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

Recruitment Genius: Bookkeeper / Office Co-ordinator

£9 per hour: Recruitment Genius: This role is based within a small family run ...

Recruitment Genius: Designer - Print & Digital

£28000 - £32000 per annum: Recruitment Genius: This Design and marketing agenc...

Recruitment Genius: Quantity Surveyor

£46000 per annum: Recruitment Genius: This property investment firm are lookin...

Recruitment Genius: Telesales / Telemarketing Executive - OTE £30k / £35k plus

£18000 - £35000 per annum: Recruitment Genius: This company specialises provid...

Day In a Page

Read Next
 

Errors & Omissions: When is a baroness not a baroness? Titles still cause confusion

Guy Keleny
 

CPAC 2015: What I learnt from the US — and what the US could learn from Ukip

Nigel Farage
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?