Funding devo more: Fiscal options for strengthening the union
This paper outlines an approach to funding devolved government in the United Kingdom, drawing on lessons from federal systems around the world and recognising the practicalities of the UK's public spending and tax systems.
The UK has managed its first decade and a half of devolution with minimal change to the financial arrangements which were used to run what used to be a much more centralised system. The mismatch between the financial framework of devolution and the constitutional powers and political accountability of devolved governments has reached a point where it is no longer sustainable.
Rather than resisting change or making ad hoc changes to the system, this paper argues that the UK should embark on a proactive, considered shift towards 'devo more', enabling devolved governments to make and resource their own policy choices. To this end, it sets out a range of measures designed to achieve commonality in fiscal arrangements between the devolved governments of the UK while, at the same time, demonstrating the benefits of the union to all its citizens.
It recommends a package of devolved taxes, including personal income tax and an assigned share of VAT, to balance the needs to manage devolved budgets, relate funding to devolved services and avoid adverse fiscal outcomes. It also outlines further developments, such as institutional and administrative changes, and areas for research required to support a move towards greater fiscal devolution.