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The age of simple arithmetic is over

IN February 2012 David Cameron effectively launched the longest campaign in Scottish electoral history with the promise that Scots could look forward to "new powers" for the Scottish Parliament, provided that they rejected independence in the September 2014 referendum.

For the next 18 months, the unionist parties engaged in a kind of devo dutch auction, bidding up their offers to the Scottish voters.

The big question in the closing weeks of the referendum campaign is whether or not the UK parties can now splice their various offers together to present a coherent and convincing package of guaranteed reforms to deliver on the more powers promise.

It won't be easy. Alistair Darling, the chair of Better Together has promised a common programme, but he is not in any position to dictate to the various parties in BT. They have their own agendas and they are looking to position themselves for the 2016 Holyrood elections.

Superficially, there is considerable agreement on the need to devolve income tax. Labour want the Scottish parliament to raise another 5% of income tax, the Conservatives want to devolve all income tax to Holyrood as do the Liberal Democrats. However, thereafter things fall apart.

Labour's idea of a 50% top rate of tax on incomes over £150,000, which could not be reduced, will not be endorsed by the Conservatives or the Liberal Democrats.

The Tories want to cut income taxes in Scotland not raise them, and the idea of imposing taxes that can go up but not down has been dismissed as incoherent.

Indeed, Labour has had difficulty coming up with its own agreed programme. The commission set up by the Scottish leader, Johann Lamont in 2012 to review Holyrood's powers initially proposed devolving all income tax. But this proved to be unacceptable to the Scottish Labour MPs in Westminster who felt this sounded a bit too much like fiscal autonomy.

An uneasy compromise was reached, adding a little bit more to the tax powers already in the pipeline from the 2013 Scotland Act. It seems unlikely that Johann Lamont could go much further now on tax.

However, the former Labour Prime Minister, Gordon Brown, has recently involved himself directly in the debate and said that the future is federal. He believes the UK needs to be refashioned as a multinational state and he has proposed that there should be a declaration of sovereignty entrenching the powers of the Scottish parliament.

This idea, in fact, came from the Liberal Democrats, who have advocated federalism for over a century. The project was reaffirmed by their most recent devolution commission, under the chairmanship of the former Lib Dem leader Sir Menzies Campbell, last year, who argued for the Scottish Parliament to raise at least 60% of the revenue it spends on services. However, this would include things like corporation tax, but not the all-important oil revenues which the Scottish government claims is Scotland's by right.

The Scottish Conservatives were the last to show their hand on devo-more. Last month, in a report prepared by the senior Conservative, Lord Strathclyde, they tried to trump the other parties by offering to devolve all income tax bands to the Scottish parliament.

This was an attempt to outflank Labour as the party of Scottish home rule by giving Holyrood unprecedented powers over direct taxation. It would no longer be a "pocket money parliament", according to the leader of the Scottish Conservatives Ruth Davidson.

However, as has been pointed out, the Conservative proposals, while hardly pocket money, do not actually amount to fiscal autonomy, or anything near it.

Excluded from the Strathclyde list were things such as corporation tax, fuel duties, excise taxes, oil revenues and capital gains tax.

The Scottish Parliament would only be able to vary around 40% of its revenues under the Strathclyde plan. Moreover, the Scottish parliament would not be able to adjust tax thresholds. The Conservatives were silent on the idea of federalism.

It would certainly be possible for the three parties to agree that Holyrood should have more powers, but they will have to agree to disagree on precisely which ones.

Moreover, what has been ignored by all of the parties, in their enthusiasm to give tax-raising powers to Holyrood, is what happens to the Barnett Formula, which at present calculates Scotland's share of public spending.

Clearly, this is going to have to be radically altered, and many Conservatives - including at one time Ruth Davidson herself - have argued that Barnett has outlived its usefulness and should be replaced.

At present, Scotland receives some £1200 more per head in public spending than the UK as a whole - though London and Northern Ireland have similar per capita shares.

What happens to the Barnett Formula could be almost as important as the new tax powers, if Scotland loses out in any "needs-based" alternative to the existing calculus, introduced by the Labour peer, Lord Barnett, in 1978.

One of Barnett's advantages is its simplicity: it rises automatically, year on year, in line with increases in UK spending.

The age of simplicity in Scottish public spending is over.

Moreover, while many politicians in Scotland are talking about a federal future for the UK, the f-word is not being spoken widely in Westminster. Indeed, federalism has rather a bad reputation, especially among Conservatives, because they believe that the European Union is trying to create a "federal super state".

Certainly, there seems no traction for the idea of setting up an English parliament and regional state parliaments in any scheme for UK federalism.

There are demands for the West Lothian Question to be addressed after the referendum, but that would involve implementing the McKay Report proposals on excluding Scottish MPs from votes on purely English matters in the House of Commons.

But what of the Scottish Government? After all, it will likely have to implement any new proposals because, if the opinion polls are any guide, they may still be the largest party in Holyrood after the 2016 elections. Alex Salmond, of course, says that the simplest and most obvious solution is to devolve all tax powers to Holyrood.

It seems unlikely that the SNP will win the September referendum. However, some believe that their idea of full fiscal autonomy may ultimately turn out to be the only tax scheme that actually makes sense to the voters and makes Holyrood truly responsible for raising the money it spends.

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