Amid the genuine trauma of the Brussels attacks yesterday (which remain too raw to write about), something of great constitutional significance happened in the UK.
From 2017/18, on the safe assumption that the SNP will remain in government at Holyrood, Scotland will have a different income tax band from the rest of the UK (with the 40% rate applying from £43,337 in Scotland but from £45,000 in England, Wales and Northern Ireland). The SNP also announced that the rate at which 20% applies would be raised to £12,750 from 2021/22, which is theoretically higher than will apply elsewhere in the UK (although in fact, I am sure that a Conservative UK Government would at least match it by then, given the current rate of travel).
The SNP has left the above £150,000 rate at 45% (as opposed to the 50% it once supported) and has left the actual tax rates the same, but the significance is that it now effectively controls the rate of income tax and the bands at which it applies – income tax is now, in effect, a devolved tax. Whereas once you had to move to the Channel Islands or the Isle of Man to enjoy different tax bands, you will now be able to move within the UK.
This is bad news for the political Left generally, because whenever tax differentials begin to be an issue, they inevitably become a race to the bottom. However, it does make devolution slightly fairer – within Scotland, there is now a real debate between Labour (which would put income tax up to “fund public services”), the Conservatives (which would keep rates and bands in line with the rest of the UK to “keep money in people’s pockets”) and the SNP (which will keep rates in line but change bands in the interests of “fairness”). The practical impact is that Scotland will have marginally more money for public services but also that a couple each earning over £45,000 a year will be over £1400 better off in England, Wales or Northern Ireland in 2017/18 than they are now; but in Scotland this gap will be under £500.
There is a further issue that this differential will for the first time challenge the tax authorities to specify who lives in Scotland and who does not (already an issue with the Channel Islands and the Isle of Man). Inevitably, people who spend time on both sides of the border, and perhaps have homes in both, will argue they live in England. This, added to the sheer administrative burden, means that in fact Scotland may make no practical gain in terms of money available for public services than it currently has.
These issues are the result of an increasingly messy devolution settlement. It is time it was tidied up. It is time for proper federalism.