Peter Jones: Beware history’s home rule lesson

William Gladstone introduces his bill in the Commons but home rule did not survive the Great Depression. Picture: Getty

Home rule seems to be the vogue phrase just now. Indeed, a campaign to secure it for Scotland, complete with representatives of all parties, has just been set up. But what does it actually mean? Does anyone realise that it could be as much of a risk as independence or, indeed, that it has been tried in Britain before and it turned out to be a disaster?

Home rule was conceived by the grand old man of Liberalism, William Gladstone, who had four separate terms as Britain’s prime minister in the late 19th century. He agonised deeply about how to re-engineer the constitution in order to meet Irish demands for self-rule.

This eventually turned into “home rule all round” – parliaments for England, Wales, Ireland and Scotland handling domestic affairs such as education and agriculture, while Westminster would become the “imperial” parliament handling defence, trade and the Empire.

The outbreak of the First World War and Irish secession in 1920 put paid to these schemes. But one part survived. Prior to Ireland’s breakaway, a Gladstonian home-rule settlement had been designed for the whole island of Ireland. This constitution became the basis for devolution in the six counties of Northern Ireland which stayed with the UK.

The Kilbrandon Commission, which reported in 1973 on possible Scottish and Welsh devolution, and whose 579-page tome has sat gathering dust on my shelves for many years, examined the history of Northern Irish devolution over many years. Now, suddenly, its words have relevance.

The commission notes that the settlement was “curious”. Of the Liberals’ string of home-rule measures, “it was the only one that ever came into effect, and then, in the one part of Ireland that had said it would fight rather than accept home rule, it was passed by a solidly Unionist government”.

The commission was surprised to find when taking evidence that Stormont, as it became known, “was strongly supported by witnesses of widely differing political views”. One witness, otherwise hostile to home rule, said it met the conditions for being an ideally sized administrative unit in which “a dissatisfied farmer anywhere in its boundaries ought to be able to travel by public transport to the administrative capital, horse-whip the responsible official, and get home again by public transport, all in the same day”.

Its fiscal powers, however, were a different matter. The original home-rule design was that Stormont should have its own taxes, for which it should be entirely responsible, but also collect the revenue raised in Northern Ireland by Westminster-controlled taxes.

These Westminster taxes were defined as being “reserved”, a concept which the new Campaign for [Scottish] Home Rule wants to revive. They were the biggest revenue-raisers – income tax, corporation tax, capital taxes, customs duties on imports and excise duties on manufactured goods. All other “transferred” taxes could be increased, reduced or even abolished by Stormont, which could also create new taxes.

Out of all the revenue-raising in Northern Ireland, Stormont would pay for all the devolved functions it controlled (which meant everything apart from defence, imperial matters, trade, currency and the Post Office) and have enough money left over to pay an “imperial contribution” towards Westminster’s exercise of the non-devolved functions.

Kilbrandon comments that Northern Ireland was intended to have “a very considerable degree of financial responsibility and independence” and to have financial freedom “comparable to that which might be enjoyed by a province in a federation”. The concept was essentially just taken off the pre-war Whitehall shelf and applied to Ulster. There was little reason to think, at the time of a brief 1919-20 economic boom, that it would not work. In 1920, the whole island of Ireland was estimated to yield tax revenues of £41 million (about £1.9 billion in today’s money) and to have non-imperial services costing £23m, yielding an imperial contribution of £18m, of which Northern Ireland could afford to pay £8m. But the economy of the post-war world was very different.

Britain’s debt was about 130 per cent of GDP, and austerity – after 1918, public spending, not all of it military, was cut by 75 per cent – was the main means of tackling it. Sterling, tied in value to the gold standard, was over-valued, so exporters struggled. Interest rates were high – up to 7 per cent – to attract savings into the UK to replace US wartime loans.

In this environment of depressed investment and demand arrived demobilised soldiers, sailors, and airmen aggravating UK unemployment, which rose from about 2 per cent in 1919 to around 10 per cent in 1921. Thus, Kilbrandon records: “The financial plan laid down … by the Government of Ireland Act 1920 was defeated almost as soon as the Act was passed. With the onset of economic depression, incomes in Northern Ireland fell and unemployment rose.

“There was a corresponding reduction in Northern Ireland’s revenues from taxation, and a corresponding increase in its expenditure on unemployment relief.”

This became all the worse when the Great Depression of the late 1920s hit. The imperial contribution dwindled, the provincial government struggled to finance its own services, and by 1938 the province relied on money transfers from the UK. A bold home rule experiment had failed.

There are plenty of lessons here for Scottish home rulers. First and foremost is that what may work in one economic context may be disastrous in another. Global economic forces, which are now much more rapidly acting and intense than they were a century ago, can swiftly turn a benign economic climate into a harsh one.

Second, greater autonomy over taxes does not automatically lead to greater prosperity. Again, external economic events – and the threat of deflation now hanging over the eurozone is a major one – can drown any locally generated green growth shoots.

The current rush to draw up a new home rule-style settlement is mainly politically driven, aimed at fulfilling referendum vows and appeasing Nationalist emotions. There is nothing particularly wrong with that, so long as proper consideration is given to economic considerations, which is especially important in today’s febrile economic climate.

My big worry is that scant attention is being given to the economic dimension. Northern Ireland’s history is a stark lesson on how badly wrong an ill-designed settlement can go.