this reactive aspect, in a clear contrast with Yes Scotland, Better Together campaign failed to articulate a well-prepared and consensual proposition. Nevertheless, and in spite of nuanced propositions, all three parties pledged to increase Holyrood’s powers, namely in finance, welfare and taxation. Scottish Labour In March 2014, Scottish Labour’s devolution commission issued its final report - “Powers for a purpose-strengthening accountability and empowering people” - where it reasserted the will to meet the Scottish people’s legitimate desire for more powers and enhanced accountability within a strengthened union (Scottish Labour, 2014: 1). In this document, Scottish Labour has remembered that it has always been a party of both devolution and the Union. In making the case for more devolution within the Union, Scottish Labour has brought a proposition, which reaffirms the benefits of social solidarity with Scotland staying in the Union. Faithful to its principles, Scottish Labour has suggested that a new political arrangement for Scotland could only be considered as long as it would contribute to make the Union stronger. To state it differently, for the United Kingdom to be an effective union with Scotland within it, it would be critical that certain core matters remain reserved to the UK Parliament such as financial and economic matters -including monetary policy, the currency, debt management and employment law-; foreign affairs (including international development) and defence; the core of the Welfare State – pensions and the majority of cash benefits and the constitution. Other reserved issues would also include immigration, broadcasting, civil service and abortion. Beyond these competences that should remain reserved competences, Scottish Labour believes that there is significant scope to strengthen the powers of the Scottish Parliament on tax –varying powers and control over some elements of welfare and benefits policy. Following rigorous examination of the relative merits of devolving tax responsibility, Labour believe that the Scottish Parliament should have the power to raise about 40 percent of its budget from its own resources. This would mean that three quarters of basic rate income tax in Scotland would be under the control of the Scottish Parliament. Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 6 Additionally, it would also introduce new Scottish progressive rates of income tax, so that the Scottish Parliament can increase the rates of tax in the higher and additional bands. However, when it comes to tax varying powers and income tax widening, Labour has also reaffirmed that VAT, national insurance contributions, corporation tax, alcohol, tobacco and fuel duties; climate change levy, insurance premium tax; vehicle excise duty; inheritance tax; capital gains tax and tax oil receipts should remain reserved. As for welfare policies, Labour has suggested that housing benefit – which would allow Scotland to abolish the bedroom tax; attendance allowance –paid to disabled over 65s– and the work programme –which manages services for the unemployedshould be devolved. All other pensions and benefits should stay at Westminster. Finally, Labour has pledged for the maintenance of the Barnett Formula and has asked for a better distribution of powers within Scotland asking for the empowerment of local governments. Scottish Liberal Democrats Scottish Liberal Democrats have produced their own report “Federalism: the best future for Scotland” (Scottish Liberal Democrats, 2012) where they have, once more, reasserted their belief in the maintenance of Scotland within a federal solution. Under this federal plan, the Act of Union, between Scotland and England would be replaced with a declaration of federalism. In fact, for Scottish Liberals, home rule in Scotland would work even better if it were part of a move towards a federal UK where every part of the United Kingdom would have similar levels of responsibility. Moreover, under the Liberal Democrat’s Scottish “home rule” vision, Holyrood would raise and spend most of its own taxes (income taxes, bands and rates) and borrow on its own terms. Fiscal federalism is clearly mentioned in the report, as it would support a move towards federalism. For the Liberal democrats, fiscal federalism would be assisted by a new needs-based payment system, to be agreed by the federal United Kingdom Government, the Scottish Parliament and the relevant assemblies to ensure fiscal equity across the UK. Within this particular context, the Barnett Formula would continue to operate until a new formula is agreed. On the other hand, a federal United Kingdom Government would retain major areas of competency – foreign and defence affairs, the currency, national emergency, immigration, trade and competition, pensions and welfare, macro-economic policy and the preservation of the UK single market for business. Under federalism the home rule governments across the UK would normally work on matters of their own responsibilities but a reinforced form of partnership between different tiers of government should be considered for a new category of powers additional to “reserved” and “devolved” powers - “partnership” powerswhich would require the co-operation of both home rule and federal governments. These areas of partnership powers would include skills and employment, research and innovation, strategic planning of welfare services, energy resources, election law and administration, marine policy and cross-border transport. Finally, in the same line of Scottish Labour, the autonomy and power of local councils should be reinforced. That is, Scottish Liberals recommend the decentralization Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 7 of power by proposing extensive autonomy for local government and for local communities. This would include the financial freedom for local authorities; the removal of the powers of ministers to overrule local authorities; the devolution of powers over council tax and business rates and a general power of competence for local government, allowing councils to set their own plans, reflecting the priorities of their electorates. Scottish Conservative Party For the Scottish Conservative Party, the event of a third referendum has been perceived as an opportunity to build a stronger Union with a clear division of responsibility and accountability. Indeed, in face of a new process of devolution, the Scottish Conservative Party has tried to react positively, asking for the empowerment of the Scottish people, on the one hand, as well as for the empowerment of the Scottish institutions, on the other. In a complementary manner, they have also managed to link the Scottish issue with demands of a greater institutional reform across the UK. On their report, “Commission on the Future Governance of Scotland”, the Scottish Conservative Party portray themselves as a modern conservative party that recognizes the benefits of a stronger Union with a stronger Scotland. In this report, they have tried to emphasize the advantages of partnership between the UK and Scotland and they have argued for the strengthening of Scottish devolution in fiscal and welfare responsibilities (Scottish Conservative Party, 2014). Among their key recommendation, we could highlight the devolution of income tax powers, which would see the Scottish Parliament accountable for 40% of the money it spends. Moreover, they have recommended that the Scottish Parliament should be able to decide on rates and bands as much as it would get responsibility on welfare issues, which are related to devolved areas, such as housing benefits and attendance allowance. Beyond this new responsibility, the Scottish Parliament would be conferred the power to supplement welfare benefits legislated for at UK level. In spite of a “newly” devolutionary stance, the Scottish Conservative Party have also made it clear that the state pension should remain with the UK and that the centralization of powers from local to central government should be reserved, although real devolution should be given to individuals with a greater role for civic society and to local government. In fact, it is central to Scottish Conservatives that power should be devolved away from governments and Parliaments to people and communities. In conclusion, we could argue that this third referendum was not about choosing between the current status quo and political independence. Rather, it consisted of choosing between devolving significant extra powers on tax and welfare policies, on the part of the No campaign, and political independence, on the part of the Yes campaign. This explains why the Scottish campaigns have contributed to the debate and have had a major influence on the final decision to be made on the 18 th of September. At their fullest extent, the pro-unionist proposals on tax and welfare devolution were clearly significant and would have direct impact on Scotland’s citizens, whether through benefits received, taxes increased and higher economic growth. In addition, all Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 14 their earlier commission’s deliberations. More particularly, the SPN’s submission replicated the earlier proposition of the 2009 White Paper “Your Scotland, your voice” 19 where the SNP has set out an initial prospectus for Scottish Independence but it has explored the option of “full devolution” (or “devolution max” as the best second choice), that is, the maximum possible devolution consistent with continuing membership of the UK. That particular option was set out more systematically in the Scottish Government´s submission to the Smith Commission. According to the SNP, a maximum self-government within the Union would mean that the UK Parliament would have powers in relation to Scotland in only a small number of areas: aspects of the UK constitution, monetary policy, aspects of citizenship, defence, intelligence and security and foreign affairs. Finally, the Greens didn’t go so far on their demands but they proposed more than the pro-union parties. They had a fuller commitment to tax devolution (including full devolution of income tax and tax assignment) and to full welfare devolution (likely excepting pensions). They also emphasized the need for devolution in a number of fields that have a particular resonance in the green tradition, including quality of democracy, human rights, energy policy and immigration. The Smith Report The Smith Commission’s report has been published on the 27 th of November 2014 and the terms of the agreement have been rather deceptive. The document is not that extensive and it has been divided in two chapters. The first chapter deals with the working arrangements of the Smith Commission. In this chapter, Lord Smith of Kelvin explains the different moments and actors involved into this reforming process. Additionally, the second chapter introduces the terms of the agreement reached which are subdivided into three pillars: the first pillar elaborates on the constitutional details of the new settlement of governance for Scotland (electoral procedures; inter-governmental relations; Scottish representation to the European Union); the second pillar explained the powers retained and further delivered on the economic and welfare policy areas and the third pillar deals with the powers retained and delivered in finance. As we read into the report, we realize that major competences over fiscality and welfare policies such as state pensions; universal credit; national insurance contributions and corporate taxes have remained reserved. On the other hand, income taxes have remained a shared competence but Scotland has gained new extensive powers on that particular area. Within this framework, the Scottish Parliament will now have the power to set the rates of Income Tax and the thresholds at which these are paid for the nonsavings and non-dividend income of Scottish taxpayers. However, all other aspects of income tax such as the imposition of the annual charge to income tax, the personal allowance, the taxation of savings and dividend income will remain reserved. On the overall, “minor“ concessions have been granted in 19 The document can be downloaded here: http://www.scotland.gov.uk/Publications/2009/11/26155932/16 . Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 15 welfare – benefits for cares, disabled people and those who are ill 20 - and in economic policy –employment provision (Work Programme and Work Choice). Some aspects of energy and onshore oil/gas extraction have been devolved (Smith Commission, 2014) as well as a new political compromise for the improvement of the current Concordat on the Co-ordination of European Union Policy Issues has been sealed. According to Michael Keating (2014), with this new agreement, Scotland has received new powers to set the rates and bands of income tax but the tax itself has not been devolved. That is, taxation of investment income, National Insurance, inheritance tax and capital gains tax have remained reserved to Westminster. Corporation tax is to be reserved. Air passenger duty has been devolved but the SNP intends to abolish it. Similarly, devolution of welfare has been limited to bits of existing programmes whose functioning has proved so problematic, is now locked in as a UK programme. Elements of housing benefit are to be disentangled from it, which could complicate matters further. The administration of the Work Programme is to be given to the Scottish Government but not the power to link welfare, labour market and economic development policies together effectively. Very seemingly, Nicola McEwen (2014) claims that the devolution of welfare policies has been quite disappointing. Indeed, the report’s recommendations center on benefits for carers and people with disabilities. More specifically, devolution is recommended for attendance allowance, carer’s Allowance, Industrial Injuries and severe disablement allowance, and winter fuel payments, which together, account for just fewer than 6% of social security spent in Scotland in 2012/13. Additionally, the report has also recommended the devolution of Disability Living Allowance/Personal Independence Payments which is a more substantial benefit amounting to 8.2% of Scottish welfare spent. Nevertheless, and in spite of these major changes, around 87% of Scottish welfare spending, including pensions, child and family benefits, tax credits and almost all workingage benefits, will remain reserved to Westminster after the new settlement is implemented. Now that the Smith report has been issued, it would be interesting to understand what does Scotland think of the terms of the agreement reached. Is Scotland fully satisfied with the outcome of cross-party talks? On the other hand, it would also be interesting to know what powers Scotland would expect to be delivered? As for the first question, an opinion poll conducted by YouGov in December 2014 clearly shows clearly that Scotland feels disappointed with the terms of the agreement reached so far. In fact, 51% think that the Smith Commission has not gone far enough and that more powers should be devolved to the Scottish Parliament (see table 5 below). 20 Child benefit, maternity allowance or statutory sick pay and widowed parent have remained reserved competences. Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 16 Table nº 5: What does Scotland think of the Smith proposals? (December 2014) Source: YouGov December 2014 As for the second question, Scottish public opinion claims that the Scottish Parliament should have gained increased powers in the fields of fiscality, welfare and economy. These results match perfectly with the 2013 Scottish Social Attitudes Survey (Scottish Government Social Research 2014), which concluded that Scottish voters wanted Scotland to retain its membership of the Union, but to have almost complete ownership of its revenue and welfare system. Interestingly, this opinion could underline a critique to pro-union parties that fell sort of their promises. Ironically, it would also express the support to a political solution that is not that far from the version of independence that the SNP has offered in 2007-2009. To put it differently, the final outcome of the Smith Process could benefit the apparent “looser” of the referendum, that is, the Scottish National Party. To conclude, we could argue that although the Smith Report has effectively touched upon the devolution of tax and welfare policies, the final result has been quite deceptive as major aspects of fiscality –including income taxes and state pensions– and welfare –including welfare spending, including pensions, child and family benefits, tax credits and almost all working-age benefitshave remained reserved competences. In other words, it would seem that, as a consequence of a “limited” approach to devolution, the SNP could be emerging likely as the “winner” of the referendum. CONCLUSION: WHAT’S NEXT FOR SCOTLAND? The purpose of this paper was to bring more clarity over the political process initiated with the decision to hold a referendum on the political independence of Scotland. In order to do so, we have clarified the distinctive propositions of the Yes and the No Campaigns and we have identified “who” and “why” Scots have decided to stay within the Union. Additionally, we have explained the Smith process and we have summarised the conclusions of the Smith report. Now that the Smith report has been delivered, the right to (more) self-government has been legally entrenched but the constitutional future of Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 17 Scotland (and of the UK) has not been clarified. Indeed, beyond the restatement of more self-government within the Union, little else of Scotland’s future is clear. Some would argue that federalism is the political solution for the UK but for Michael Keating (2014), federalism is a constitutional recipe that is quite difficult to map onto the United Kingdom for three main reasons: first, federalism requires two orders of governments, the federal government and the federated units that should have entrenched powers guaranteed by a written constitution (which is not the case in the UK); second, the federated units should be represented at the center through a second chamber or senate as it happens in the United States, and to some degree, in Germany; third, there should be a fiscal mechanism for sharing money –a fiscal equalization principle, as it happens in Belgiumthat should be agreed among all federated entities (which is far from being the case in the UK where the current fiscal solution implemented with devolution - the Barnett formula - is highly contested by England and Wales). To put it differently, federalism would imply a radical reform of British political system. In other words, it would mean entrenching the Scottish Parliament, finding similar arrangements in Wales and Northern Ireland as well as listening to people in England that is, addressing the West Lothian question. Finally, on top of these arguments, according to Michael Keating, there is no federation in the world in which one unit -Englandhas 85% of the population and wealth. To conclude, we could argue that even if federalism will not accommodate Scotland within the UK, it should be used as a guide to inspire British and Scottish governments to solve the complicated and overlapping problems in the United Kingdom. In alternative to federalism, Eve Hepburn (2014) suggests that the UK could evolve into a federacy that is, a particular form of “federation” where a substate unit could enjoy the benefits of association with the state, but at the same time it would be able to retain substantial autonomy and self-government. In other words, this political solution would entrench considerable self-rule, but much less shared-rule than envisaged in federations. The recognition of extensive self-rule –whereby Scotland would have powers over all domestic matters whilst the UK would remain responsible for foreign affairs, defence, and currency– may be an appealing proposition to many Scots seeking ‘devo-max’. It would stabilize Scotland’s status within the UK, as it could only be dissolved by mutual agreement. In spite of the many uncertainties regarding British and Scottish constitutional future, now that the “No” and “Yes” campaigns have been completely dissolved, whereas pro-unionist parties will continue to strive for the maintenance of the Union, even though within the limits of a still undefined “reformed” British constitutional order; the Scottish Nationalist Party will certainly continue to push for political independence, using the inability of pro-unionist political parties to truly deliver as a powerful argument to seduce Scottish electorate for next general and regional elections to be held in May 2015 and May 2016, respectively. Indeed, as we look into numbers, an opinion poll conducted on the 22th of February 2015 shows clearly that the SNP comes first on Scottish voting intentions for Sandrina Ferreira Antunes Scottish Referendum and the Smith Process… ICPS, Working Paper 336 18 next general elections by gathering 45% of the voting intention against 29% for Labour, 15% for the Conservatives, 4% for Liberal Democrats and 4% for the Greens 21 . These numbers are even more striking whenever compared with 2010 general election results where Labour won 42% of the vote in Scotland, the SNP 20%, the Liberal Democrats 19% and the Conservatives 17%, UKIP 1% and the Greens 1%. In more concrete terms, if the difference between those figures and the parties’ ratings were to be replicated on each and every constituency, the Conservatives would win 1 seat, Labour 12, the Liberal Democrats 1, the SNP 45, UKIP none and the Greens none. In other words, a general Scottish discontent towards British government’s performance on Scotland constitutional future could benefit the SNP, as they could easily become a predominant political actor in Westminster, regardless of the “no” vote that has prevailed of The 18 th of September 2014. By the end of the day, it would seem that the final outcome of the referendum and the terms of the agreement reached under the Smith Process were unable to solve the “Scottish problem” as well as to undermine the popularity of the SNP. BIBLIOGRAPHY Charlie Jeffery (ed.). 2014. Beyond Smith: Contributions to the continuing process of Scottish evolution. Edinburgh: Centre on Constitutional Change. Jeffery, Charlie and Ray Perman. 2014. Scotland’s decisions. 16 questions to think about for the referendum on 18 September. Future of the UK and Scotland. Scotland. Kerevan, George and Alan Cochrane. 2014. Scottish Independence: Yes, No. The History Press: Stroud. Pittock, Murray. 2014. 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