Politics and Economics

Scotland will get more tax raising powers – prepare for a low tax, low spend UK.

Prepare for low tax, low spend economics in all 4 nations of the UK.

Scotland voted decisively to stay part of the UK and has been promised more powers to raise its own tax as well as to decide how it is spent. Consequently England has also been promised similar powers over its own fiscal policy. The case for English MPs with power to set English income tax, corporation tax and spend is now overwhelmingly compelling.

This would make the election of an Old Labour style tax and spend Government in England all but impossible.  In 2010 Labour won 41 Scottish seats to the Tories 1.  Wales returned 26 Labour MPs to the Tories 8.  Also the Scottish and Welsh Labour MPs tend to be more socialist Old Labour style politicians than we find in England.  Tony Blair would still have achieved overall majorities in the elections of 1997, 2001 and (possibly) 2005 even if all Scottish and Welsh votes had been declared invalid, but his politics were hardly the Socialist Nirvana dreamed of by the Old Labour and the SNP.  Tony Blair’s top rate of income tax was lower than that of the current Tory led coalition.

In England the Tories would have had an absolute majority of 63 in the 2010 General Election rather than having to share power with the Liberal Democrats.

This would suggest a long series of Conservative or Centrist English Governments committed to lower public spending, lower top rates of income tax and downward pressure on business rates.

Where would that leave the Scottish, Welsh and Northern Irish Governments with England making up 85% of the GDP of the four nations?

If taxes rise in the Socialist Scottish and Welsh territories in order to pay for higher benefits how will they stop their high earning, affluent citizens and businesses moving across the border to seek a more favourable tax regime?  How will the other nations stop English benefit seekers moving to their territory to maximise their income from the State?  There are few geographical, language and cultural barriers to abate a massive movement of people and capital.  With such a large economy on their doorstep the other nations ability to manage their own tax and spend would be much diminished unless they were prepared to put up a Berlin style wall to stop the affluent leaving and the poor arriving.  There would be a race to the bottom in terms of taxation to attract affluent capable citizens and business investment.

It would reproduce the scenario of the mass emigration we saw from the Republic of Ireland, a flight that did not abate until the Irish abandoned the worst of their country’s ultra-nationalist business cronyism and implemented some of the most attractive low-tax packages in the western world.

Currently the other nations’ MPs are able to influence the economic policy of the UK, which they would not be able to do if they were managed solely in their devolved parliaments.

So a vote for more independence would most likely result in a series of more right wing, low tax, low spend governments in England, which would then severely limit the other nation’s ability to mange their own tax and spend as they would wish.  They would have to fall in line to manage their Government finances and maintain their competitiveness.

Under a centralised UK Government the other nations had an opportunity to influence English economic policy, which is 85% of the UK GDP. Under a fully devolved Government they will not. Counter-intuitively Scotland and the other home nations would have more independence as part of a centralised UK Government than they would as devolved nations within the UK.