Last week the Calman Commission reported on extending fiscal devolution to Scotland. They suggested the following:
Scotland would set its own income tax rates, with10p from the standard and upper rates being deducted by the UK Treasury.
Stamp duty and land taxes could also be devolved to Scotland, along with landfill tax, air passenger duty and aggregates levy (whatever that is).
The Barnett formula for allocating revenues would be kept, but Scotland's grant would be cut to reflect their new tax raising powers.
In short: a dog's breakfast. Like every other part of the devolution process, the Calman Commission's report is an almighty fudge, creating as many problems as it solves. If this was the best they could come up with, you have to wonder why they bothered at all.
The principle behind any reform should be a very simple one: each level of government should themselves be responsible for raising the revenue they spend. That would encourage fiscal responsibility and rational policymaking, and strengthen the accountability of politicians to their electorates. It would also lead to a great deal more autonomy at each level of government – a healthy antidote to Britain's relentless centralization.
What this adds up to is fiscal independence for Scotland. There are plenty of ways it could be done – see this excellent paper from Reform Scotland for a thorough examination – but my preferred option would be to have National Insurance and VAT set and collected by the UK government (to finance non-devolved matters like defence and social security), split North Sea Oil revenue 60/40 in Scotland's favour, and then leave everything else to the Scottish Parliament. The sums more or less work out.
Would such an arrangement undermine the Union? Maybe, but who cares? Besides, you could just as easily argue that fiscal autonomy for Scotland would weaken the nationalist case for independence, by addressing the resentment that is presently felt both sides of the border. Whichever way you look at it, fiscal autonomy is good policy.