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

Argyll Scott International: Senior Business Analyst- Insurance

Negotiable: Argyll Scott International: Senior Business Analyst - Insurance ...

Recruitment Genius: Property Manager

£25000 - £29000 per annum: Recruitment Genius: This independent, growing Sales...

Recruitment Genius: Graphic Designer

£16000 - £20000 per annum: Recruitment Genius: Multi-skilled graphic designer ...

Austen Lloyd: Court of Protection Solicitor

£30000 - £50000 per annum + EXCELLENT: Austen Lloyd: Court of Protection Solic...

Day In a Page

Read Next
A CCTV camera is seen in front of a large poster opposite in central London  

Home Office is creating more powers to turn everyone into suspects – but leave us no safer

Shami Chakrabarti
 

David Mellor has been exposed as an awful man, but should he have been?

Simon Kelner
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game
Can SkySaga capture the Minecraft magic?

Can SkySaga capture the Minecraft magic?

It's no surprise that the building game born in Sweden in 2009 and now played by millions, has imitators keen to construct their own mega money-spinner
Christmas 2014: 23 best women's perfumes

Festively fragrant: the best women's perfumes

Give a loved one a luxe fragrance this year or treat yourself to a sensual pick-me-up
Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?
Nightclubbing with Richard Young: The story behind his latest book of celebrity photographs

24-Hour party person

Photographer Richard Young has been snapping celebrities at play for 40 years. As his latest book is released, he reveals that it wasn’t all fun and games
Michelle Obama's school dinners: America’s children have a message for the First Lady

A taste for rebellion

US children have started an online protest against Michelle Obama’s drive for healthy school meals by posting photos of their lunches
Colouring books for adults: How the French are going crazy for Crayolas

Colouring books for adults

How the French are going crazy for Crayolas
Jack Thorne's play 'Hope': What would you do as a local politician faced with an impossible choice of cuts?

What would you do as a local politician faced with an impossible choice of cuts?

Playwright Jack Thorne's latest work 'Hope' poses the question to audiences
Ed Harcourt on Romeo Beckham and life as a court composer at Burberry

Call me Ed Mozart

Paloma Faith, Lana del Ray... Romeo Beckham. Ed Harcourt has proved that he can write for them all. But it took a personal crisis to turn him from indie star to writer-for-hire