Scottish independence referendum: What is devolution max?

Looking to the future - will it be "as-you-are", "devo max" or full independence?

Independence for Scotland is fairly straight-forward.

Off they go, [or maybe I should say off we go - as a Hebridean living in London].

Anyway, according to opinion polls, I may be spared such contortions as something called "devo max", it seems, is Scotland's favoured option - but the problem is no on seems to know what it is.

If Pepsi-Max can be described as "fat-free Pepsi", then devo max can be described as "fat-free independence", essentially the powers of a separate nation without the need for military chiefs, diplomats and expensive embassies.

For others of course it can be less extreme.

But it's the latest example of the energy and vigour that's infused constitutional discussions in Scotland - in sharp contrast to the steady-as-she-goes, nothing-to-see-over-here guv attitude that many critics say defines London's view of the United Kingdom.

The specifics of devo max, of giving Scotland more power, remain unclear, according to the Scottish Secretary Liberal Democrat Michael Moore.

He said: "Devo max is really a brand without a product, a concept of more powers for Scotland without any detail about what that entails."

Mr Moore urged those who use the term to set out what they mean by it.

All the unionist parties - the Lib Dems, the Tories and Labour - want just a single question in the upcoming independence referendum, a clear answer to whether Scotland does or does not want to remain in the union.

Discussions on more powers can take place if Scotland stays in the UK, as David Cameron outlined in his speech in Edinburgh last week.

He told the gathering: "I believe in devolution not because I see it as a mechanism for obtaining power - hardly the case for my party in Scotland - but because I believe in giving people choice and a real say of their own affairs.

"I passionately believe that local is best. And the decentralisation of power is one of the core aims of the coalition government I lead."

The coalition government is already devolving more authority northwards, including the ability to set income tax levels, through the Scotland Bill, which is currently working its way through Westminster.

For Mr Moore, that proves that further devolution is possible without complicating the independence ballot.

Ironically, even those high-priests of devolution, the SNP, who want every power devolved to Edinburgh, haven't specified what devo max could be even though they are the only one of Scotland's four main political parties who're open to putting a second question about further powers on the referendum ballot.

'No clear view'

Their leader Alex Salmond may have demanded that Mr Cameron flesh out his offer of further devolution, but Stewart Maxwell, a former SNP minister and MSP for the West of Scotland says the party has no clear view.

PM David Cameron takes questions on Scotland's referendum

He explained: "It's not up to us to define devolution max. We support independence, but I think the common understood definition of devolution max is that it is full devolution of all powers with the exception of defence and foreign affairs."

Mr Maxwell added: "Many people including civil Scotland have said they want devolution of welfare, they want devolution of certain taxes, pensions so there's clearly a desire out there for more devolution. So, I think it's important that we allow that debate to occur before we decide what goes on the ballot paper."

That debate starts next month, when every Tam, Rab and Shuggie of civic groups in Scotland - ranging from the Institute of Directors to the Scottish Youth Parliament - meet to discuss the future of Scotland.

Despite holding a disparate array of positions, they all want to engage in this energised constitutional discussion.

One of their key priorities says Alison Elliot, from the Scottish Council of Voluntary Organisations, is that the debate doesn't become the sole preserve of politicians.

She wants the practical problems the country faces more clearly addressed before any constitutional settlement is reached.

Devo max, or devo plus or independence lite - different people have different names for it - is being advocated most strongly by those who argue that Scotland can best prosper by remaining within the UK.

Ben Thomson, chairman of Edinburgh think-tank Reform Scotland, is one of devo-max's strongest proponents.

He said: "Well in practice how it would work is in that the same way that Westminster reserves certain powers and devolves the rest to Scotland, Westminster would reserve certain taxes and the rest would be passed down to Scotland.

"The obvious taxes for Westminster to reserve are VAT, because you can't change the rate of VAT within a European member state, and National Insurance, because the UK is responsible for pensions and NI was set up to cover pensions.

"That means all the other taxes would be passed to Scotland and broadly speaking that would cover the expenditure of both levels of government. The real advantage of that is that Scotland can create its own package of taxes most suited for the Scottish economy.

More tax and borrowing powers are already en-route to Edinburgh through the Scotland Bill.

The legislation came out of the Calman Commission, which looked at how devolution was working in Scotland, and recommended that more tax varying powers should go northwards.

The Labour Party support the bill but its former first minister Henry McLeish, argues passionately that the proposed new powers do not go far enough.

He said: "What we are looking at is substantial fiscal powers being devolved and getting to the point where Scotland raises its money and spends its money and to me that is a big selling point in England because there has been much criticism of the fact that we spend money but don't have the responsibility of raising it."

Stability pact

So, is there anywhere we can practically explore to see how devo max might work?

In the Basque country, in northern Spain, the to-ing and fro-ing over devo max seems anachronistic. They've been setting their own taxes for decades.

Marta Marin is the Basque region's delegate to the European Commission. She says the key to making a success of fiscal autonomy is a stability pact with Madrid which means their tax rates are broadly in line with the rest of Spain. But they can still eke out some benefits.

Some in Scotland have spoken of cutting corporation tax by as much as a half, arguing the move would have private jets strewn across the apron of Edinburgh airport.

Does loving Scotland mean going-it-alone?

But the Basques, who can do what they like, only reduced corporation tax by 2% below the Spanish rate in order to both maintain a broadly stable Spain-wide tax regime and to keep their overall public finances healthy.

The powers enjoyed by the Basque country led to resentment from neighbouring Spanish provinces, who expressed their displeasure through the courts.

Could devo max for Scotland also lead to antagonism here in the UK?

Is that going to be an issue for UK/Scot relations too?

Take the Quorum business park, to the north of Newcastle, where businesses, including Tesco Bank, Balfour Beattie and IBM employ 3,500 people. There could have been a thirteenth, employing many more thousands. But that was until Scotland came calling.

Given its location, facilities and available workforce, Quorum thought it had an excellent chance of landing a new customer care centre that Amazon was looking to build.

Detailed negotiations took place, however, Scottish government quango, Scottish Development International offered the online retailer nearly £2m to aid its investment.

Politically distinct

The North East could not compete with that due to public spending cuts and policy changes introduced by the coalition government, and so the hundreds of jobs being dangled by Amazon went north.

The battle over Amazon highlights how Scotland is already using the devolved powers it has to compete not just internationally but against other parts of the UK.

The problem for England, be it the north east, the south west or any other region you care to mention is that they don't exist as distinct political and legal entities and so under European law would not be allowed to vary corporation tax rates.

The House of Lords' Constitutional Committee this week warned in a report that devo max should not be a question for Scotland alone, as it has the potential to create different and competing tax regimes within the UK.

The former first minister Mr McLeish is contemptuous of how Whitehall and Westminster have handled Scottish devolution.

He argues it's time Westminster realised that devolution has irrefutably changed Edinburgh's relationship with the rest of the UK, and that devolving almost all powers is now imperative.

Scottish devolution may have blown some fresh air into the fundamental structure of the UK, whether welcome or not.

But a gale force wind has been howling around the very essence of the nation state over the past two years as the money markets have buffeted successive European governments.

One lesson learned in Brussels and Berlin from the current crisis is that monetary union without fiscal union hasn't worked so far.

Devo max is seen by some of the SNP's unionist opponents as their consolation prize should they fail to win outright independence.

It may well be that, but it could also be much more, necessitating a radical, far more complicated re-think in how the entire UK is governed.

On this, as on so much other constitutional thinking, the Scots lead the way, while London once again attempts to play catch-up with a debate it never wanted in the first place.