Should Scotland become a low tax haven?

David Cameron was in Edinburgh yesterday and reaffirmed his "heart and soul" commitment to Scottish devolution.  He also touted the idea of "fiscal autonomy" for Scotland but added a number of caveats that made his position ambiguous:

"I certainly have doubts about fiscal autonomy, but the right process is for the Scottish Conservatives to look at how the Scottish Parliament is working.  If they come up with an answer that a greater degree of fiscal autonomy is the right approach, then that is a decision which we will have, with colleagues in Westminster, to work out whether that is the right thing for the UK."

In July George Osborne had already expressed support for Scottish Tories using their freedom to lower income tax (compared to England & Wales) by the permitted 3%.  Some Unionists fear that deeper fiscal autonomy is a giant step towards Scottish independence but other Scottish Tories see it as a way of rejuvenating their country's sluggish economy.   Oberon Houston described some of Scotland's socioeconomic challenges in his November Platform post.  Proponents of fiscal autonomy see Ireland's Celtic Tiger experience - built on the back of lower taxation - as a model for Scotland.

Mr Cameron also used his visit to respin his appeal to the Liberal Democrats.  In an article for The Herald (an only very slightly tartanised version of last Friday's Hereford speech) he described his own values and then wrote:

"I believe these values reach far beyond the Conservative Party. Many Liberal Democrats share these values. And many Liberal Democrats share with us a clear analysis of why Labour has failed to live up to its promise. That's why I'm so eager for Liberal Democrat voters to reject their party's coalition with Labour in the Scottish Executive. The coalition hasn't delivered liberal solutions to Scotland's problems, and it hasn't respected the values that liberals hold so dear..."

A leader in The Herald gives Mr Cameron's Scottish visit reasonably positive treatment but the danger of cosying up to the Scottish LibDems is that interesting - but controversial - ideas like fiscal autonomy may be harder to pursue.

Comments

[Daniel Vince-Archer]

David Cameron was also in Cardiff yesterday. Not sure why this has been kept so low-profile - I only heard about it because I decided to endure the local evening news yesterday and sandwiched in between the items on a factory that makes remote controls, a car boot sale and a talking cat, there was a small item about David Cameron on a walkabout in Cardiff with Cheryl Gillan, Nick Bourne (doing some kind of strange 'look at me, look at me!' act in the background) and assorted other bigwigs in the Welsh Conservatives.

[Derek]

Perhaps making Scotland a tax haven would be a good idea. They need to think of something to attract people, and it can't be the weather. But is 3% enough?

[James Hellyer]

If the Scottish Parliament cuts taxes, will their block grant from the Treasury be reduced to reflect this, or will taxes from the rest of the union be used to fund their largesse?

[James Hellyer]

"Proponents of fiscal autonomy see Ireland's Celtic Tiger experience - built on the back of lower taxation - as a model for Scotland."

That was based upon cutting Corporation Tax rates, I believe, and not varying income tax rates. Minor cuts in income tax would be far less likely to attract businesses, especially as Scotland would offer an increased regulatory burden and cost.

[Alexander Drake]

Maybe Dave line is:

Fiscal autonomy is good = The third of the SNP that are "Tartan Tories" should feel comfortable voting for us.

The last thing the Lib Dems would want is to be seen as less Unionist than us in Scotland!! They'd wear it if we had the whip hand over them.

[wasp]

Now that more EU grants will be taken away from Scotland and sent to the East there is an even stronger case for reductions in taxation levels.

But I agree that what Scotland needs is a more dynamic economy which would be better helped by corporation tax cuts not personal taxation.

Devolution had added another layer of beauracracy to Scotland and something needs to be done to free businesses up.

[Alexander Drake]

Oops sorry that should say "MORE Unionist" not "LESS Unionist". My apologies.

[Wat Tyler]

Fiscal autonomy is an excellent idea, but as James asks, who will pay?

I've said this before, but last time I did the sums, Scotland was receiving a fiscal transfer from the rest of us equivalent to approx 10% of their GDP.

Fiscal autonomy would make that transfer much more explicit, and would surely make even the most fraternal English ask why Scotland should get lower tax rates as well as more health spending.

I'm all in favour of it, along with fiscal decentralisation in England. We should do whatever we can to connect public spending to its tax cost.

[Richard]

"David Cameron was in Edinburgh yesterday and reaffirmed his "heart and soul" commitment to Scottish devolution."

I thought we were The Conservative and Unionist Party and therefore were opposed to devolution? Obviously I am mistaken.

[johnC]

Will David Cameron also be declaring his 'heart and soul' commitment to English devolution and a separate English Assembly with the same powers as its Scottish counterpart ? If not, why not ?

[Daniel Vince-Archer]

Anybody expecting/hoping for even-handedness between Scotland and the rest of the Union is in for disappointment. In the aforementioned visit to Cardiff yesterday, David Cameron stated that the Conservatives would oppose further autonomy for Wales, so I think it's safe to assume that lawmaking by the English for the English is also not on the agenda.

[EU Serf]

I don't know about tax rates, but I wish they would spend less of "OUR CASH".

[Jaz]

"I don't know about tax rates, but I wish they would spend less of "OUR CASH"."

The SNP accuses us of eating up scottish north sea oil reserves... So infact, in their eyes its their own money..

I really don't think it matters, so long as England gets its own Parliament soon...

[James Hellyer]

"The SNP accuses us of eating up scottish north sea oil reserves... So infact, in their eyes its their own money.."

Apart from the matter that most of the reserves would have fallen in English waters if they were divided up, of course.

[wasp]

James that depends on where you think the border is. If you think Berwick is under occupation then Scotland gets more, if you think Berwick is English then England gets a substantial chunk.

[Frank Young]

This is another totemic issue we have to overcome. Devolution is here to stay. As a party I expect we will make prposals to increase local democracy. We have to accept it.

[James Hellyer]

"James that depends on where you think the border is."

I understand the borders were plotted years ago by one of our ministries and those plans gave the majority to England.

[Goldie]

The curren situation is ABSURD. The Scots are getting their largesse paid for by English tax payers, and in return they send a disproportionate number of MPs to Westminister to keep the gravy coming.

Devolution is fine, if that's what the Scots really want, but that should be fiscal devolution as well, i.e. no more transfer payments, let the Scots be taxed for their own spending.

[Robertthebruce]

Fiscal autonomy would lead to higher taxes in Scotland not lower taxes! That prospect is bad enough but it would also mean independence in any thing but name for Scotland. Cameron said he would consider it if the Scottish Tories want it but saw many associated problems. Only a handful of Tories in Scotland want it ( MSPs elected by the list system and therefore unaccountable to anyone), the rest would be horrified along with every Tory voter in Scotland.

[Bob]

To answer James' question: yes, if the Scottish Parliament were to use its tax-varying powers, the block grant would be adjusted accordingly.

The current model means that the politicians responsible for spending Scots' money are not responsible for raising it.

Fiscal autonomy makes sense in principle, and the Scottish Tories are looking at it.

[James Hellyer]

Simply adjusting the grant to relect the revenues collected in Scotland still does nothing to correct the Barnett formula. It would still be seen as English tax payers funding Scottish cuts.

[James Hellyer]

The above said, I accept that it is preferrable for a tier of government to raise the money it spends itself. It encourages democratic accountability.

[Mr Eugenides]

I agree with Bob; the problem at the moment is that we in Scotland have tax-and-spend policies, but with a generous financial settlement, and Scottish chancellor, that [in part] uses other people's money to make up the difference. This is all fine and dandy in the short term, but will lead to disaster ultimately.

The reason some - many - Scots Tories are so keen on fiscal autonomy is that it will actually force more accountability on our politicians, not less, because if they want to splash largesse around, they will have to go to the voters and justify picking their pockets.

Under the current model, the left-of-centre consensus is utterly embedded in our politics. You really would not believe some of the nonsense that gets repeated up here as gospel truth. It's as if Labour had taken power in the 70's and never had to let go. Oh, wait...

[A Laffer curve lover]

Does nobody in Great Britain think that cutting tax in Scotland by 3% might actually increase tax revenues as the economy received a boost? Then Scotland would not need as much funding from England.

[James Hellyer]

"Does nobody in Great Britain think that cutting tax in Scotland by 3% might actually increase tax revenues as the economy received a boost?"

I don't think tweaking income tax would necessarily have that result, no. The problem Scotland has relates to a failure to attract inward investment. That's better addressed via corporation tax cuts and deregulation. Businesses create jobs, employees do not.

[Owain]

Why so much hostility about English money going into Scotland? If one part of my (British) nation seriously needs rejuvination (as Scotland does) I think it only fair that those of us further south lend a helping hand.

As for Fiscal autonomy, I agree that it would create more accountability of Scottish politicians so they cant just blame everything on the English.

[James Hellyer]

"Why so much hostility about English money going into Scotland?"

Why should we pay for their left of centre government?

[James Hellyer]

To expand on that: a major problem with the devolution settlement is that the UK could elect a centre right government, for example, but still find itself funding socialist shenanigans in devolved assemblies. How fair is that? If they want socialism, then they can pick up the tag.

[Mr Eugenides]

If DC gets us elected next time (unlikely, perhaps, but far from impossible), that will be precisely the scenario that pertains - given that the Tories won more votes in England this time than Labour, you could very well argue that this is already the situation.

This is why more fiscal autonomy is an idea that's at least worth looking at. As a Unionist, I am uncomfortable with anything that weakens the "structural integrity" of the country, but imposing some responsibility on our pygmy parliamentarians looks like the only way of averting bigger problems further down the line.

[johnC]

Another problem is that if we had an English parliament with a Conservative majority at the last election (as it would have) 75% of the decisions affecting our lives, including health education and the environment, would today be taken by Conservatives.

[wasp]

Actually due to the shenanigans of plantagenet adventurers Berwick is a Scottish town under English occupation (cost 2000 merks) creating a northerly kink in the border which includes a lot of oil so it is very much disputed where the oil really lies.

[Richard Allen]

I have to question the commitment to the union of anyone who believes in devolution in their "heart and soul".

[Deckchair of despair]

Yes, what is this "heart and soul" rubbish? Surely, anybody who believes passionately that some group (in this case the Scots) should be able to run their own affairs must also believe that they should pay for it all themselves. Otherwise they will just be like obstreperous teenagers, demanding freedom and independence so long as someone else pays for it all. The way that "devolution" was handled was ridiculous from the start.

[wasp]

Devolution was not handled well, but it was the overwhelming choice of the Scottish people.

That has to be respected, the parliament is not going to go away.

I think the Scottish Tories should become a sister party like the Bavarian Christian Democrats. Then they could set their own policies different to those of England. Scottish Conservatives have struggled because they were seen as a colonial power that was anti-Scottish.

Conservatives have to accept devolution 100% to move forward in Scotland.

[Michael McGowan]

I agree that devolution has to be accepted by the Tories but they don't have to accept its current form, which is not accidental. Scotland is a rotten borough of the left whose politics have been dominated by the Labour Party for generations. They wanted a devolutionary settlement which provides for very high spending plus more jobs and perks for the Labour mafia north of the Border; allows Scots Labour an excessive say in UK-wide affairs; and still passes a disproportionate slab of the cost to those with no say in Scottish affairs. The only question which matters is whether Cameron would remedy this? In particular, would he scrap the Barnett Formula; give Scotland the same Westminster representation as the rest of the UK and remove the right of Scottish MPs to vote on purely English matters? We would then have a devolutionary settlement for grown-ups.