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The Fiscal Position Of Scotland, Wales And Northern Ireland

29th April 2021

The Institute for Government Think Tank look at the potential for the fiscal position if 3 nations breakaway from the UK

With just days to go until critical elections in Scotland and Wales, and with support for independence growing in both nations, this report shows that breaking away from the UK would leave Scotland, Wales and Northern Ireland facing sizeable fiscal deficits.

Even in 2018/19, before the Covid pandemic, Scotland ran a deficit of over 7% of GDP - well over twice the 3% level mandated for those hoping to join the EU, and far higher than the English deficit in that year of 0.3% of GDP. The deficits in Wales and Northern Ireland were higher still at 18% and 19% respectively. Put differently, each person in England on average benefitted from public spending worth £91 more than the taxes they paid: in Scotland, Wales and Northern Ireland the figures were £2,543, £4,412 and £5,118, respectively. All four nations' deficits have worsened since, not least because of the Covid pandemic.

The report examines levels of public spending and revenues in the UK's four nations. It sets out the likely fiscal position of Scotland, Wales and Northern Ireland if they left the union and stopped benefiting from the UK's redistribution of resources.

An independent Scotland or Wales, or a reunited Ireland, could pursue their own policies to boost economic growth, incomes and tax revenues - but this would not happen quickly enough to avoid difficult tax and spending choices. While Scotland's GDP per head and tax revenues are similar to England's, it spent over £1,700 more per person on public services. How to maintain this would be an early, burning question for a newly independent Scotland.

An independent Wales would face a different - and greater - challenge: GDP per head is lower in Wales than in Scotland and it is the recipient of considerable sums from elsewhere in the UK. Increased taxes would be unavoidable if an independent Wales were to target current levels of spending, which would leave this higher relative to its GDP than any other advanced nation.

Scotland
Elections 2021: Scottish independence


Why are people talking about Scottish independence?
Scottish independence is a key issue in the Scottish parliament elections taking place on 6 May 2021. The Scottish National Party (SNP) has placed the issue at the centre of its campaign. The party argues Westminster should accept a pro-independence majority as a valid mandate for a second independence referendum.

Scottish voters were first asked whether they wanted Scotland to become an independent country in a referendum in September 2014: the result was 55% to 45% against.

The issue of independence has been put back onto the agenda by Brexit - Scotland voted 62% to 38% in favour of Remain in the EU referendum - and particularly once it became apparent that the UK government planned to take the UK out of the EU single market and customs union.

In its manifesto for the 2016 Scottish parliament elections, which took place shortly before the EU referendum, the SNP had argued that "Scotland being taken out of the EU against our will" would justify a second vote on independence.

The SNP's 2019 general election manifesto stated that the party intended to hold a second referendum in 2020. After winning 48 of Scotland's 59 seats, Nicola Sturgeon formally requested the power to hold an independence referendum on 19 December 2019, but Boris Johnson refused on the grounds that key pro-independence figures had said that the 2014 referendum was a "once in a generation opportunity".

Does the Scottish parliament have the power to hold another independence referendum?
Under the Scotland Act 1998, the Scottish parliament is not allowed to pass legislation relating to matters "reserved" to Westminster, including "the Union of the Kingdoms of Scotland and England". This is widely interpreted to mean that any referendum relating to Scottish independence would require Westminster's approval. However, this has never been tested in court, so there remains some uncertainty about whether Holyrood could hold an ‘advisory' referendum (in which the Scottish electorate were asked whether they supported the principle of independence but did not mandate independence itself) without consent.

The power to hold the 2014 referendum was transferred in 2012 after the UK and Scottish governments signed the Edinburgh Agreement. The UK parliament passed a ‘Section 30 order' - which gave the Scottish parliament the power to legislate for the referendum— which "put beyond doubt" the legality of the vote. The power was only transferred on a temporary basis, the order specifying that a referendum must take place before 31 December 2014.

The Scottish government has never explicitly conceded that a referendum could not be held without Westminster’s authorisation. But its preference is to proceed with agreement, since any unauthorised referendum could be blocked in the Supreme Court or simply boycotted by unionist parties.

What is the SNP’s plan for a second independence referendum?
In March 2021, the Scottish government introduced a draft Independence Referendum Bill, which if passed, would mandate a second vote on independence to be held.

The SNP also published a "road to a referendum" document setting out its planned next steps. If there is a majority at Holyrood for independence, the party is expected to request a new Section 30 order - which would transfer the power to hold a second independence referendum to the Scottish parliament- from the UK government. This would ensure that the Scottish parliament could then pass its referendum bill without fear of legal challenge.

However, if that request is refused, then the SNP will seek to pass its referendum bill using the Scottish parliament’s existing powers. In that scenario, the bill would almost certainly be referred by the UK government to the Supreme Court, which would be asked to determine whether it lay within the legislative powers of the Scottish parliament. If the Supreme Court ruled against the Scottish government, then the bill would be prevented from becoming law. The SNP has not stated what its next move would be in this circumstance.

What rules would govern how an independence referendum would be held?
If a second referendum is held, the Referendums (Scotland) Act 2020 would set the rules for holding the poll. The Act broadly replicates the legal framework for referendums held by the UK government, as set out in the Political Parties, Elections and Referendums Act 2000.

The Electoral Commission would be given a statutory role, overseeing the conduct of the poll and the regulation of referendum campaigners, including designating lead referendum campaigners and testing the "intelligibility" of the proposed referendum question.

In its draft referendum bill, the Scottish government proposed using the same referendum question as the 2014 vote: “Should Scotland be an independent country?” with Yes and No options on the ballot paper.

The Referendums (Scotland) Act 2020 provides that the franchise for any future referendum held by the Scottish government (on any subject) will be the same as the franchise for Scottish parliament elections.

Following changes introduced in the Scottish Elections (Franchise and Representation) Act 2020, this means that anyone aged 16 or over, who is legally resident in Scotland regardless of nationality, and who is on the Scottish local government electoral register, would be entitled to vote.

The 2020 legislation also extended the right to vote to prisoners serving sentences of less than 12 months.

When could a second referendum on Scottish independence take place?
The draft Independence Referendum Bill provides that the timing of a future referendum would be a matter for the next Scottish parliament to decide. The current first minister, Nicola Sturgeon, has set out her aspiration for a referendum to be held in the first half of the next parliamentary term, meaning that this would happen by autumn 2023. However, she has conceded that this timetable could be changed if the pandemic were to continue.

In addition, if it accepts the principle of a second vote the UK government could impose constraints on when a referendum could be held.

The first independence referendum took place three years and four months after the SNP won a majority for independence, and in that case the UK government immediately accepted the legitimacy of the SNP’s mandate.
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For Wales see https://www.instituteforgovernment.org.uk/explainers/election-2021-welsh-independence