From next year we are set to see a very British economic experiment played out on our shores, or rather, a Scottish-English economic experiment, or SEEEX. The catalyst will be a discernible difference in economic policy employed by an SNP-dominated Scottish parliament and a Conservative-controlled Westminster.
The reality is that where the Scottish Nationalists can genuinely wield power is in Holyrood. And on 5 May next year the SNP is almost certain to surge to its best Scottish parliamentary showing. This electoral strength cannot, however, be converted into policy action until and unless the party accepts the devolved powers being extended to it.
As of 2016, this recalcitrance will have to end.
A gap will open between two nations sharing a common currency but two markedly different views as to what constitutes “sensible” fiscal management. And property, commercial and residential, will not escape tax differentiation across the UK.
Any inspection of England’s council tax and business rates reveals structures that are unwieldy, largely unpopular and increasingly out of kilter with comparable systems across the UK. By their very construction council tax and business rates provide English local authorities with generally stable revenue streams. This said, for many households, firms and particularly landlords of vacant dwellings, these twin taxes are resented as regressive and inflexible.
Matters need to change. And what better way to align the interests of businesses and English unitary assemblies than to shift the tax burden from blunt business rates to localised sales and income taxes?
Crucially, the economic policies pursued in Scotland as against those elsewhere across the UK will be compared not only by us on the British Isles, but by those beyond them. Decisions on where we locate businesses, work and study, invest in assets and consume, will turn on the outcome of this comparison.
In short, I am convinced that before long living within the UK will no longer mean living in the current straight-jacketed system where we have to endure taxes being the same in all places. I see variations in stamp duty land tax. I see there being flexibility too with extensive elements of VAT and air passenger duty, and I see flexibility most crucially with income tax thresholds and rates.
Some will be concerned that we will choose to have addresses of convenience from which to register our tax “domicile”. Well, if this means that some buy homes or pay rent to “exploit” a tax difference, then at least it will be financial capital travelling across the UK that might otherwise have remained sedentary. The greater likelihood is that human capital will join the flow of financial capital in seeking out where tax differentiation makes it most sensible to settle.
The fragmentation of regional tax policy across the UK will run in tandem with regional spending policies, led by Scotland but less and less exclusive to it. Where this leads Scotland we will have to wait and see. Where it leads the rest of us across the UK will depend on who we trust with our regional leaderships. In short, then, bring on SEEEX please, we’re British but all different.
Savvas Savouri is chief economist, Toscafund
