We need to be together in more than just name.
We need to be together in more than just name
The recent YouGov poll showing, for the first time, a small lead for those in favour of Scottish independence had the Westminster parties in a renewed state of panic.
A Yes vote on Thursday would be personally damaging for both Cameron as the prime minister who let his country fall apart, and Ed Miliband as the leader whose party fronted much of the No campaign, and lost a large chunk of their electoral heartland.
Hence the latest, last ditch effort to save face, bringing Gordon Brown back for one last hurrah and a new, improved offer for the Scottish people.
The Conservative Party is offering complete control over income tax, while Labour say MSPs should be able to vary it by up to 15p. The Liberal Democrats want to give more autonomy over inheritance tax and CGT as well as income tax. Labour and the Lib Dems have said they would maintain Westminster control over regulatory policy, of which there is no mention in the Conservative document.
While I would still dearly love to see Scotland vote No, I’m concerned that this latest offer, particularly on control of fiscal policy, is desperate, ill-thought through and a step too far.
Devolving power to the UK’s nations, regions and localities as far as possible is undoubtedly a good thing. The appropriate limits of that power have nothing whatsoever to do with the cohesiveness of a nation or the capabilities of its institutions.
Better Together’s campaign has rightly focused on the debate over currency. Alex Salmond’s ‘plan A’ of keeping the pound in an independent Scotland means monetary union without fiscal and political union, which Alistair Darling claims wouldn’t work – an independent Scotland would have to give up control over fiscal policy. Nobel Prize winning economist Paul Krugman recently argued that ‘political independence with a shared currency is a recipe for disaster‘.
Similar points have been made about the Eurozone, whose experience No campaigners have been eager to cite.
All these points are correct, but are completely at odds with the Westminster parties’ new offers.
Regardless of the currency situation, there are good reasons to share tax and regulatory policy within a single market. Progressives are used to the well-worn right-wing argument that high taxes and regulations that protect workers and the environment scare off would-be investors and cost jobs: raise taxes on the rich and they will move away, raise corporation tax and factories will relocate.
While for right-wingers this is an argument for a smaller state, progressives should be concerned about the potential for a ‘race to the bottom’ on tax and regulation (otherwise known as the Delaware Effect), where states attempt to out-compete each other to attract wealth and investment. In two such culturally and economically connected countries such as England and Scotland, the consequences could be terrible.
It’s true that even for the UK as it is, fiscal and regulatory competitiveness is a concern: we tie our hands with certain EU restrictions so that other EU countries do the same. Of course, it’s far from perfect (hence calls for some fiscal union within the Eurozone), but to an extent it avoids a race to the bottom.
Both the UK and the EU also have to maintain competitiveness on tax and regulation with the rest of the world, but here’s the key: the larger your economy, the more you can do. The smaller you are, the more you are left with two options: rely entirely on income from natural resources or become a tax haven.
If a business wants access to the EU market, they have to abide by EU rules. If tax and regulation is too hefty, they might say stick it and move to the US or an emerging market, but the EU is a big market of consumers to lose out on, and so many businesses take the hit. Things are a bit different within a single market, but if companies want access to British skills or other resources, it makes sense for them to locate here.
Clearly, Britain has less economic clout than the EU, so there is a pressure to avoid over-taxing the City and maintain the opt-out of the 48-hour week, among many other things. If Scotland were to become independent or get Devo-max, this would be greatly exacerbated. However easy it is for investors to move from London to New York, or for a car plant to move from Sunderland to Bavaria, it’s easier to move between Scotland and England.
In the last month, we have heard from countless businesses who say they are preparing to relocate to England in the event of a Yes vote. If that happens, to calm the markets Alex Salmond would announce on the 19 September that Scotland is open for business, with a tax incentive to take effect on the day of independence.
Scared of losing revenue, or wanting to win some new business, the Treasury might announce some retaliatory policy, and the whole race would begin. This is not the dream of pro-independence Scots: to be beholden to the movement of global capital, instead of the needs of the Scottish people.
If I had a vote, I’d still vote No as long as regulatory policy remained Westminster’s prerogative, but handing over a large chunk of fiscal policy is a bad call. England and Scotland are too close in so many ways to have divergent fiscal or regulatory policies. That’s why we’re better together, but we need to be together in more than just name.
Charlie Cadywould is currently completing an MSc in Public Policy at UCL focusing on labour markets and regulation
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