What would Scottish independence mean for the North?

Scotland will have its referendum before the end of 2014. Will independence, or further devolution, be good, bad or indifferent for the North of England?
Katie Schmuecker
13 January 2012

The future of Scotland has hit the headlines this week, as David Cameron waded into the debate about the future of the Union.  Uncertainties abound, and at the moment about the only thing we can be sure of is that some sort of referendum on Scotland’s future will have been held by the end of 2014.  For those of us in the North of England, the key question on the lips of many is whether more devolution (so-called devo-max) or the independence of our near neighbours will be good, bad or indifferent for this part of the country. 

Quite what is meant by devo-max, and whether it will be included as an option on the referendum, is not yet known.  While the detail remains to be worked out, the broad expectation of many is that devo-max would result in the Scottish Parliament being responsible for all areas of domestic policy with the exception of financial regulation, monetary policy and currency, which would remain the preserve of Westminster, along with defence and foreign affairs.  Under independence, all of these matters would be matters for a Scottish Government.  

It is the question of what the Scots might do with increased taxation powers that is the source of some anxiety in the North, especially among some in the business community. What they fear is an independent Scotland slashing tax rates – especially corporation tax – thus making Scotland an attractive proposition to businesses that might otherwise invest here and possibly enticing some existing Northern Businesses to relocate that bit further North.  The concern is this would further disadvantage the North of England, which is already facing a tough road to economic recovery.

In some ways, this concern is well-founded. Alex Salmond has stated his intention to cut corporation tax in order to boost economic growth in Scotland.  In addition, international evidence suggests that cutting corporation tax does influence business decisions about where to locate and relocate to.  Many in the North East already point to Amazon’s recent decision to invest in Scotland rather than the region – allegedly in anticipation of future lower corporation taxes – as evidence of the danger a newly independent Scotland could pose for the region.

But an independent Scotland does not make an exodus of Northern business a foregone conclusion, and neither will it necessarily be a magnet for mobile investment.  This is for two key reasons: 

First, it is important to note that taxes are only one factor among many that influence business decisions to locate or relocate.  Other factors such as the strength of supply chains and availability of people with the right skills all also matter – along with access to a good golf course (although Scotland, of course, scores well here).  Stability and certainty also matter, something a newly independent country is not guaranteed to be able to offer.  

Second, while an independent Scotland would have the power to cut corporation tax, it is far from certain that it would be able to.  Currently, Scotland funds its public services through a generous grant from the UK government via the Barnett formula – a fact that has been a bone of contention in the North (which receives substantially less funding per head of population compared to Scotland, despite facing greater economic challenges and higher levels of deprivation).  If the Scots wish to maintain their current levels of public service provision their scope to slash taxes will be limited.  An independent Scotland, after all, will have to independently balance its books. Massive tax cuts may not be feasible.

But all of this is, to some degree of another, speculation. The greatest uncertainty in relation to the Scottish independence question is whether or not the Scots will vote for it.  For years, poll after poll has consistently shown that only a quarter to a third of Scots favour independence.  Of course, all this can all change once a referendum campaign gets underway in earnest, but a yes vote is by no means a foregone conclusion. 

There is, however, one other issue of which we can be fairly certain. This referendum about the future of Scotland is bound to raise questions about how England is governed. The Coalition Government is already committed to look at how processes in the House of Commons can be changed so only English MPs can vote on English legislation, and it is likely that the question of whether there should be an English Parliament will re-emerge in public debate over the coming years.  While the merits and practicalities of both these proposals can be debated, neither would be the best solution for the North of England. 

Polls show people in the North are highly sceptical of the idea that the government in Westminster acts in our best interests.  Indeed, large numbers of people believe our centralised system of government results in London being favoured by policy makers.  Strikingly, this is a position that a majority of people in London also agree with!  Recent IPPR North research found clear evidence in support of this view: our analysis of forthcoming transport projects supported by the public purse found in London £2,700 per person is planned to be spent on projects that will benefit the London area; for projects that benefit to the North East, the planned level of spending is equivalent to £5 per person.

The biggest challenge to the North is less the uncertain outcome of a future Scottish referendum and more the overly centralised nature of decision making about Enland. Indeed, the current developments in Scotland may serve the purpose of shining a new light on the old question of how the North is governed.  Nearly eight years ago the North East region decided the elected regional assembly on offer was not the right answer to this question. The time may be coming for us to look again in earnest at how more power and decision making can be carried out in the North – whether that is through some other form of elected assembly, city regional mayors for our conurbations or more powers for local authorities is for discussion.  But what matters, is finding a way of giving us greater control over our destiny - and if we can draw inspiration from the Scots on this then so much the better.

Katie Schmuecker is Associate Director at IPPR North, the Institute for Public Policy Research’s think tank dedicated to the North of England.  

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