How should devolved nations be funded? Lords Economic Affairs Committee to investigate devolution of public finances

Since the general election the government has introduced the Scotland Bill to bring in the recommendations of the Smith Commission on the devolution of further powers to the Scottish Parliament. The Corporation Tax (Northern Ireland) Act 2015 and the Wales Act 2014 also contain provisions to devolve some financial powers. The Committee intend to investigate what impact these will have on the distribution of public finances in the UK.

The Committee are inviting written evidence to be received by 21 August 2015. Questions the Committee are inviting evidence on include:

• Is the right institutional framework in place to make the new settlements effective? What processes will be needed to ensure fair discussions between the devolved nations and the UK government?
• What principles should govern the way devolved nations are funded? Should any settlement be equitable between different parts of the UK?
• How should block grant funding reflect devolved tax and welfare powers? How should future changes to the block grant be decided; is a new needs assessment required to replace the Barnett Formula?
• Should devolved governments receive further borrowing powers? What form of contract between the UK government and the devolved nations will prevent bailouts of governments that do not stick to their borrowing limits?
• What would the implications be of full fiscal autonomy for Scotland? How would Scotland shrink any fiscal gap?
• What implications will the renegotiation of the fiscal framework for Scotland have on the rest of the UK?
• Will devolution of tax powers lead to competition between England, Northern Ireland, Scotland and Wales on tax, and would competition be welcome?

Commenting Lord Hollick, Chairman of the House of Lords Economic Affairs Committee, said:

“It is clear from the rapid pace with which the Scotland Bill is progressing through Parliament that there are likely to be significant changes to the UK's constitutional arrangements in the very near future. However we are concerned that the economic impact that will inevitably follow from political change has not received sufficient attention.

“Proposals to give the Scottish Parliament new tax raising powers, as well as the devolution of corporation tax to Northern Ireland, will fundamentally change the basis of fiscal policy in the UK.

“The time is now right to ask some key questions about that process. Why the asymmetric devolution of fiscal powers to Scotland, Wales and Northern Ireland? What will further fiscal autonomy mean for the Barnett Formula, can it still be justified? How will economic risk be shared in a devolved United Kingdom – ensuring that different countries can cope with a financial shock but cannot borrow beyond their means and potentially require a bail-out from the rest?

“These are just some of the areas we will explore. Our inquiry will be short and we aim to report in November, we are therefore requesting written evidence is sent in before 21 August.”