Alistair Meeks on the “Secret Federation”

On Wednesday, John Swinney stood up to deliver his draft budget for Scotland.  The consensus was that the event was a damp squib.  With no changes to income tax and only copycat changes to stamp duty on second homes, it was less of a fiscal fiesta and more of a monetary mundanity.  The SNP showed themselves to be a party more intent on not risking re-election than in demonstrating a different Scottish way of doing things.

Beneath the surface, however, new currents are forming.  As from 2017/18, the Scottish government will get considerably greater tax-raising powers.  It will be able to set its own bands and rates of income tax (it will also get control over some of the VAT raised in Scotland, air passenger duty and new powers in relation to benefits and welfare payments).  40% of all Scottish revenue-raising will be controlled in Scotland and 60% of all spending will be controlled by Holyrood.  Devolution is taking place at an accelerating rate.  Whether or not this is some form of Devomax, it is certainly Devoplus.

Scotland is not alone in seeing further devolution.  Almost unnoticed outside the province, George Osborne announced in the Autumn Statement that Wales will be granted partial control over income tax in the coming years.  Details are sketchy – so far as I can see, we have no more to go on than what George Osborne said on the floor of the House of Commons, which was as follows:

“My Right Honourable Friend the Welsh Secretary and I also confirm that we will legislate so that the devolution of income tax can take place without a referendum.”

Clearly the Welsh Conservative party leaders had been given some warning that this was coming because they rapidly pledged to reduce basic rate tax by 1% and higher rate tax by 5%.  Others were caught on the hop. It remains to be seen what tax and spend pledges other parties come up with in advance of next May’s Assembly election.

This is part of an ongoing theme of further Welsh devolution.  Slipstreaming in Scotland’s wake, the Welsh Assembly is being granted extra powers over energy, transport and the running of its own affairs, including such matters as setting the voting age and renaming itself a Parliament.

There has been some controversy as the government has sought to bring Wales’s devolution settlement more in line with that of Scotland and Northern Ireland.  At present, the Welsh Assembly only possesses legislative competence on those subjects that have been specifically granted to it. By contrast, the Scottish Parliament and the Northern Ireland Assembly can legislate in all areas other than those explicitly reserved to the UK Parliament.  The draft Wales Bill seeks to bring Wales into line with the broader approach taken in Scotland and Northern Ireland.  This has been done in a cack-handed manner, as explained in more detail here.

Nevertheless, without very much attention from the media, devolution is being much more firmly entrenched in Wales as well as Scotland.

Northern Ireland has not been forgotten.  The journey from conflict to self-government has been taken in a supermarket trolley with a wonky wheel, but after another crisis earlier this year Northern Ireland is set to resume its progress under a new First Minister, Arlene Foster.  George Osborne in the Autumn Statement has made sure that the six counties haven’t been left out of the party.

As well as throwing some money at the problem, he announced devolution of corporation tax to allow the Northern Irish government to set at the rate of 12.5%.  While the Welsh hadn’t particularly asked for a say over income tax, the Northern Irish had assiduously lobbied for devolution of corporation tax so that they can compete with the Republic of Ireland.

What of the English?  What indeed.  The government has shown no inclination to set up formal devolution of the type that the other home nations benefit from, nor has it explored regional assemblies of the type once favoured by Labour.  It is pushing for the delegation of increased powers and awarding infrastructure projects to cities throughout the UK under what it calls city deals, but these cannot be compared with the much more extensive powers being granted to Scotland, Wales and Northern Ireland.

London, whose economy is bigger than all those three put together, is not apparently under consideration for tax-raising powers, though it (along with the Core Cities) has called for this.  Taxes generated in London sustain the devolutionary settlements in other parts of the country, so expect these calls to increase in volume and ferocity.

Piecemeal devolution will lead to problems for any organisations that are set up on a UK-wide basis.  Employers will need to deduct tax from earnings on multiple bases, depending on where their employees live.  Keeping track of the tax statuses of employees will become still more of a headache.  An employee who works in Liverpool might move from Wrexham to Chester and not bother updating HR.  A pensioner might retire from Glasgow to Bournemouth without feeling the need to tell the insurance company paying them.  The more that devolution takes hold, the more such problems will arise.

English nationalists object to the inferior treatment which they perceive that they receive.  The danger of a piecemeal devolution that excludes England is in fact the opposite: if Westminster by default becomes the English Parliament from which the other home nations are devolved, far from strengthening the constitutional settlement a colonial relationship will be created by stealth.  Further change is required and it’s far from clear that anyone in government is thinking that far ahead.  The present proposed arrangements are unstable and unsustainable.   The government needs to make time for some further thought.

Alastair Meeks