An Economic Agreement for Scotland?

Since the devolution process in the United Kingdom began in 1997, the funding system for devolved institutions has been discussed constantly by academics and in the media, particularly in Scotland. Currently, transfers are regulated under the recently amended Barnett formula, which indexes Block Grant devolutions to English public expenditures and is often considered insufficient to establish a desirable incentive scheme for decentralised institutions. Because of Brexit and its consequences for Britain’s devolution process, tackling this issue has become an urgent issue. The Basque Economic Agreement with Spain, characterised by high levels of tax autonomy and strict fiscal co-responsibility, could conceivably inspire a reconfigured financial relationship between Scotland and Westminster. This paper simulates the mechanical impact of the application of the principles of the Basque Economic Agreement to the Scottish case for devolved government income. Even if it is likely to provide Scotland with a lower expenditure capacity (ceteris paribus), such a scheme could increase fiscal efficiency while also safeguarding self-government and providing the political stability that the United Kingdom needs, given the current weakness of the union due to a challenging socio-economic and political context.