Richard Wyn Jones and Michael Keating on Welsh and Scottish perspectives on Brexit

Professors Richard Wyn Jones and Michael Keating considered the major challenges Brexit poses to the 1999 devolution settlements; the role of the devolved governments in negotiations; the allocation of competences currently shared with Europe, and related issues.

Richard Wyn Jones is Director of the Wales Governance Centre at Cardiff University, and Michael Keating is Director of the Centre on Constitutional Change.

The event was chaired by Dame Mariot Leslie on 21 November 2017. 

Nicholas Macpherson on economic policymaking in a UK outside the EU

Baron Macpherson of Earl's Court served as Permanent Secretary to the UK Treasury from 2005 to 2016, serving under three Chancellors and managing the department through the financial crisis which began in 2007. He joined the House of Lords in October 2016.

The event was sponsored by Baillie Gifford and took place on 13 November 2017.

Denmark and Maastricht, with Poul Skytte Christoffersen

24th October 2017

The Maastricht treaty on European Union had to be ratified by all 12 signatory countries or it would not take effect. Every country had its own rules for how treaties are ratified, and in three - Denmark, France and Ireland - a referendum was held. In June 1992, the Danes narrowly voted no - by 50.7 per cent to 49.3 per cent. In effect, 25,000 Danish voters decided the fate of the treaty, and sparked a political crisis in Europe. Poul Skytte Christoffersen, former Danish Permanent Representative to the European Union, spoke about what happened next, and what we might still learn from it.

Poul Skytte Christoffersen is Chair of the Board of Advisers at the European Policy Centre, Brussels, Former Ambassador of Denmark to Belgium and former Permanent Representative of Denmark to the European Union.

Christina Romer on the aftermath of financial crises

Christina Romer is Professor of Economics at the University of California, Berkeley, and former Chair of President Obama's Council of Economic Advisers. On 17th October 2017 she spoke at a David Hume Institute / MacCALM event at the Playfair Library, Edinburgh University.

Brexit: the view from Brussels, with Fabian Zuleeg

Fabian Zuleeg is Chief Executive of the European Policy Centre in Brussels. On 28th September 2017 he spoke at a David Hume Institute event at the Royal Society of Edinburgh.

Chaired by Sir Andrew Cubie CBE

John Curtice on 2017 General Election

Britain’s foremost expert on opinion polls and voting patterns shared his fascinating analysis of the voting in the 2017 General Election with David Hume Institute members on 15 June and answered some key questions: when will the next vote be and who is likely to win? No simple answer, but interesting and informative.

In his full analysis Professor Curtice tackled some other big issues: is there such a thing as UK politics any longer? Has age replaced social class as the main discriminator between the two main parties? The UKIP vote crumbled – but where did it go? Why did the SNP lose so many seats?

Fiscal framework exposes the Scottish Government to some risks which it can’t influence

Graeme Roy, Director, Fraser of Allander Institute

Professor Graeme Roy spoke about the biggest reform to the financial powers of the Scottish Parliament since 1999 including changes that will not only be fundamental for how public services are funded in Scotland but also for our future economic prospects.

Presentation to DHI seminar: May 11 2017

Much of recent debate has understandably concentrated on big political questions such as Brexit, IndyRef2 and the UK General Election, so it’s easy to forget that we’re going through the biggest reform to the financial powers of the Scottish Parliament since 1999. Changes that will not only be fundamental for how public services are funded in Scotland but also for our future economic prospects.
So tonight is a great opportunity to give a quick recap of the new fiscal framework for Scotland and to discuss some of the features that make it such a unique framework, not only in the UK, but also internationally.
I’d also like to set out what we at the Fraser of Allander see as some of the key issues that we think will be important to watch over the coming years. And then I’ll hand over to Caroline who will give us all the solutions!
So just to recap, and as you know, the Scottish Parliament is currently going through a process of substantial financial devolution.

Powers that will give greater opportunities to do things differently in Scotland. But powers that will also substantially increase the risks and uncertainties underpinning future Scottish Budgets.
Of course, there is a debate about whether or not these powers are enough or if we could further, but you’ll forgive me from staying clear of that debate this evening!
Soon the Scottish Government and Local Government will oversee a budget of over £40 billion.
In other words, over 60% of public spending for the benefit of the people of Scotland will be controlled directly – or indirectly – by Holyrood.
The big reform has been to expand the proportion of the Scottish Budget from ‘own-source’ revenues.
The fact that the Scottish Budget was determined almost entirely by a block grant from Westminster that had very little to do with Scottish economic performance or provided few opportunities for Scottish administrations to alter the overall spending envelope that they faced, was seen as a key weakness of the original devolution settlement.
A ‘house-keeping’ budget was how Jim Mather the former Enterprise Minister described it.
Now around 40% of ‘devolved expenditures’ will be funded by revenues raised in Scotland – a figure that will rise to 50% once approximately half of VAT revenues are assigned to the Scottish budget.
As a result, Scotland’s budget will now depend crucially on three key elements –
What remains of the Westminster block grant – as determined by the Barnett Formula;
Future tax policy choices of the Scottish Government; and,
The relative performance of Scottish devolved tax revenues.
If I can park in your mind this final point – the ‘relative’ performance of Scottish devolved tax revenues – as this is absolutely crucial for how the framework operates in practice.

So here are the revenues being devolved, starting with Land and Buildings Transaction Tax a couple of years ago and moving through to VAT in 2019/20.
I should say that to provide some consistency across the numbers these are the GERS estimates of the revenues for 2015/16.
If you’ve been following the GERS debate on social media in recent weeks then I apologise if the use of some numbers based on estimation here and throughout my talk upsets you!!
By far the two biggest transfers in terms of revenues are income tax, which came into effect this year and VAT.
It is important to also note what is not being devolved. For example–
On income tax, the personal allowance and ‘definitions’ of income are reserved along with dividend and saving income tax receipts.
On VAT, there is no authority to vary rates or exemptions. It is essentially a transfer of revenues rather than any real policy power.
Other taxes with close links to income tax – e.g. national insurance, capital gains and corporation tax are also fully reserved. This is important as it opens up the prospect for devolved tax policy decisions to rub against UK-wide reserved taxes. An early example of this has been the interaction between the new lower threshold in Scotland for higher rate income tax and the (now higher) threshold for UK-wide National Insurance contributions which means that a small number of taxpayers in Scotland face a 52% marginal tax rate on earned income.
Finally, the overall fiscal stance is also reserved. If the Scottish Government wants to spend more money on public services than currently funded by Barnett on a long-term basis, it will have to raise the revenues to pay for them.

Alongside these new tax powers, the Scottish Government will be taking responsibility for substantial welfare powers – worth around £3 billion by the time they come fully on stream.
These powers can essentially be grouped into 3 areas.
Firstly, flexibility in how certain elements of Universal Credit are paid.
Secondly, the full devolution of a number of benefits themselves including:
Benefits tied to ill-health and disability – e.g. DLA and PIP; and,
Elements of the Regulated Social Fund – e.g. Sure Start, Winter Fuel Payments etc.
Thirdly, the ability to ‘top-up’ existing UK benefits and/or introduce new benefits, subject to meeting the costs of doing so – including any additional administrative costs.
Alongside these welfare powers come important responsibilities around the delivery of employability programmes.
These new powers represent a major opportunity for the Scottish Government and the Scottish Parliament, both to re-design elements of the benefits system to better reflect their vision for social justice in Scotland, and to take advantage of synergies with existing devolved responsibilities such as in health, education and skills.
They also pose a challenge. Experience has shown us – both in the UK and internationally – that delivering new welfare programmes isn’t easy.
Given that many of these benefits – particularly the Disability Living Allowance and so forth – are vital for many of the most vulnerable people and families in our society, it is absolutely crucial that we ensure delivery and continuity of payments from day 1.
At the same time, it’s important to acknowledge that many of these benefits are expensive. Entirely legitimate and well-intentioned ambitions to increase the value of payments and/or to broaden eligibility may carry expensive price tags which will need to be paid for.
These are the new powers.

So how will the actual Scottish Budget be determined from now on?
Recall that in the past, the Scottish Budget was largely determined by a block grant. This grant was, in turn, calculated by the Barnett formula – the mechanism which allocates Scotland a population share of comparable spending in England.
Rather than design a new system for the block grant, the Smith Commission decided instead that the existing block grant should be adjusted to account for the new devolved and assigned revenues.
In year 1, that’s pretty straightforward. You take away how much was raised in that year in devolved revenues and then add back in these same revenues raised from the devolved taxes in Scotland.
There is zero impact on the Budget simply from the transfer of power, and the principle of ‘no-detriment’ is met.
But what happens after year 1?
If you keep on taking away from the block grant how much tax revenue is raised each year, then there’s effectively no change to the Budget process – the block grant is cut by exactly the same amount as is then added back in!
So what was agreed was an indexation mechanism to grow this block grant adjustment – or BGA – year on year at a counterfactual rate.
The purpose of this indexation mechanism was to create a BGA that represents a counterfactual estimate of the tax revenues that the UK would be forgoing post-devolution.
You’ll recall from last year that there was difficulty in getting both governments to agree on the most appropriate indexation mechanism.
The mechanism that was finally agreed – at least up to 2021 – was for the BGA to increase in line with the growth in the equivalent tax revenues per head in the rest of the UK (rUK).
In the case of income tax, this means that if non-savings non-dividends income tax revenues per head grow by 2% in rUK, the BGA will grow by 2%.
And this gives the key feature which underpins this framework: that is, how the BGA interacts with devolved revenues.
If Scottish tax revenues per head can grow faster than the growth per head in the equivalent taxes in rUK, then the Scottish Budget is better off compared to what it would have been under the Barnett Formula.
This is because Scottish tax revenues will be larger than block grant adjustment.
But equally, if Scottish tax revenues per head grow more slowly than in rUK, then the Scottish Budget is worse off.
An equivalent mechanism works for welfare payments. So that’s the broad outline of the framework.
What I want to do now is to run through some key issues that will be crucial to how the budget process will work in practice over the next few years.
Firstly, it is clear that we are dealing with an exceptionally complex framework.
If you thought Barnett and the existing Scottish Budget process was complex, you ain’t seen nothing yet!
We now have a mix of block grant, devolved taxes, local taxes, shared taxes and assigned taxes. All supported by a complex framework for borrowing – for four different purposes no less, forecast error, cash flow, emergency economic shocks and capital investment – use of reserves and various mechanisms to reconcile forecasts with the revenues that end up actually being collected at the end of the day.
How scrutiny occurs in a landscape like that is clearly going to be a challenge. And the Budget Review Group are trying to find ways to deal with this new and complex world.
It’s also going to be an important test for intergovernmental relations between Whitehall and Holyrood. In the past, HM Treasury has always been the dominant player in fiscal relations with the Scottish Government, but the new system is designed to be a partnership of equals.
Ultimately, it’ll come down to how well the two governments work with one another……particularly during times of disagreement.
Alongside all of this, there will be important practical challenges to overcome both in terms of the costs and administration around starting-up and running these new powers not to mention keeping track of the complex arrangements for different types of capital, resource, DEL, and AME spending.
Throw in to that mix things like the non-domestic rates pool and a new Scotland Reserve to mop-up underspends, and you have an interesting cocktail!
And remember, the key element of this – the BGA – is temporary and scheduled to be reviewed in 2021.

The 2nd issue concerns the economic uncertainties, challenges and opportunities that underpin this new framework.
As I’ve mentioned, one of the key objectives of Smith was to bring greater risk and reward into the budget process.
By being responsible for more devolved and assigned taxes, how the economy performs will, from now on, have a much greater bearing on future Scottish budgets.
But as I mentioned, there’s a subtlety in that the way this framework has been designed. What is actually most important is not how the Scottish economy itself is performing per se, but how the Scottish economy is fairing relative to the rest of the UK.
Recall that key calculation – “the Scottish Budget will be better off under this new framework compared to Barnett if Scottish tax revenues per head grow more quickly than rUK tax revenues per head (which in turn determine the block grant adjustment).”
And here the current state of the Scottish economy presents a challenging backdrop.
The Scottish economy has been sluggish for the best part of two years now.
Output fell in the final quarter of 2016.
The Fiscal Framework prepared for ‘emergency’ situations with additional borrowing available under certain circumstances:
“A Scotland-specific economic shock is triggered when onshore Scottish GDP is below 1% in absolute terms on a rolling 4 quarter basis, and 1 percentage point below UK GDP growth over the same period.”
It’s interesting – and a reflection of the fragility of the economy in recent months – that with growth of just 0.4%, compared to 1.8% for the UK as a whole, Scotland’s current economic performance satisfies this criteria.
If this continues, the Scottish Government has the opportunity to borrow an additional £600m per annum.
Whether or not they chose to do that remains to be seen. What will be important is whether or not the Scottish Government believes that this year’s weak economic data will continue into 2017/18 and how much this divergence in overall economic performance will spill over into actual income tax revenues.
Setting aside any current challenges, what is interesting – and not that well appreciated – is just how significant the effects of different economic performance will be for public spending in Scotland under this new framework.
We’re now dealing with very large revenues, particularly around income tax and VAT.
A small variation in the growth rate of income tax revenues for example – given that they amount to over £11bn – could very easily work out at hundreds of millions of pounds over a very short period of time.

To provide some context, we can illustrate what happens if just one of the economic determinants of tax growth is changed.
Wages in Scotland and the UK tend to be correlated.
Over the last three to five years for example, median wages have grown by a difference of – on average – around 0.3% points per annum.
Let’s take that number and see how a variation of that sort could impact on future Scottish income tax revenues and therefore the Scottish Budget.
As the chart highlights, a variation of this magnitude – equivalent to Scottish median wages growing 2.5% vs. 2.2% in the UK or vice versa etc. – is worth around £50m in year 1.
If the gap was 1 percentage point the difference would be closer to £150m.
And of course, if this gap was to stay for longer than 1 year, the potential revenue shortfall or gain gets that much larger over time.
And this is just on one factor. If employment growth for example was faster or slower in Scotland than the rest of the UK, then the impact will be magnified.
So sustained economic performance is absolutely crucial.
With many factors out-with the Scottish Government’s control including the ongoing challenges in the oil and gas industry, an ageing population vis-à-vis the rest of the UK and uncertainties around Brexit etc. many believe that Scotland will do well to match UK economic performance over the next few years.

But of course, the Scottish Government now has a range of new powers over tax and spend to support public services and/or help to grow the economy.
I think it’s fair to say that we’ve yet to have a fully informed debate in Scotland about how best to use these powers, plus the choices and trade-offs involved.
What’s the optimal level of public spending we want to support and how do we raise enough revenues to pay for these ambitions?
Do we want people in Scotland to pay more tax than in the rest of the UK if it supports greater investment in public services and what might be the long-term economic consequences of doing so?
In thinking about the policy choices open to the Scottish Government, the unique nature of this framework throws up a number of important – but subtle – issues.
Firstly, when you change a policy it’s often designed to alter economic behaviours to obtain a desired outcome. For example, the government believe that by cutting air passenger duty – through the creation of a new air departure tax – this will stimulate the economy by boosting tourism and connectivity.
But outcomes are uncertain and on many occasions when deciding whether or not to ‘pull’ a policy lever the evidence in favour or against its use is often unclear.
There are also concerns that need to be borne in mind around ‘unintended consequences’ arising from changes to behaviour. The Scottish Government has for example, expressed an openness to consider – in principle – the introduction of a 50p tax rate on those earning over £150,000 in Scotland. However, they are concerned about the unintended consequences on the Scottish Budget if some of the relatively small number of taxpayers that this will impact upon choose to change their behaviour – for example, by moving to somewhere else in the UK.
Secondly, it’s not just economic behaviours that policymakers need to be mindful of. Changing one tax could lead to unintended consequences in terms of other taxes.
For example, an increase in income tax rates targeted at earned income, may encourage people to switch their income into dividends or to move from self-employment to incorporation all to gain a tax advantage. Taxpayers in Scotland would still be paying tax but they would be switching between tax revenues that flow to the Scottish Government (NS-ND income tax) and tax revenues that flow instead to the UK Government (e.g. dividend income, capital gains tax, corporation tax etc).
The net effect of such action would be a cut to the Scottish Budget but a boost to the UK Budget.
This isn’t to say that one policy is better than the other, but simply that policymakers need to be mindful of how their decisions will actually play out in practice. In the Scottish context, given that we don’t control all the tax levers they have to be even more careful.
Finally, and perhaps less well known, is that because of the different structures of income between Scotland and the rest of the UK, common UK-wide policies on income tax (remember this remains a shared rather than a fully devolved tax) can throw up some odd implications for the Scottish Budget.

This chart shows non-savings non-dividends income tax liabilities across the income distribution in Scotland and the rest of the UK.
Two things are worth noting –
• Firstly, Scotland collects a greater proportion of its income tax revenues from the lower end of the income distribution than rUK.
• Secondly, in the rest of the UK – in part driven by the London effect – very high earning individuals make up a much larger share of income tax liabilities than in Scotland.
What this means is that the same income tax policy in Scotland and the rUK could have different revenue impacts.
For example, consider the introduction of a 50p tax rate not just in Scotland but across the UK as a whole.
Let’s set aside behaviour impacts and focus simply on the mechanics of the framework.
A UK-wide 50p tax rate for Additional Rate taxpayers will increase the tax paid by the highest earners in Scotland. But because there are more additional rate taxpayers in England – and they are on average richer than in Scotland – rUK tax revenues will increase by more than in Scotland.
The end result is that the Block Grant Adjustment will be larger than the increase in Scottish revenues, leading to a reduction in the Scottish Budget. All this, despite Scotland increasing its tax rates!
Now should the UK Government choose to spend the revenues that it raises from a 50p tax rate on public spending that brings with it Barnett consequentials – e.g. in health or education – then Scotland’s Budget may still rise (albeit because of a transfer from rUK taxpayers to Scotland).
But even then because of this interaction between the Block Grant Adjustment and Scottish tax revenues, the increase will still be less than would have been the case prior to 2017. And of course, should the UK Government decide to spend these revenues on things such as reserved welfare powers, defence or reduce net borrowing, Scotland would not receive any consequentials.
A similar issue arises with the personal allowance. Because a higher proportion of Scottish income tax revenues come from people close to the personal allowance threshold, any increase in that threshold will have a disproportionate impact on Scottish revenues vis-à-vis the UK as a whole, leading to a relatively larger cut to the Scottish Budget than in England.

The final issue is around forecasting and the uncertainty that this involves.
The Scottish budget cycle will now be heavily dependent upon forecasts made by the Scottish Fiscal Commission and OBR – for taxes, welfare spending and all the individual block grant adjustments.
Forecasting isn’t easy – even in normal times!
With Brexit and many other uncertainties, robust forecasts are even more challenging.
In a Scottish context, they are some further challenges over and above all of this.
Firstly, the depth, coverage and timeliness of the economic data we have to make forecasts is not as good as in the UK as a whole. That means the forecasts of the Scottish Fiscal Commission will always – through no fault of their own – be subject to a greater margin of error.
Secondly, building the analytical capacity to model, forecast and evaluate the likely impacts of different policies or changes in economic changes, will take time and we can’t expect the Fiscal Commission to work miracles overnight.

Finally, the process for reconciling these forecasts with actual data is itself complicated and will require careful management.
The framework requires forecasts to be made in advance of an upcoming budget for how much revenue is expected to be raised in the forthcoming year. For income tax, and ultimately VAT, the amount of money forecast will then be transferred to the Scottish Budget by the UK Government. But the actual data will not be known with certainty until further down the line.
Once known, an adjustment will have to be made to reconcile the amount of money allocated in the first instance – which was based on that initial forecast – with what has actually been collected. This is because, in effect, HMRC will collect income tax revenues in Scotland but the UK Government has effectively written a cheque to the value of the Scottish Fiscal Commission’s forecast.
This process will take time to work through. And it creates the prospect, as this diagram shows, of forecast errors made in one year, still having an impact on the budget some 8 or 9 years down the line!

The new fiscal powers provide the Scottish Government with significant new powers and the opportunity to capture the benefits of economic success.
But depending upon how you view VAT assignation, between 50% to 60% of the Scottish Budget will still be determined by the spending and tax policy choices of the UK Government.
The fiscal framework attempts to bring coherence to the arrangements for taxation, borrowing, budget management and public spending.
But it’s complex and whilst it opens up new opportunities, it also exposes the Scottish Government to risks, some of which it has little or no scope to influence.
Whether the potential benefits outweigh the risks remain to be seen. But whatever happens, it is clearly going to be an interesting few years!

Emer Smyth: Gender and education: why do girls do better than boys?

Professor Emer Smyth of the Economic & Social Research Institute, Dublin, on the widespread and persistent issue of the underperformance of boys in education, from pre-school to first degree.

Craig Parsons “Trump, Brexit, and the Politics of Anti-Single-Market.”

Professor Craig Parsons of the University of Oregon on the single markets in the EU and US and how they are shaping our politics. At the David Hume Institute, Edinburgh, 22 March 2017

Nicola Sturgeon: Brexit could mean a loss of powers for Scotland

Nicola Sturgeon discussed some of the key issues facing Scotland for the future. This speech was made on 28 February 2017.

Podcast extract of Nicola Sturgeon’s speech to the David Hume Institute on 28 February 2017:

I value – as I am sure all the party leaders do – the opportunity to discuss with you some of the key issues facing Scotland for the future.

When I first spoke here as SNP leader in 2015, it was in the aftermath of the independence referendum. Last year, it was during the run-up to the Scottish parliamentary elections and the EU referendum. And so I hoped – as I suspect many of you did – that 2017 might be a slightly quieter year in Scottish politics.

However, as you have probably noticed, things haven’t quite turned out that way. Within a month, we expect the UK Government to formally trigger Article 50 – setting the United Kingdom on course towards leaving the European Union.

And so this evening – perhaps not surprisingly – I want to talk about that. I’m not planning to concentrate on the likely impact that leaving the EU and the single market would have on Scotland – although as you know, I believe Brexit’s effects would be profound, long-lasting and damaging to our economy and our society.

Instead, I wish to concentrate more specifically on what Brexit means for democracy in Scotland – how it has exposed the democratic deficit which still exists at the heart of our governance, and what options we have for addressing that.

But I want to begin by looking back. This year marks the 20th anniversary of another referendum – the one which led to the establishment of the Scottish Parliament. That referendum confirmed overwhelming support for devolution – it was supported by almost ¾ of those who voted.

And it’s maybe worth thinking back to why the decision was so resounding. The campaign for a Scottish Parliament was based – above all –on the idea that we faced a democratic deficit. Decisions were being taken for Scotland – so often by governments we didn’t vote for – rather than by Scotland.

The late Canon Kenyon Wright made the argument well in 1989, on the first day of the Scottish Constitutional Convention. He was speaking two days before the poll tax came into force in Scotland. And he said this about the UK Parliament

“Again and again…it has debated measures which have affected quite fundamentally Scotland’s national institutions and the quality of life of our people. Again and again the elected representatives of the Scottish people have voted….against these damaging policies. Again and again and again parliament has imposed these on Scotland.”

The poll tax wasn’t the only example of this democratic deficit. Many social and economic policies of the 1970s and 1980s – such as the way in which deindustrialisation was handled across many parts of the country – would also stand as examples.

But the poll tax – perhaps more than anything else – came to exemplify Scotland’s democratic deficit. It was implemented in Scotland despite overwhelming public opposition. And perhaps the overriding reason that so many people in 1997 endorsed the idea of a Scottish Parliament, was to prevent that – or anything like it – ever happening again.

In many respects, of course, the Scottish Parliament has been a very significant success.  It is now firmly established as the centre of Scottish public life – the institution which people expect, and most trust, to reflect their priorities, values and dreams.

Devolution has enabled us to pursue a different approach to politics. Now, I don’t want to overstate this case. Scottish politics – and I’m being polite here – is never knowingly non-tribal!

But at the very least, the modern working practices of Holyrood are far removed from some of the more arcane rituals of Westminster.  And the fact that we have proportional representation means that a search for consensus – a degree of give and take and negotiation – is part and parcel of the Scottish parliamentary system.

But of course the contrast between the Scottish and UK Parliaments isn’t just one of approach; there have also been significant differences in policy.

Early Scottish Parliaments saw measures such as world leading homelessness legislation and a ban on smoking in public places. The Government I now lead reintroduced free university tuition and set the most ambitious climate change targets in the world. It has legislated for a minimum price for alcohol – although that’s a measure still held up in the courts. It has mitigated the impact of UK Government welfare cuts such as the bedroom tax, and expanded early years education and care.

All of these are significant achievements of devolution.

And let me stress, they belong to more than one government and more than one party.

One of the areas where that contrast with the UK Government has been most obvious in recent years, has been our approach to universal benefits. The Scottish Parliament has chosen to provide, defend and extend certain core universal services, rights and benefits.

That decision helps households across the country. It helps, for example –

• Students who benefit from higher education without incurring £9000 a year of debt for tuition costs;

• Older people who are entitled to concessionary bus travel and who are eligible, if they need it, for free personal care.

• Commuters who no longer pay bridge tolls for their journey into work.

• Families who benefit from a health service which is free at the point of delivery. Before 2007, more than half a million people who earned as little as than £16,000 a year had to pay for prescriptions.

Now, as you know, the Scottish Parliament decided last week that higher rate taxpayers in Scotland should have a different tax threshold from taxpayers in the rest of the UK.

Instead of following the UK Government with a hefty increase in the higher rate threshold – one of the policies that the Resolution Foundation has said will take the UK back to levels of inequality not seen since the days of Margaret Thatcher – we decided to freeze it.  As a result, we are asking people who earn more than £43,000 a year, not to pay more than they do now, but to forego a tax cut of approximately £7.70 a week: less than the price of a single prescription in England.

There has been a lot of misleading analysis of that decision. It has been reported that it makes Scotland the most highly taxed part of the UK. But that argument simply isn’t true.

It completely ignores the fact that the Scottish Government protected households across Scotland from council tax increases for 9 years. That didn’t happen in the rest of the UK.

Average council tax charges in Scotland are significantly lower than in the UK as a whole – to the tune of around £300-400 a year. Even now, the level of council tax increases in Scotland – a maximum of 3% – is lower than the 5% increases permitted in England.

And of course the argument about tax shouldn’t simply be about what you pay in; it’s about what you get back. For many households – if they have children at university, or parents who need personal care, or if they themselves need prescriptions – the benefits of living in a country with strong universal public services far outweigh the benefits of a £7.70 a week tax cut.

I’ve stressed that principle of universality – partly because it has become a key point of distinction between Scottish and UK Governments, but also because it reflects a bigger principle. Universal services are part of a social contract between the government and the people.

We invest in public services to help provide a secure, stable and inclusive society for everyone who lives here. We believe that by doing so we can encourage people’s talent, enterprise and ambition. We can help to ensure that Scotland will be a place where people want to visit, invest, work and live.

And as part of that, we don’t try to divide society between one mass of people who contribute taxes, and another group who receive benefits. That doesn’t actually reflect reality. We help and support everyone to contribute to society; and we enable everyone to receive some common services or benefits.

In my view – though again, I don’t want to overstate this – one possible reason why the result of the EU referendum was different in Scotland than elsewhere in the UK, is that we have been able to demonstrate a more progressive, inclusive approach to social and economic policy.

That doesn’t mean that everything here is perfect – of course it doesn’t. And it certainly doesn’t disregard the fact that a very substantial minority of people in Scotland – 1 million in total – voted to leave the EU. But it may mean that the sense of being left behind or ignored – which is often perceived as a factor in the wider UK’s Brexit vote – played less of a part here.

In addition, the institutions established by devolution command – certainly in relative terms – widespread confidence.  According to the most recent figures, 73% of people in Scotland trust the Scottish Government to act in Scotland’s long-term interests. That is more than three times higher than trust in the UK Government. It’s maybe worth being clear about that – it’s not three percentage points higher, it is actually three times higher than trust in the UK Government.

So in my view, the distinctive approach to politics which has been pursued by successive Scottish Parliaments may well be – at least in part – responsible for the different EU referendum results in Scotland and the rest of the UK.

However it is that distinctive approach that is also now challenged by the outcome of the EU referendum.

Having our own national parliament and a government located here in Scotland has unquestionably made the governance of Scotland more democratic, more representative and more responsive to the people.

But after 20 years of progress, devolution in Scotland is now facing a grave threat from the Conservatives at Westminster.

The democratic deficit which fuelled the demand for a Scottish Parliament in the 1980s and 1990s has opened up again.

The Brexit process has emboldened a now powerful Westminster faction, which perhaps never fully embraced devolution, and which now sees an opportunity to rein in the Scottish Parliament.

In place of a multinational United Kingdom democracy, they see Brexit as the way to claw back ground.

This direction of travel is clear for all to see when we examine what happened before, during and after the Brexit vote.

In the 2014 independence referendum, a key plank of the Better Together campaign was the assertion that a Yes vote would put our EU membership at risk and a No vote would secure it.

However, in no time at all after Scotland voted to stay in UK, we faced an EU referendum – even though the Tories whose policy it was returned just one MP in Scotland at the General Election.

The Scottish Government argued that 16 and 17 year-olds should have the vote – but Westminster said No.

We also argued EU citizens should be allowed to vote – but Westminster said No.

And we also took seriously the UK Government’s argument – one which was made repeatedly during the independence referendum campaign – that the United Kingdom is a partnership of equals. We proposed, on that basis, that the United Kingdom should only leave the EU, if all four countries within it voted to leave.

After all, if the UK truly is a partnership of equals, that should be reflected in the reality of legislation, as well as the rhetoric of campaigning. But Westminster ruled that out too.

A clear pattern of Westminster closing the door on any compromise with Scotland and closing their ears to the democratic voice of Scotland was already emerging.

That pattern has continued.

When the vote itself came, Scotland voted by a decisive 24-point margin to remain in the EU.

Every single one of the nation’s 32 local authority areas voted to remain.

The Scottish Parliament then voted by 92 votes to zero to mandate the Scottish Government to explore options for protecting Scotland’s relationship with the EU, and our place in the single market

Now, the party I lead was very clear in its manifesto for last year’s Scottish elections. We said that the Scottish Parliament should have the right to hold a referendum “if there is a significant and material change in the circumstances that prevailed in 2014, such as Scotland being taken out of the EU against our will.”

However, a referendum on independence has not been our starting point. I didn’t decide on 24 June last year to immediately exercise that mandate. Instead, since June, the Scottish Government has consistently sought to find common ground, or areas of compromise, with the UK Government.

During the autumn, we argued that the UK Government, notwithstanding its exit from the EU, should remain inside the single market. We still support that solution. In my view it remains, overwhelmingly, the obvious compromise solution for the UK as whole.  It would reduce the worst economic and social consequences of Brexit.

And it would also be the most democratically justifiable option. After all, 48% of those who voted chose to remain. So did 2 of the 4 nations of the UK. Even in Wales, which voted to leave, the Welsh Government and Plaid Cymru are now jointly arguing for continued single market participation, which they say could include remaining part of the European Economic Area.

But again, the UK Government said No. The Prime Minister’s speech last month confirmed the policy of a hard Brexit, outside the single market. I think it is important to note that even though she said shortly after becoming PM that she would seek to agree with the devolved administrations a UK wide approach to triggering Article 50, something I was very heartened by at the time, her speech – ruling out continued UK membership of the single market – was made without any prior consultation whatsoever with the Scottish Government or the other devolved administrations.

Now, as things stand, there remains one further opportunity for compromise. The Scottish Government has proposed that as part of its negotiations the UK Government would seek an outcome that would allow Scotland to retain single market membership, even after the rest of the UK has left. That would mean that we would continue to benefit from free trade and free movement of people

Single market membership under these terms is not an ideal scenario for Scotland. For example, it seems almost certain that we would be inside the single market, but outside the European Customs Union. Our proposals address the technical issues which arise from that.

But although elements of our proposals are complex, and less than ideal – that is inevitable. As we all know, everything about Brexit will be complex, and less than ideal.

We have already seen that the UK Government – rightly – is considering special measures to ensure an open border is maintained in Ireland. Gibraltar’s circumstances will also require particular attention. And there has been talk about specific deals for specific sectors of the economy.

These times require open mindedness, fresh thinking and flexibility. The Scottish Government has tried to bring those qualities to our discussions with the UK Government.

But so far the UK Government has refused to commit to putting our proposal forward as part of its Article 50 aims.

Again, despite its promise to listen and to seek agreement, whenever Scotland’s voice is asserted, the reaction of Westminster is to say No.

I mentioned earlier, that we were told repeatedly during the independence referendum that Scotland was an equal partner in a family of nations. But the EU referendum last June was the most important UK-wide decision of my lifetime. When the Scottish Government made proposals on how the referendum should be run, we were ignored. When people in Scotland voted to remain, we were outnumbered. Now – when the Scottish Government is doing everything we can to seek a compromise – it looks as though we are being disregarded.

There are those who argue that, as the vote was a UK-wide one, the result in Scotland is essentially an irrelevance, of mere academic interest.

However, to do so is to deny a long-established constitutional and political tradition in Scotland, one that goes well beyond the confines of my own political party.

Namely, that Scotland – as a nation – should always have the right to determine its own destiny, and that the people of this nation should be able to determine the form of government best suited to their needs.

The UK Government and Parliament, to their great credit, accepted that principle back in 2012 in the Edinburgh Agreement and the legislation that followed. After the independence referendum, it informed the work of the Smith Commission, and appeared in its final report.

But the actions of the Conservative Government in relation to Brexit and the devolved administrations seem to disregard it. And they go further than just a lack of partnership in forming a common position with regard to Article 50 – they actually threaten the existing basis of devolution.

Because, far from the promises of the Leave campaign that a Brexit vote would automatically see swathes of new powers repatriated from Brussels to Holyrood, there is not yet any real guarantee from the Tories that the Scottish Parliament and the other devolved administrations won’t be stripped of some of their powers.

In my view, the post Brexit landscape would demand a fundamental rebalancing of powers across the UK. It would be time to consider whether, for example, employment law should be devolved instead of left at the mercy of a UK Government that has already threatened a race to the bottom if it doesn’t get its way in the EU talks. And surely, it is time now for a real debate about where power over immigration should lie and whether a one size fits all policy is any longer fit for purpose.

But far from being open to these discussions, it seems that the UK Government wants to go in the opposite direction. It is clear from their statements that even elements of farming and fishing policy – which have been wholly devolved competences from day one – now risk being taken back to Westminster.

That would be utterly unacceptable.

It would betray the claims and promises made during the EU referendum campaign.

And more profoundly it would fundamentally undermine the basis of the existing devolution settlement.

The Scotland Act 2016 supposedly enshrined in law the principle that the Westminster Parliament should not normally legislate in devolved matters without the consent of the Scottish Parliament.

But in the recent Supreme Court case the UK Government went out its way to argue that its own legislation was in fact worthless and that the Westminster Parliament could legislate at any time on any matter whether devolved or not.

So what we have is in effect an attack on the very foundations of the devolved parliament we voted for 20 years ago.

It is being made by a UK Government which speaks the language of partnership but which in reality is paying scant if any heed right now to Scotland’s democratic voice. The question we face, is how to respond to it.

I began this speech by talking about the 1997 referendum.  That referendum, of course, gave rise to the 1998 Scotland Act, which in turn led to the establishment of the Scottish Parliament.

After it had been passed by the Westminster Parliament, Tony Blair gave Donald Dewar a signed copy of the Scotland Act. It’s now kept in the Parliament building at Holyrood. The Act was inscribed to Donald with the words “It was a struggle, it may always be hard; but it was worth it. Scotland and England together on equal terms!”

The Scotland Act was a significant achievement – a lasting testament to Donald Dewar’s career in public service. And Tony Blair’s sentiment was undoubtedly a generous one. But it wasn’t quite accurate. Scotland is not on equal terms in the United Kingdom. The EU referendum has demonstrated that more clearly than ever.

The entire process, so far, has echoed those words of Canon Wright from 28 years ago: “Again and again the elected representatives of the Scottish people have voted… against these damaging policies. Again and again (the UK) parliament has imposed these on Scotland.”

There are no easy answers to the situation Scotland finds itself in – it is one which is not of our making or choosing.

But the basic question we face is actually quite simple – what sort of country do we want Scotland to be and who gets to decide?

The policies of Scotland’s elected parliament, since devolution, provide some sort of an answer.  They suggest that the people of this country overwhelmingly believe in a Scotland that is progressive, internationalist, outward looking, connected and compassionate.

Those values and priorities are threatened by the type of Brexit which the UK Government appears to be pursuing – one which is inward looking, regressive and which ignores Scotland’s views time and time again.

The UK Government still has an opportunity to change course before it triggers the Article 50 process.   I very much hope it does.

However if it doesn’t, it will show that the democratic deficit which people voted to end in 1997 doesn’t just endure – it continues to cause harm to Scotland’s interests, to our international relationships, to our very sense of our own identity.

And so if those circumstances arise, proposing a further decision on independence wouldn’t simply be legitimate, it would arguably be a necessary way of giving the people of Scotland a say in our own future direction.

It would offer Scotland a proper choice on whether or not to be part of a post Brexit UK – a UK that is undoubtedly on a fundamentally different path today than that envisaged in 2014.

And in the absence of compromise from the UK Government, it may offer the only way in which our voice can be heard, our interests protected, and our values upheld.

As a result of the Brexit vote, we – Scotland and the UK – stand just now at a crossroads. Decisions taken in the months to come will reshape our economy, our society and our place in the world – in short, they will shape the kind of country we are going to be. The question is should we decide for ourselves which path to take or are we willing to have that decided for us?

We may all offer different answers to that question. But surely the choice should be ours.

Video clip courtesy of ITV Border here