The Herald has an exclusive story today that the Treasury will offer Scotland £4.5 billion “compensation” if we accept their preferred fiscal framework. This is a stunning admission that Scotland will lose out under the Scotland Bill. The SNP claim that the Treasury’s plan (without the “compensation”) could cost Scotland up to £7bn over 10 years.

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The debate is about something called “indexation” – how Scotland’s budget will change if Scotland’s population or tax take grows at a different rate to the UK’s. The Smith Commission agreed that more devolution should mean “no detriment” to either the UK or Scottish Government. Unfortunately, it was left unclear what this meant. The SNP’s position is that if Scotland’s population and income tax growth remain the same, Scotland’s budget should not be cut. Historically, Scotland’s population and income tax growth are both lower than the UK.

Until now, the Treasury has been claiming that their preferred indexation method is fair, but today’s offer of £4.5bn over a decade to take the deal shows that they know it is actually deeply unfair.

While £4.5bn might plug the gap over the first decade of the new formula, Scotland would then face a fiscal cliff if its population growth did not keep up with the UK. As Professor Anton Muscatelli has shown, the Treasury plan leads to greater and greater cuts for decades to come.

The effect of different indexation methods on Scotland's budget. Source: Professor Anton Muscatelli

The effect of different indexation methods on Scotland’s budget. Source: Professor Anton Muscatelli

Population growth. Source: Thomas Widmann

20th century population growth. Source: Thomas Widmann

Scotland’s low population growth, fuelled by emigration to make a better life in London and abroad, was a founding issue of the Nationalist movement. If Scotland’s population had kept pace with independent Denmark and Norway’s during the 20th century, there would be around 10 million Scots, rather than 5 million. The Scotland bill gives us no powers to grow our population.

With the Treasury’s desperate offer today, there can be no doubt that Scotland stands to lose out from the Tories’ vision for devolution – and we may head into the Holyrood election campaign with the infamous Vow still undelivered.

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