The Treasury permanent secretary has identified devolving tax raising powers to Scotland as one of the department’s key priorities.
Sir Nicholas Macpherson said that the present system of handing Scotland and Wales block grants, based on the Barnett Formula, had distorted the behaviour of the devolved administrations. The Smith Commission has brought forward recommendations to hand over more powers to Holyrood in the wake of the 'no' vote in September’s Scottish independence referendum.
The Treasury permanent secretary said that the package was “potentially a big prize” because it would reduce the proportion of the Scottish government’s income that came from the Barnett Formula.
“There are increased risks, but also increased opportunities,” he told the Public Administration Select Committee.
“If we get this right, we could actually solve a problem which I’ve been uncomfortable with ever since devolution which is that Scottish and Welsh governments were responsible [for spending, but]... had absolutely no responsibility for raising revenue and that in my view distorts behaviour.”
Sir Nicholas made clear that it was possible to exacerbate the current problems if the wrong powers were handed down.
“[The Smith Commission recommendations] actually may enhance accountability in Scotland and may make our job easier. But that is the sunlit upland. If we fail to negotiate the right funding regime which then distorts behaviour and activity then things could be worse... getting that right is one of my biggest priorities.”