Scottish Independence: What powers would the three main parties devolve?

On 18th September, if Scotland votes Yes to independence, then a lot of complex constitutional negotiation awaits our political leaders. But, if it votes No, is that the end of the affair? Far from it. Labour, the Conservatives and the Liberal Democrats have all made promises to devolve additional powers to the Scottish parliament.

In the days following a No vote, they will have to show that they’re serious about those promises or risk alienating completely the 40 per cent or more of Scottish voters who are expected to signal their support for independence. None of the unionist parties can afford to do that during the run up to what is likely to be a close General Election in 2015. Following the September referendum, we will see what in US elections is called an "October surprise."

Labour is the biggest of the three parties in Scotland. It has proposed to increase the Scottish Parliament’s power to vary income tax rates from the rest of the UK. The Scotland Act 2012 allows variation of up to 10p, Labour would put that up to 15p. It would devolve housing benefit and the commissioning of the Work Programme, which provides support for benefits claimants who need help looking for, and staying in, work. Scotland would also get its own Health and Safety Executive; and Scotrail, the main train operating company in Scotland, may convert to a not for profit company.

Putting the tax powers to the side for a moment, it is hard to see how the other proposals fit together into a distinctively Scottish economic model. Presumably the purpose of a devolved health and safety body is to decrease the burden of compliance on employers. Devolving the Work Programme is likely to mean Scottish politicians can promise a less disciplinarian system for getting the long-term unemployed back into work than the rest of the UK. Are Scots both more pro-small business and less anti-welfare? Perhaps.

The Conservatives have matched Labour’s offer on devolving housing benefit. They would also create a Scottish version of the Office for Budget Responsibility (insert your own cliché about Scottish attitudes to thrift, if you like), and offer full independence on the setting of income tax. The Liberal Democrats endorse that approach to income tax and would devolve the setting of capital gains and inheritance tax as well.

These tax raising powers are likely to be where debate focuses in the event of a No vote—the consequences of devolving tax powers may be profound.

The first issue is that it is often presumed that the Scottish Parliament will increase taxes for those on higher incomes. However, it could equally or oppositely choose to cut taxes, either for those on the lowest incomes or across the board. Noticeably Labour has been criticising Alex Salmond for his refusal to match Labour’s pledge to increase the top rate of tax, reversing David Cameron’s "tax cut for millionaires." Is Salmond a secret Tory? Certainly not, but there is a free enterprise strand in Scottish politics and a proposal to cut taxes across the board could plausibly pass the Scottish Parliament, backed by the SNP as well as potentially by the Scottish Conservatives.

One of the reasons that Labour has held back from proposing full devolution on tax rates is that it fears exactly this race to the bottom on tax rates across the UK. While such a move may leave Scotland with falling tax revenues and questions about future public spending, one can envisage the argument that lower tax rates will mean higher tax revenues as businesses and individuals reduce avoidance measures. They might even relocate activity to a non-independent but highly tax-competitive Scotland. In this turn of events, Scotland will be not so much a "progressive beacon" for the rest of the UK, as Salmond has promised of its future, but a giant focus group for the Taxpayers Alliance.

The second issue with the full-on devolution of tax powers is that the legitimacy of Scottish MPs voting on tax and spend matters at Westminster will diminish further. If Scots are setting all their own personal taxes, then why should they have a vote on tax matters for the rest of us? This is another fear for Labour; that if the logic of tax devolution is followed into representation, then its large contingent of Scottish MPs will be excluded from crucial votes at Westminster. By handing tax powers to Scotland, the Conservatives might slyly succeed in strengthening their own hand in the rest of the UK. Revealingly, it is only the Liberal Democrats' proposals that engage with the broader issue of what we might call federalism. Their paper recognises that this "devo next" sends the UK further in that direction and, while different nations and regions may move at different speeds, the centre will not hold.

While it seems likely at the time of writing that the message from the referendum will be "No Thanks", as the Better Together campaign styles it, even that result may mean "Yes Please" to fundamental constitutional change.