A Major proposal

(Update 18/07/2011: the full text of Major’s speech is available on the Ditchley Foundation’s website.)

Recently, former UK Prime Minister, John Major, delivered a speech to the transatlantic Ditchley Foundation in which he discussed the “folly” of Scottish independence.

Unfortunately, I’ve not been able to find the full text of Major’s speech anywhere, but according to various media accounts, he proposed the following:

The present quasi-federalist settlement with Scotland is unsustainable.

Each year of devolution has moved Scotland further from England. Scottish ambition is fraying English tolerance. This is a tie that will snap – unless the issue is resolved.

The Union between England and Scotland cannot be maintained by constant aggravation in Scotland and appeasement in London. I believe it is time to confront the argument head on.

Why not devolve all responsibilities except foreign policy, defence and management of the economy? Why not let Scotland have wider tax-raising powers to pay for their policies and, in return, abolish the present block grant settlement, reduce Scottish representation in the Commons, and cut the legislative burden at Westminster?

This idea put forward by Major – that of giving Scotland full responsibility for everything except foreign policy, defense and management of the economy (but wider tax-raising powers) in exchange for abolishing the block grant settlement and fewer seats in the House of Commons – is interesting, at least for me as a Canadian. I couldn’t help but wonder if Quebec would accept a similar sort of arrangement.

From what I understand, the block settlement grant is something akin to the Canadian system of equalization payments. At the moment, most of the budget of the Scottish Parliament comes from a block grant from the UK Parliament. The level of the budget is determined by the Barnett formula. The Scottish Parliament has limited powers to vary the basic rate of income tax (up or down by three pence in the pound). This power has not been used to date.

In 2009, the Calman Commission, set up a few ears earlier to review the devolution settlement, including the financial powers of the Scottish Parliament, made a number of recommendations to give the Scottish Parliament a greater role in raising its own revenue. In particular, the Commission recommended that the Scottish Parliament be given greater powers over income tax and some other taxes and that the block grant be reduced. In the view of the Commission, this would increase the financial accountability of the Scottish Parliament. Under its proposals, the Scottish government would raise around 35% of its revenue, compared with around 14% under the current arrangements.

As stated above, the block settlement grant is determined using something called the Barnett formula. I won’t attempt to explain that here – anyone truly interested can find a number of papers on the matter online. However, to quote Wikipedia:

Simply put, any increase (or decrease) each year in public expenditure in England on matters devolved to one or more of the other countries of the UK leads to an increase to these other countries’ areas, in proportion to their relative population at that time. Expenditure is allocated en bloc, not per service (health, transport, etc.), allowing to each devolved administration the opportunity to allocate these funds as it believes appropriate.

This does sound rather like Canada’s system of equalization payments for the provinces. The equalization program had become, in the minds of many critics, an overly-complex mishmash of special deals and formulae that benefited some more than others and pleased no one. From 1982 to 2004, in general terms, the program used a complex but consistent formula of an equalization standard that was based on the average of the fiscal capacities of five provinces (British Columbia, Saskatchewan, Manitoba, Ontario and Quebec), using 33 different tax bases (including 100% of natural resource revenue). Budget 2007 (tabled in the House of Commons on 19 March 2007) included a new equalization program that is principle-based and formula-driven.

The equalization standard in the new program reflects the recommendation in Achieving a National Purpose: Putting Equalization Back on Track (the O’Brien report) and is based on the fiscal capacity of all 10 provinces. The overall program cost will be determined by the application of a complex formula, which is detailed in the Budget Implementation Act. Annual volatility associated with a 10-province standard will be addressed through the use of a weighted three-year moving average calculation for payments. The measurement of provincial fiscal capacity is simplified based on the recommendation of the O’Brien report. Instead of 33 tax bases, provincial fiscal capacity will be measured using 5 tax bases — personal income tax, business income tax, consumption tax, property tax and natural resource revenues. The new program also adopts the O’Brien report’s recommendation to exclude 50 per cent of provincial natural resource revenues, and provides provinces with the benefit of full exclusion without reducing payments to any province. The use of actual revenues also permits an important program simplification, as the 14 separate bases used previously can be consolidated into a single natural resource revenue base.

Of the provinces receiving equalization payments, Quebec receives the largest payment, CAN $7.8 billion for 2011-2012. It is less dependent on federal transfers than is Scotland on the block grant, however. Federal transfers to Quebec in total represent 23% of the province’s revenues (2011-2012 budget figures).

I should note here that the provinces – all of them – also receive money from the federal government via the Canada Health Transfer (CHT) and the Canada Social Transfer (CST). The Canada Health Transfer (CHT) is the Canadian government’s transfer payment program in support of the health systems of the provinces and territories of Canada. The CST is a federal block transfer to provinces and territories in support of post-secondary education, social assistance and social services, and early childhood development and early learning and childcare. However, it should be noted that the federal government has no way to enforce how a province allocates these funds. While they are targetted for the aforementioned programs, a province can spend the money any way it chooses.

All that to say that Quebec, like Scotland, receives an important chunk of its funding from the national government. However, Quebec, unlike Scotland, can set its own provincial taxation rates for personal income tax, corporate income tax as well as sales taxes and other various fees. What I wonder is if the federal government agreed to relinquish its share of federal income and corporate taxes raised in Quebec, as well as the federal Goods and Services Tax (GST) in the province, and give Quebec full control over everything except foreign policy, defense, and overall management of the economy (setting interest rates, monetary policy, that sort of thing), would Quebec be willing to agreed to reduced representation in the Canadian House of Commons? More importantly, would this be enough to curb or quell the independence movement in the province?

It’s very difficult to say (obviously). On the one hand, Quebec nationalists have long called for more control over various programs such as immigration, and resent federal attempts to set targets or guidelines in areas such as healthcare (note to non-Canadian readers – healthcare in Canada is a provincial responsiblity, but is governed by the Canada Health Act, which is a federal statute which allows the federal government to intervene in some areas of healthcare policy in order to ensure that services are largely equitable across the country). The argument has been made in the past by some sovereigntists that even if Quebec did become independent, it would still retain use of the Canadian dollar and Quebecers would still be entitled to use Canadian passports, for example. Certainly an arrangement such as the one proposed for Scotland and the UK by John Major would make this a reality for Quebec, minus the full independence part of the equation.

But therein lies the problem. For those in Quebec who do want full independence for the province, even such a far-ranging agreement wouldn’t be enough. They’d want Quebec to have full control over its foreign policy, they’d want Quebec to be recognized at the UN and other international bodies, etc. And even among “soft” nationalists, I don’t know how many would really want to see their influence in Ottawa decrease substantially. Quebec currently has 75 seats out of the 308 in the Canadian House of Commons – roughly a quarter of the seats, which is fairly proportional to Quebec’s share of the Canadian population (23%). This is similar to Scotland, which has 59 seats – 9% – in the UK House of Commons, and represents 8% of the UK population.

Major doesn’t specify in his talk how many seats he thinks Scotland should be reduced to under such an arrangement; I would have to think that the number of seats would have to be such that they would have a much reduced influence on possible election outcomes. By that I mean, for the past 20 years or so, Labour had consistently won the most seats in Scotland (currently 41 of 59), and while it takes only one seat to make the difference between majority and minority government under FPTP, I would think that under the sort of arrangement proposed by Major, Scotland would see its number of seats at Westminster at the very least halved. Quebec would have to agree to something similar – losing at least half of its current 75 seats in the House. Would it agree to this in exchange for total control over almost everything else?

On the whole, Major’s proposal is an interesting one, certainly worthy of further debate. James Forsyth at the Spectator suggested that Major might have been floating this idea on behalf of Prime Minister David Cameron. The SNP has reacted positively to Major’s proposal. Would the next step then be a proper federal system giving England its own parliament?

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