Pulling the strings

As the referendum campaign moved on, Scotland was promised again and again that a No Vote would not be a vote for the status quo. 

Offers of more powers from the Better Together parties began to emerge from March onwards, ranging from devolving control of 15p of income tax to Scotland, to all of it. Some wanted to devolve housing benefit, some did not. Then the Scottish Government released its own submission, proposing that all tax and welfare powers be transferred.

And although as yet there is still no agreement about what powers will be devolved, whatever the outcome it seems certain that those working behind the scenes of government – tasked with implementing the changes promised by politicians – will face challenges. 

On the face of it these changes should be manageable, given that the civil service has been coping with devolution for years. In fact, writing for the Guardian in March, former Permanent Secretary to the Scottish Government John Elvidge said that even independence would not be too difficult for the civil service, since “most aspects of the organisation and management of the civil servants serving the Scottish government are already within the control of the permanent secretary.”

But it still does not look simple. The Institute for Government carried out research into the implications of the No vote on the UK state, with varying levels of change needed depending on the deal that those in the Smith Commission strike up. 

Akash Paun, Fellow of the Institute for Government and lead author of the body’s report into the implications of devolution, told PSQ: “One of the interesting things for me about the original devolution settlement in 1999 was the extent to which it didn’t actually require much change in terms of the civil service – either in Scotland or in Whitehall – because we already had the Scotland Office, which was responsible for health, education and justice and so on in Scotland, so you were just adding a political layer on top. Now that was obviously important but on a civil service level there wasn’t huge adaptation required. In terms of how Scotland was funded nothing changed – the Barnett Formula carried on as before.”

The next round of devolution though will bring more substantial challenges, with devolution of tax policy and welfare meaning changes for some of the systems currently operating on a UK-wide or GB-wide level. At that point things become more complicated for those working in public service. For HMRC, the Department of Work and Pensions (DWP) and the Treasury, devolution will likely mean changes to their core policy functions. 

Paun says: “For these big Whitehall departments, devolution is bringing up questions they have not really had to confront before – some of them they have had to confront on a smaller level, since the Scotland Act 2012 some small tax bits, but when you are talking about the whole of income tax as well as other fiscal powers, maybe borrowing powers, then these are big issues for those departments. 

For these big Whitehall departments, devolution is bringing up questions they have not really had to confront before

“Conversely these are areas where the Scottish Government has not needed to have much capacity – of course Revenue Scotland has been set up but it is tiny at the moment, only dealing with Landfill Tax and Stamp Duty. So within the Scottish Government there isn’t much in the way of tax policy capacity. Likewise in welfare there is some welfare function in the Scottish Government but if it starts to acquire responsibility for big chunks of welfare spending then it will obviously need to build up policy expertise as well as the delivery infrastructure that it doesn’t currently have.” 

There is a big DWP and HMRC presence north of the border – between them the departments employ more than 21,000 staff in Scotland (more than are employed by the whole Scottish Government). At first glance it could be assumed that the solution would be simply to transfer the staff that are currently tasked with running these functions on behalf of UK over to the Scottish Government. But it is not as simple as that. 

Paun says: “What we also found from looking at the data is that the capacity that those departments have in Scotland is more of the low grade, administrative levels – it is more benefits and tax processing function that is carried out in Scotland and not necessarily just for people in Scotland – so what there is not necessarily so much of is the higher level managerial or policy capacity. So that is where the Government would need to build it up.”

Under current plans HMRC will continue to administer income tax, even after the next stage of devolution brought by the 2012 Scotland Act. Revenue Scotland holds a more limited role at present, but if greater and greater tax powers are transferred to Scotland, would this relationship continue? Or would Revenue Scotland go on to collect a portion of income tax, rather than HMRC?

To Paun, the answer will likely depend on the extent to which tax powers are transferred.

“Obviously there are a range of positions on the table and if you take the SNP position and the Scottish Government is responsible for putting in place its own system – which might or might not look like the rest of the UK’s income tax system – then you would assume that you need your own income tax system to manage it. 

“If you end up somewhere in between, with more flexibility for the Scottish Government to vary rates and bands and allowances and so on then possibly it could still be managed or administered by HMRC on behalf of Scotland – though that is not to say it would be simple. Even the limited amount of Income Tax power that has been devolved already has not been simple – to figures out how it is going to be managed they have had to set up a whole new set of processes to identify who are Scottish tax payers and then there will be complex calculations about the effect on the Scottish block grant and so on. 

“The more flexibility there is in the system I think the more complicated it will become for HMRC to manage it and of course it is not a free thing either – so if more complicated systems are set up then the Scottish Government will need to pay HMRC to do it. So they may end up taking position where they think it is just easier to set up its own administration and do it itself. There may be benefits to that in terms of integrating it with other parts of the Government’s policy agenda.”

Meanwhile there are no clear answers over how long the process of adapting to the new powers would take. The Scottish Government has argued that 100 per cent of income tax should be devolved and a body capable of administering that could not be set up overnight.

When the most recent phase of devolution, the 2012 Scotland Act, comes into action in 2016 it will have taken four years to enact. This could offer some precedent for future change, but it all depends on how far those in the Smith Commission want to go. Those who will be handed the task of bringing the plans to life, at present, must wait and see.