If Scotland is to gain more freedoms, shouldn’t the same thing happen to the north of England?

Regional self-governance would probably do a better job than our current over-centralised structures

Share

However Scotland votes next month, we will see more internal economic competition in these islands. If the outcome is independence, then that competition – for inward investment, tax revenues and indeed for talented people – will become open and extreme.

If it is “devo max”, the passing of many more powers to the Scottish government as promised jointly by the three main parties yesterday, then the competition may appear a bit less overt but in practice it will be just as forceful. We are moving to a new economic model for these islands.

You can catch some feeling for this already, most obviously in the case of Ireland. But remember, too, that 250,000 British people, more than the population of Southampton or Aberdeen, also live outside the jurisdiction of Westminster – in the Channel Islands and the Isle of Man. That is too small a number to have more than a marginal influence on British economic policy, though enough to annoy Her Majesty’s Treasury, which periodically closes off some loophole or other.

But Ireland has had a profound pull on British policy. One example: in 1996, when Ireland moved to a standard corporation tax rate of 12.5 per cent, the UK standard rate was 33 per cent. Now we are down to 21 per cent, with plans to drop to 20 per cent.

Tax is not the only reason why Ireland was able to become the principal European base for many US hi-tech companies, including Google and Microsoft. The availability of a young, well-educated, English-speaking workforce was also a huge draw. But tax certainly helped, and it was interesting that when Ireland had to seek a bail-out from the EU and the IMF, retaining its corporation tax rate was not negotiable. It was, for Ireland, a red line in the deal.

Ireland has a land border with the UK but, thanks to the Irish Sea, there is a practical barrier to economic competition. Besides, it contains only 4.6 million people, against 63.5 million in the UK. But the maths will change. Scotland has a population of 5.3 million, Northern Ireland (which will surely get a much higher degree of economic freedom in the years ahead) 1.9 million.

So even if Wales remains more closely controlled by Westminster, our islands could move to a situation where there are 12 million people competing against 56 million. Were Wales to extract more power, with its 3 million strong population, it would be 15 million versus 53 million.

England will remain the dominant economic force of these islands, and the richest part, thanks to the extraordinary competitiveness of London and the South-east. But the economic and policy dynamics will be quite different from today.

Read more: First blood to Darling as he clashes with Salmond over currency
People who vote 'No' are bad parents, claims former MSP
STV's live stream of debate fails prompting ridicule

So how will competition develop? Tax is the obvious area and it is easy to sketch the main areas of tension. I suspect that the general pattern will be for lower company taxation combined with higher personal taxation – but the personal taxation will have a twist in that there will be a switch from taxation on income to taxation on assets.

Think of a cut in top rates of income tax but an annual wealth tax. Because taxes can be changed quickly there will be a lot of experimentation, and there will be mistakes. The key point, though, is that people and businesses will find themselves relocating around these islands in response to the incentives that the different legislatures create.

Some will worry about this. There are fears of “a race to the bottom”, where competition drives down tax rates and cuts away revenue. But there will also be “a race to the top”, where different jurisdictions compete to provide better services – services for the business community as well as for individuals.

It is fascinating to see the new ideas about making England’s northern cities more competitive by improving communications between them. This has been billed by the Chancellor as making the North compete more effectively with the South but it is hard not to see the Scotland issue looming over this. If Scotland is to get more freedoms and responsibilities, surely the North should get some too.

In any case, tax and public services are only really a starting point. They are the obvious first areas on which governments try to differentiate themselves: Ireland on business taxation, Scotland on access to public services. But that is where we are now.

Looking ahead, a British Isles where the different parts do things in different ways, sometimes co-operating, sometimes competing, would probably do a better job for its inhabitants than the present over-centralised structures. (A sidebar to the whole independence debate is whether Scotland is over-centralised: should, say, the Orkneys and Shetlands have more independence, not just from London but from Edinburgh?)

Legal and education systems should surely compete against each other to improve the outcomes for all. They do, to some extent, at the moment but there is a lot more scope for that. I could see more scope, too, for competition in planning policy, where speed and certainty is arguably more important than actual decisions. A further area for competition is labour market policy: how do you balance the rights of individual workers against not just the rights of an employer, but also of their co-workers?

The big point here is that there are no right ways of running a country or a region, and no wrong ways. But if different parts of our islands have more freedom to make different choices, then we will see what seems to work and what doesn’t. Westminster becomes less important – but we can live with that.

 

Who will vote to raise interest rates now?

The Bank of England’s Monetary Policy Committee meets today and will duly announce on Thursday that there will be no change in interest rates.

Boring? Well, yes in the sense that nothing will happen, but no in the sense that we are clearly on the glide-path to a rise in rates, and we will get a hint when the minutes are published in two weeks’ time whether any member voted for one now. The person whose views are most interesting is Martin Weale, former head of the National Institute for Economic and Social Research. He has both a huge amount of experience of watching the UK economy and an intuitive feeling for where it is going. If he votes for a rise, I would trust his judgement.

The Bank’s Inflation Report, published next week, will give a feeling for the collective view of the Bank staff, the key issue being how quickly are we using up the slack in the economy. A Reuters survey shows that City and business economists still, on balance, expect the first move in February next year – but a growing minority are plumping for this November.

That would be my instinct too, though you have to wonder whether three months makes a huge amount of difference either way. But interest rates will become interesting again.

READ MORE:
The fairest way to fix the benefits system
The death of Studio Ghibli was inevitable — but this might not be the end  
Wouldn't we all resign if we were in Baroness Warsi's position?

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

HR Manager - Kent - £45,000

£40000 - £45000 per annum: Ashdown Group: HR Manager / Training Manager (L&D /...

Senior QA Engineer - Agile, SCRUM

£35000 - £50000 per annum + benefits: Ashdown Group: Senior QA Engineer (Agil...

Marketing Executive - West Midlands - £28,000

£26000 - £28000 per annum: Ashdown Group: Digital Marketing Executive (SEO, PP...

Retail Business Analyst

£40000 - £50000 Per Annum: Clearwater People Solutions Ltd: Our retail client ...

Day In a Page

Read Next
 

i Editor's Letter: We are winning the fight against extreme poverty and hunger. It's time to up the ante

Oliver Duff Oliver Duff
David Cameron addresses No campagn supporters in Aberdeen  

Scottish independence: Cameron faces a choice between destroying his country or his party

Matthew Norman
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week