SCOTLAND could find itself in a worse position than Greece if the Smith Commission package of extra powers for Holyrood is implemented as proposed by the UK government, two Edinburgh-based economists have warned.
Jim and Margaret Cuthbert say that although many people hoped new tax powers would allow Scotland to mitigate the worst effects of Westminster spending cuts and fund new policies, a detailed look at how the new arrangements will work shows the Scottish Government’s freedom of action will be severely limited.
The Cuthberts argue that control of income tax – the only major “tax lever” Holyrood is due to get under the Smith agreement – does not give Scotland enough scope to make a difference, partly because there are fewer people with salaries over £200,000 north of the Border.
The economists claim that without further powers, Scotland would not be able to vary income tax rates much from those in the rest of the UK.
And they say the formula proposed by the UK government to calculate how much central funding Scotland continues to receive also leaves the country at a disadvantage.
In a new paper arguing that Scotland needs a wider range of powers so it can grow the economy, the Cuthberts say: “The way that the fiscal framework is being constructed means that there is a real danger of Scotland being locked into a self-perpetuating cycle of relative economic decline.
“The perversity of the way the Smith reforms are being implemented means that Scotland could well find itself in a position rather like Greece – locked into a cycle of relative decline within a malfunctioning monetary union.
“Indeed, in certain important respects, Scotland’s position would be worse than that of Greece. Scotland is a resource-rich country, but barred from controlling or accessing much of its own resources, and Scotland does not have anything like the range of economic and taxation powers possessed by Greece.”
Their paper claims the root of the problem with the Smith package is the complexity of the arrangements it proposes.
They add: “It is unlikely that a satisfactory solution can be found without a radical simplification of the whole approach: but such a simplification would be possible under a proper federal approach.”
Federalism would mean much greater fiscal and economic powers, with individual states setting taxes for their own use, topped up by a federal government and the “tortuous” system of financial adjustments required under Smith would disappear, the Cuthberts said.