Ratings agency Fitch has said that the outcome of Scotland's independence referendum and the prospect of Scotland gaining more tax-raising powers do not have implications for the UK current sovereign AA+/Stable rating.
Fitch said it does not expect the UK's overall fiscal framework to be significantly weakened and that in its opinion, Scotland's small share of the overall UK economy (around 10% of UK GDP) and the relatively conservative limits set on Scottish borrowing, mean that the fiscal risks posed by further Scottish devolution are not high.
According to the ratings agency, as the UK starts from a position of relative strength in fiscal policymaking, it would not expect the overall fiscal framework to be significantly weakened, commenting:
“The uncertainties raised over future fiscal devolution for Scotland are relatively minor and not a key driver of our UK rating.”
Fitch said that the fiscal devolution for Scotland pledged by the three major UK political parties goes significantly further than that previously granted by the Scotland Act 2012, which gives the Scottish parliament the ability to raise or lower income tax rates by up to 10pp, and authority to borrow up to GBP2.2bn (approximately 1.7% of Scottish GDP; 0.1% of UK GDP) for capital expenditure after April 2015. In total, the Scottish government is already responsible for over half of all expenditure and around 16% of all taxes raised in Scotland.
The Conservative and Liberal Democrat parties aim to give almost full control of income taxes to the Scottish parliament, bringing the tax share up to around 30%, assuming no tax policy change. The Labour party's proposals would give the Scottish government control over a further 5pp of the income tax rate, making the Scottish government responsible for around 20% of total taxes. Only minor increases in expenditure and borrowing responsibilities have been proposed by the three major parties.
Immediately following the outcome of the vote, Prime Minister David Cameron committed to fully honour pre-referendum devolution pledges. He appointed Robert Haldane Smith, a member of the House of Lords with no political party affiliation, to oversee the process of delivering more powers to Scotland and set an ambitious deadline. The laws must be agreed by November and draft legislation published by January.
Cameron has also said there should be constitutional reform in England, Wales and Northern Ireland. He appointed William Hague, the leader of the House of Commons, to lead that process.
Fitch said it will comment further on the proposals for broader devolution as more information becomes available.
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