This piece on a “Federal UK” requires some more thought on the fiscal issues. Frankly, I am no expert on these!
However, I am increasingly of the view that the only two taxes really in play for devolution are duties (on drinks or flights or whatever) and income tax.
Listening to interviews with the key decision makers on this issue, the relevant point here is that corporation tax is always assumed to be remaining UK-wide (except, naturally, by Northern Ireland’s First Minister in the Assembly yesterday). There is an understandable wariness to devolve this (at least in totality), partly because it is complex (for example, you have to stop Tesco, BP or HSBC just moving its office of registration) but mainly because it would simply encourage a “race to the bottom”.
There is just about the possibility now that Corporation Tax powers could be devolved to Northern Ireland alone as part of a “scatter gun approach”. This would be an error – the fundamental lesson must be that each of the four countries should have the same powers exactly (whether they choose to use them is up to them). However, the strong probability is that Corporation Tax powers will in fact be taken off the table – possibly replaced by income tax powers.
With regard to VAT, I should emphasise that, despite the First Minister’s positivity, I never saw it as a candidate for devolution either (again, just too complex). However, I do see scope to enable any growth in VAT receipts in a particular region to be retained b the region delivering the growth – potentially that even includes City Regions, not just devolved countries.
Note that the likeliest thing is that income tax will be set at 10 percentage points below the current rate, with each country then entitled to raise the remainder as it sees fit.
For all that, the very biggest fiscal requirement for me is one which is never mentioned – borrowing powers. There are two aspects to this:
- each devolved country should be able to retain any under-spend at the end of each financial year to put into its own pot the following year (currently, except where specifically negotiated, any money left over is returned to the Treasury; the result of this is the mad February/March spending sprees we see to get the money spent, which means it is often spent in a very short-termist and ineffective way – on programmes which don’t help or pavements which don’t need repaired);
- each devolved country should be able to borrow money, probably from the Treasury (which would need a contingency of its own), or to bid jointly for money from a “Federal Programme Fund” (say for cross-border roads, ferry subsidies or whatever).
It is these borrowing powers, combined with a non-requirement to return under-spends, which would probably make the biggest practical difference – boringly technocratic though they sound!