Home—Blog—An independent Scotland could dramatically improve on the UK's tax system
Jun 12, 2012, 01:31
Posted byMerryn Somerset Webb
Comments (15)
In all the talk about how Scotland might or might not end the decade an independent country, all sorts of things are being just a little too fudged.
Offering any sort of idea of just what Scotland might be like as a financially independent nation is tricky given that the referendum is just that - a referendum. As Tom Miers rightly points out here it is not an election. So while it is possible that the Scots will vote for independence (although the polls still tell us that they are more likely to vote for continuing union) it is also possible that in the first election after the referendum they will not vote for Alex Salmond.
The referendum looks set to be in 2014. Salmond wants to see an independent Scottish parliament by 2016. However, the next election to the Scottish parliament is in May 2016, something that creates the possibility that Salmond might not still be the big man if his dream comes to fruition.
Still, just because he can't be sure he will get to be in charge doesn't mean he shouldn't give the important stuff some thought. So far it isn’t entirely certain that he is.
Take monetary policy. There has been some confusion about which currency Scotland might use. It has now been confirmed that it will be part of a sterling zone.
You might wonder why Salmond would want to have his country using someone else’s currency, and hence their monetary policy, given how we now know that tends to end up. You aren’t alone.
He says that Scotland would be able to influence the monetary policy set by the Bank of England for the benefit of England and Wales because it would have a role of some kind at the MPC. This, as the Times points out today, is a “scenario immediately dismissed by the Treasury.”
But monetary policy isn’t the only thing the SNP, now they come to think of it, don’t really want to control. The front page of the Times today notes that they now say that, in the event of independence, the “highly integrated UK financial services market” would remain as it is – ie the BoE would continue to regulate the Scottish financial industry.
That leaves, as the unionists have wasted no time in pointing out, a situation in which a foreign central bank would set Scotland’s interest rates, monetary policy and financial regulation. At least now Scotland has a say over this stuff. It looks like under independence it wouldn’t have a say – so it’d have less control than it has now.
Sign up for a 3-week FREE trial of MoneyWeek and get the following free as well
"The only financial publication I could not be without." John Lang, Director, Tower Hill Associates Ltd
So what might Scotland have more of a say over as an independent state than as part of the union?
How about tax? To a degree it is true that if Scotland plans to give up control over its monetary policy it automatically gives up control over its fiscal policy. But that doesn’t mean it can’t fiddle around with how it raises its revenues – ie its tax policy. In fact, starting a new state will give it a one off chance to be disruptive - not just to mildly improve on the current UK tax system, but to change it dramatically into a good system.
How might it do that? ICAS has put out a good report listing all the questions Scotland might ask. You can read it here. But the key question in it is: should a new tax system just be there to raise the revenue required to run a country (in which case it only needs to be simple, efficient and fair) or should it be there to influence behaviour? Most countries go for the latter – which is why the UK tax system is so shockingly complicated and inefficient. Wouldn’t it be nice if Scotland just went for the former – via a flat tax perhaps? You can read the full argument for these here.
Published in Blog More articles by Merryn Somerset Webb
By Merryn Somerset Webb, May 21, 2013
By Matthew Lynn, May 17, 2013
May 16, 2013
By Bengt Saelensminde, May 15, 2013
Leave a comment
(12 June 2012, 02:37PM) Complain about this comment
I'm still laughing from Salmond's claim a few months ago that an independent Scotland would take on little or none of the UK's debt - including that of RBS!The guy is in cloud-cuckoo land, and I suspect Scotland will realise this over the next two years. The problem for unionists is that, on matters solely Scottish, the SNP are not the fools they appear to be intent on appearing.
(12 June 2012, 10:45PM) Complain about this comment
Jimmy Floyd - That's not what Salmond actually said.He pointed to much smaller banks such as Belgiums Dexia, which had to be bailed out by three countries Belgium, France & Luxembourg due the exposure all three would face should it have collapsed. This is one of many examples where more than one state has had to intervene in a financial institution. As for RBS, it's exposure was global in a way seen by no other financial institution. It was the world's largest bank by assets when it came close to collapse in 2008. RBS actually - though not widely reported - received emergency funding from the US Treasury and the Australian Treasury. England's exposure to a collapse was also alarmingly higher than Scotland's Perhaps due to NatWest customers, I do not know. But to suggest Scotland would have had to bail it out alone is ludicrous. Yet the capital injection into both RBS & Lloyds was under 70 bn.
(13 June 2012, 11:00AM) Complain about this comment
"…if Scotland plans to give up control over its monetary policy it automatically gives up control over its fiscal policy."Currently it has zero control over either, both being dictated from London. So independence, or even full fiscal autonomy would be an improvement. A gradual approach makes perfect sense to me. Becoming independent, even only half way so, is a fine first step. After that, longer-term decisions can be taken in turn, more thoughtfully. With, as you say, potentially other governments or possibly further referenda.Polls don’t show support for independence, but do for a lot more fiscal powers than we have now. I suspect that’s precisely because most Scots are pragmatic and gradualist about it. I fear that by continually bashing Scotland and the SNP, dismissing that gradualist approach, and refusing to address that real desire for “more independence”, the unionists are backing themselves - and all the rest of us, Scottish and UK - into corners.
(13 June 2012, 12:42PM) Complain about this comment
Here is yet another pandering article that completely misunderstands the perspective and situation of the Scottish people while mixing a multitude of simple concepts into one large messy and poorly defined argument.These things all read as if they were written by the same undergrad.
(14 June 2012, 09:35AM) Complain about this comment
Jimmy, laughing is good for you, but I think we are all wise enough to know that RBS is Scottish only in name - 90% of its business is conducted in London.
(14 June 2012, 10:40AM) Complain about this comment
Having a head office in Scotland, employing a lot of people across the country and paying its taxes in Scotland to an independent exchequer, wouldn't Scotland have to play a significant role in baling out a Scottish bank, irrespective of its international diversification? Mr Salmond seems intent upon avoiding committing himself to detail which must be decided before any referendum. Tax and currency is rather important detail in defining "independence".
(15 June 2012, 02:46PM) Complain about this comment
I look forward to the day that Scotland votes for independence because you can be assured the majority of English will not vote for a reunification if it flounders. As ego trips go, it would be awfully nice for Scottish independence to arrive in Salmond's lifetime, but in the end it will all come down to money. Are Scots better off in the UK or alone? Does the ordinary citizen know? Of course not.
(15 June 2012, 05:11PM) Complain about this comment
One thing is for sure, England is better of with Scotland and Scots in the UK.
(15 June 2012, 05:32PM) Complain about this comment
One thing is for sure, England is better off with the Scots and Scotland in the UK.
(16 June 2012, 12:23PM) Complain about this comment
Jim Taylor is probably right to assert that England is better off with Scots and Scotland in the UK. I also suspect that Scots and Scotland will very quickly find themselves to be worse off should they they decide not remain in the UK with England.
(16 June 2012, 02:55PM) Complain about this comment
Scotland should stay in the Union. But were it to go it would correct a current affront to democracy. I refer to the "West Lothian question" ie that MPs in Scotland vote in the UK Parliament whereas MPs in Westminster have no vote in the Scottish Parliament. It would also impact negatively on the number of seats the Labour Party have in the UK parliament
(16 June 2012, 04:41PM) Complain about this comment
As an employer of 14 living in the far North of Scotland, I feel the SNP have missed the point; independence is in fact a divorce. Who ever heard of a nice friendly divorce? Alex Salmond hasn't worked out that DevoMax is like asking your wife for am 'open' marriage!.............She i.e England has a right to say no.Without the Scottish Labour party's votes, Labour will hardly ever form a Government in London so we will have Left wing Scotland and permanently right wing England...... disaster.
(17 June 2012, 08:28AM) Complain about this comment
The error is to assume that the Scottish Government have any interest in a really good idea such as a flat tax. For them- mostly joining SNP because labour was too right wing- the key object of tax is to sting higher earners. Just wait and see what their property tax + other new powers bring. The real problem is demographic - there is hardly any enterprenerial middle class to object in this branch economy.
(17 June 2012, 04:53PM) Complain about this comment
If Scotland does leave the Union. I assume it will renounce the Act of Settlement and no longer require it's monarch to be the non-Catholic descendant of Princess Sophia of Hanover. They will be free to restore the rightful King of Scotland (and indeed all Britain)who I believe is a Bavarian Prince running the Kaltenberg lager factory in Munich.
(21 June 2012, 06:21PM) Complain about this comment
A thought comes to mind, namely the cost of building the Scottish parliament.Originally started at 40m by the time it finished the final bill was 400m approx.Which led me to the conclusion that politicians haven't a clue to how to handle taxpayers money.I wish the Scottish people the best if they go for independence, just don't expect there politicians to be any different from other countries politicians.
Name This will be the name displayed with your comment.
Email This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.
Comment Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.
To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.
Enter the text from the box above
Remember my details
By leaving a comment you accept our terms and conditions.
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.Sign up FREE to Money Morning here.
21 May 13
20 May 13
16 April BBC Radio Scotland(From 1h 45m in)
21 March Radio 4: Moneybox Live
12 March Photogallery of Merryn's talk at BAB London
Become a smarter investor in just 3 minutes a day.
MoneyWeek is not responsible for the content of external internet sites.