Scotland politics

Scotland Bill: No detriment principle 'is unworkable'

Prof David Bell Image copyright Scottish Parliament
Image caption Prof David Bell has acted as an economic adviser to both the Scottish and UK governments

The principle of "no detriment" contained in the Smith Commision devolution agreement is unworkable in practice, a leading economist has said.

The agreement states that neither the UK or Scottish governments should suffer financially from policy decisions made by the other once the new powers come into force.

But Prof David Bell said it had "huge potential for dispute".

And he said no similar principle was in place anywhere else in the world.

Prof Bell was speaking to MSPs on Holyrood's Devolution (Further Powers) Committee as representatives of the two governments met in London for further talks on the fiscal framework that will underpin the Scotland Bill.

He used the example of the Scottish government potentially cutting or scrapping air passenger duty once the tax is devolved to highlight the difficulties that the no detriment principle would bring.

The move would leave economists "tying themselves in knots" trying to figure out what impact the move would have on the rest of the UK, he said.

Prof Bell added: "You have got to try to imagine what would have happened had Scotland not taken that decision. It is around that question, that we call a counter-factual, that all of the uncertainty arises because it didn't happen.

"How could you know what would have happened had Scotland not taken the policy decision that it has taken? You end up in a situation of mainly economists arguing with each other about what the impact might have been had the decision gone a different way."

Image copyright Getty Images
Image caption The latest round of talks on the financial underpinnings of Scotland's new devolved powers were due to be held at the Treasury

Prof Bell said Carlo Cottarelli of the International Monetary Fund had told a House of Lords committee looking at the issue that were was no similar principle in place anywhere else in the world.

He added: "That is the basis for my argument that I think it is unworkable".

Prof Bell is an economics professor at Stirling University who has acted as an adviser to both the Scottish and UK governments.

The Scotland Bill will hand Holyrood new powers over areas including income tax, VAT, air passenger duty and some areas of welfare and benefits policy.

Block grant

But it cannot go ahead until an agreement is reached on the fiscal framework, which will determine how much Scotland's block grant is affected by the new powers that are being devolved.

It will also set out the borrowing limits for the Scottish government and attempt to ensure that the actions of one government will not cause financial detriment to the other.

Both sides have said they are hopeful an agreement will be reached by the middle of next month - but the Scottish government has said it will veto any deal that is "unfair" for Scotland.

Scottish Finance Secretary John Swinney was due to meet UK government counterparts at the Treasury in London on Thursday for the latest round of talks

The two governments have said they will not provide any details of the talks until an agreement is reached.

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