UK prime minister David Cameron's Conservative Party has become the last of the big three UK parties to offer extra tax raising powers to the Scottish government if Scottish voters choose to stay in the UK.
Such a move is clearly an attempt to stifle the strong increase in support for Scottish independence over the course of this year, although the polls still show that Scotland will be part of the UK come September.
But while all three main UK parties offer to shift some power to Edinburgh, none of them have mentioned bonds — Labour even stated that it believes “management of debt and borrowing is best administered at the UK-level (sic)”. That is a wasted opportunity.
Back in February, the Treasury granted Scotland the power to raise £2.2bn of funding through bonds from 2015. As this newspaper pointed out, such a small volume would be inefficient and make the exercise worthless. The permitted volume pales into insignificance compared with issuers such as the Community of Madrid, which has a population and GDP not much bigger than Scotland but has an outstanding debt pile of more than €20bn.
The Conservative discussion paper on the topic points out that the Scottish Parliament has more say in where it spends its money than the Canadian provinces, German Länder and Australian states, but its revenue raising powers are limited in comparison.
According to Conservative figures, more than 60% of Scottish public spending is the responsibility of Holyrood, the Scottish Parliament — with a budget approaching £36bn — but it is only responsible for raising a "fraction" of that number.
Powers to sell a larger volume of bonds would help to close what the Conservatives label the "fiscal gap", but more importantly, Scotland needs the ability to build a curve and regularly service investors if its bond raising powers are to mean anything at all.
So why not take the opportunity that a mandate for the Union would throw up and bring a bit of much needed decentralisation to the UK's debt management?
The Conservatives’ recommendations — to take the most recent of the three parties’ proposals — would allow the Scottish government to set income taxes and bands and create a Scottish Fiscal Commission, independent of government, to produce macroeconomic and fiscal forecasts for the country.
That creates a pretty good set-up for Scotland to enter the capital markets — after all, it is the ability to raise taxes that makes sovereign issuers the cream of the capital markets crop. A robust, independent Commission would give further reassurance to investors, as would Scotland’s history within the UK — one of the most stable sovereign borrowers.
The major parties should include a promise of serious bond raising powers as part of their proposals. This would reassure Scottish voters once and for all that control of their lives and finances can be in their own hands, while retaining the benefits of UK membership — and also serve as a model to bring proper financial decentralisation to other parts of the Kingdom.