First minister�s adviser takes damning view of Calman fiscal theories
Tom Gordon Scottish Political Editor

PLANS to give Scotland a mix of limited new tax powers are dangerous, illiterate and "a disaster waiting to happen", according to one of Alex Salmond's financial advisers.

Professor Andrew Hughes Hallett said the ideas from the Calman Commission on devolution were "fatally flawed" and would put Scotland at an automatic disadvantage compared to England.

But a Westminster source called the claim "bullshit".

A member of the first minister's Council of Economic Advisers, Hughes Hallett was also a member of the independent expert group which advised the Calman Commission on finance.

He says that Calman would make Holyrood over-reliant on income tax, and if tax revenues fell in an economic downturn as people lost their jobs, the parliament would either have to slash public spending or raise tax rates and make the economy worse.

He accuses the Commission of repeatedly ignoring warnings about the long-term consequences of its proposals, and says its plans seem more about Treasury "control" than making Scotland more economically competitive.The Commission, which was set up by Holyrood's pro-Union parties in response to the SNP's National Conversation on Independence, delivered its long-awaited report last week.

It key recommendation was to give Scotland control of around £6 billion in new tax powers, offset by an equal cut in the annual £30bn grant Scotland receives from the Treasury.

The main power would be an ability to vary all rates of income tax up or down by 10p, handing Holyrood control of half the basic rate of 20p and a quarter of the upper rate of 40p. Labour, the Tories and LibDems all welcomed the proposals while the SNP dismissed them as a "fudge".

In a paper co-authored by economist Drew Scott, Professor of European Union Studies at Edinburgh University Law School, Hughes Hallett, of George Mason University in Washington DC, says the income tax proposal may have a "superficial appeal" but is fundamentally flawed and "dangerous".

Unlike the UK treasury, Scotland cannot borrow money for public spending to compensate for falling tax receipts during a recession.

Denied the power to "smooth" public spending, a post-Calman Scotland over-reliant on income tax revenue would have to cut budgets or raise tax rates to make up for the drop in receipts.

He said: "This is a disaster waiting to happen and one that does not require a crisis anywhere near the magnitude we are presently experiencing to trigger it.

"The Calman Commission elected to ignore this. They didn't dare admit that their proposal was fatally flawed."

The paper says the Calman proposals would immediately lead to a £400m spending cut, as income tax receipts in Scotland are 4% lower than in England.

"This implies a loss of revenues, and hence spending, compared to the old system, even if Scotland keeps her tax rates at the UK-wide rate. In today's money, this is equal to the loss of 16 schools each year.

"In summary, we have to conclude that the current recommendations are worse than undesirable; they are unworkable."

Jim Murphy, the Scottish secretary, will address the Scottish cabinet in Edinburgh on Tuesday about the UK government's response to Calman.

Alex Salmond says the funding proposal should be put to voters in a referendum alongside independence.

A Westminster source said the whole point of Calman was to make Holyrood face up to its spending decisions in all economic climates. On the Hughes Hallet paper, the source said: "It sounds to me like a bullshit argument."