{#11 Issue: We must tell the cat to stop bringing home these roadkills} {Handing Scotland full control over income tax could end in “floods of tears”, Alistair Darling has predicted. The Times reports that Labour is ready to drop its previous opposition to the idea} A bad deal on devolved tax will turn the UK into a new eurozone, by Alistair Darling We must make sure that reform is coherent and we understand its consequences, says Alistair Darling Two months ago Scotland voted decisively to reject independence and to remain within the United Kingdom. Voters did so for many reasons including a promise of additional powers on income tax and welfare for the Scottish parliament. A commission, set up in the wake of the referendum to reach agreement on further reform, is due to report this week. So far, so good. The day after the Scottish vote David Cameron, the prime minister, linked these reforms with the question of English votes for English laws. He said that just as the Scottish parliament would vote separately on issues of tax and spending, so too would England. Connecting these two issues could have unintended and undesirable consequences, weakening the very union that we voted to maintain. Devolution of power to England and its regions is essential. But we must make sure that reform is coherent and that we understand the consequences. The commission is contemplating what is effectively complete devolution of income tax powers and the revenues it raises. Linked to a simplistic call for England-only votes on income tax, this proposal is fraught with difficulties. First, equity. The UK government delivers services and support such as defence, and financial and social protection. Sharing the costs is part of contributing to UK society. If all income tax is devolved, people living in Scotland will pay no taxes directly from their income for these quintessential UK services. That would weaken the ties that bind all member nations of the UK and erode the solidarity at the heart of it. Second, the UK is ceding a large part of its revenue base and its ability to manage the economy. Income tax accounts for 27 per cent of UK tax revenues. The result is that, for the first time in 300 years, a UK government would no longer have control over its power to raise income taxes. It could be left in a position where it determines the rate of income tax only to find it impossible to implement in Scotland, Wales and Northern Ireland. And its proposals in England could be voted down if it had no majority there. It would no longer be master in its own house. What would bondholders make of that? One of our defining strengths since the Glorious Revolution of 1688 is parliament’s ability to raise taxes. We have not defaulted on that promise since the time of Charles II. Lenders realising that the UK might not be able to raise income tax to the required extent would charge more to lend, hitting everyone throughout the UK. The acid test is always in a crisis and there would be questions of repayment for which there would be no satisfactory answers. For Scotland, the power to raise income tax without additional powers to borrow could be damaging. In a downturn revenues would fall but it would still be required to run a balanced budget. The only choice would be to raise taxes or cut spending at just the wrong time. More devolution of welfare measures has also been proposed. In a downturn, when more people move on to benefits, the Scottish parliament might well be forced to put up taxes at the very time it would be bad economics to do so. It seems that the entire principle of pooling and sharing risks, one of the strengths of the UK and all successful monetary unions, is being undermined. I support the plans my party, Labour, put forward for additional powers for the Scottish parliament. But I now think we must be more radical. Other countries, such as Canada, have reconciled the need to maintain the integrity of their country while devolving more power and responsibility. If we do not find a similar settlement we risk ending up with the same institutional strictures of the eurozone: an integrated monetary union without a fiscal union. No one voted for that.
Posted on: Mon, 24 Nov 2014 08:55:12 +0000
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