OpinionSep 22 2014

All of the key issues in the wake of the UK’s near miss

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A 307-year old union was endorsed, if not emphatically, then convincingly ‘enough’. Now the important decisions over its future must be made - and the bickering has already begun.

‘Devo’ to the max

Firstly, and most critically, the leaders of the so-called ‘pro-union’ parties (wait, that’ll become an anachronism in the wake of the vote - let’s call them the ‘main UK political parties’) must honour their pledge of devolving more powers to Scotland.

Holyrood already has powers over income tax, you might be surprised to hear. Under the Scotland Act 1998, it can modify taxes on earnings by up to 3p to offer respite or fund spending north of the border - a power it has never sought to use. Under the Scotland Act 2012, which comes into power in 2016, Scotland can vary taxes by up to 10p.

As the Independent observed in its excellent overview on Saturday, this new power will mean in practice that Scottish taxes are 10p lower than any tax rate set by the UK government and the devolved government can set a top-up rate to make up some, all or even more of the difference. It will entirely keep the proceeds, rather than paying them to the UK Treasury.

Does ‘devo-max’ simply mean this proportion of control is increased? Perhaps: the Independent cites Labour’s plan to increase the rate set in Scotland to 15p, while the Tories might even go further and allow Holyrood to move income tax bands.

Other policy suggestions on tax and spending have included devolution of air passenger duty, control of certain elements of welfare provision such as housing benefit (to allow Scots to remove the loathed ‘bedroom tax’) and increased autonomy over borrowing so that Scotland can issue bonds backed by the Bank of England.

Again on this last point there are already powers, although the fact they only extend to the issuance of £240m a year - a large-sounding sum that is paltry in national budgetary terms - makes them next to useless.

Party politics

In truth, any package that includes most of the above - and it will, as these are all part of significantly overlapping plans published by all three main parties - amounts to substantial ‘freedom’ from Westminster for a country that already sets its own education and health policy.

And that is why the rows over commensurate freedoms being afforded to other regions, potentially cities and certainly in terms of who votes on issues in England, has become so charged so quickly.

David Cameron wrong-footed Ed Miliband by stating at 7am on Friday morning, as we were still waiting for the last declaration in the referendum, that he would progress ‘English votes for English laws’ at the same speed as Scottish devolution.

For Labour this could be a disaster: a narrow majority propped up by Scottish MPs could mean it is impotent in England under a two-tier solution.

The battle lines were drawn. Some injudicious language from Michael Gove about any delay to the former meaning the whole package would be held up prompted a Times front page on Saturday of Scottish devolution being ‘blocked’; the outgoing Alex Salmond did a premature “I told you so” routine on the BBC on Sunday, stating that ‘no’ voters had been “gulled”.

I say premature, because at all times the leaders had all maintained that Scotland’s devolution would meet the strict legislation-by-January timetable.

This morning, the FT reported that David Cameron had conceded that his commitment to resolving the ‘West Lothian question’ “in tandem” with new powers for Scotland only extended to debating the issue. There will be no reneging on the vow, Downing Street has assured.

Market reaction

How have markets reacted to all of this - and what are the prospects for Scotland and the wider UK in the near future?

Well, according to the Sunday Times, things appeared to going swimmingly thanks to the ‘no’ vote: it reported that billions of pounds withdrawn from markets in recent weeks would re-emerge and prompt a FTSE boom, while property prices would also soar.

It also carried a story predicting a new wave of public market floats, citing deals worth more than £7bn which it says have been waiting in the wings for the reassurance of the rejection of independence.

Others are not so sure. The Daily Telegraph on Saturday and its sister Sunday Telegraph were more circumspect: reporting on gains being pared on Friday as devolution uncertainty grew (in the end markets ended up around 0.2 per cent), and on the head of the CBI warning of a long road back in terms of recently sluggish international investment.

This was the position from financial services experts who spoke to FT Weekend, and said the billions withdrawn from banks, for example, after polls unexpectedly tightened will come back slowly. “Deposits tend to run away and walk home,” one was quoted as saying.

But the last word can go to Martin Gilbert, chief executive of Aberdeen Asset Management, who wrote in the Sunday Times that Scottish business would have “flourished” whatever the outcome on Thursday.

In a column asserting the need for freedom on taxes and especially corporation tax - controversial in some quarters as it could lead to a ‘race to the bottom’ across the UK - he said with increased autonomy there is “so much more” Scotland can do to boost infrastructure and encourage entrepreneurs.

“The hard work to grasp the opportunity presented by this momentous decision should now begin,” Mr Gilbert said.

Here, here.