Peter Jones: Boris can be Scots’ fiscal champion

As Holyrood seeks more tax powers, Salmond may have an ally in the shape of the Mayor of London, writes Peter Jones

Alex Salmond and Boris Johnson may be of similar mind when it comes to devolved tax powers. Picture:PA

Boris Johnson is perhaps as far removed, geographically and politically, as it is possible to be from Scottish politics. But could the mayor of London turn out to be an important ally for Scotland and the quest for Holyrood to have more tax powers?

Let’s assume that Scots vote No to independence next September, a bit of a stretch for some readers, I know, but bear with me. The nationalist argument is that should that happen, Westminster will turn its back on Scotland.

This flies in the face of history which says that all recent constitutional change, from the creation of the Scottish parliament to the new tax powers in the Scotland Act, has been delivered by unionist parties at Westminster.

The SNP can certainly be credited with creating the pressure that has goaded unionists into constitutional change, especially the devolution of the latest fiscal powers. But if Scotland votes No in 2014, the nationalist bluff will have been called. So why would Westminster politicians want to do anything?

First, the three unionist parties at Holyrood are all committed to working up proposals to devolve more power to the Scottish parliament. Alex Salmond, should he lose the vote, won’t stop demanding more powers either.

It is possible the various players will be log-jammed in disagreement. But the UK leaders at Westminster are unlikely to tolerate that. They face elections in 2015 and their Scottish parties also go to the polls in 2016 and UK leaders will want their parties to be winners in both.

Polls show that Scottish voters want Holyrood to have more powers, including fiscal devolution. Though they give that a lower priority than dealing with unemployment and public services, it also appears that voters use parties’ interest in more devolution as a kind of barometer to judge how concerned they are about Scotland. So there is an electoral interest in moving further down the devolution road.

Second, there is constitutional agitation in the rest of Britain. A consensus has developed across the four main Welsh political parties that the Welsh Assembly ought to have more law-making and tax-raising powers. A Welsh commission will make recommendations in the next year.

In Northern Ireland, and from across the republican-unionist spectrum, there is also a demand for more fiscal devolution. David Cameron’s government has said it will announce a decision on the key demand – devolution of corporation tax – by autumn 2014.

So it is a mistake to think that Scotland is an isolated, lonely, voice. Strong and probably irresistible pressures are building in the other devolved nations for more devolution.

Third, there is England. Regional devolution is off the agenda, but that doesn’t mean that change isn’t happening. In fact, Mr Cameron has been delivering some rather interesting fiscal change.

The main move, pretty much unnoticed in Scotland, concerns business rates. Taxes levied by local authorities on businesses are collected by councils, but then sent directly to the Treasury which sets the tax rates for all of England and recycles the tax yield back to local authorities according to a formula.

This system, which is mirrored in Scotland, is designed to even the tax yield playing field so that councils which happen to have a lot of businesses in their area do not get a huge amount of business rates, allowing them to cut the residential council tax to minimal levels. The formula also gives councils with few businesses more money.

The problem with this is that it gives councils little incentive to encourage business growth. So from this year, English councils will keep half of all new business rates which are generated above a baseline. The government calculates that this incentive will stimulate extra business growth of between £2 billion and £20 bn over the next seven years.

Councils in the Greater Manchester area have gone a step further and agreed with the government a “City Deal”. The Treasury will give them more money if investments they make boost economic development above an agreed level of economic output in their area.

And then fourthly, there is Mr Johnson. He set up a London Finance Commission and in May it recommended that power over all property taxes – council tax, business rates, stamp duties on land and buildings sales, capital gains property development tax – should be devolved along with a corresponding cut in the Treasury grant to London.

Drawing heavily on Scotland’s Calman Commission, it also suggested that the London Assembly have the power to levy new taxes, such as a tourist bed tax. Mr Johnson wasn’t keen but he was enthusiastic about property tax devolution. He declared that London was “an economic giant, a political giant, but a fiscal infant”. Its elected authorities raise only 7 per cent of all taxes paid by its residents and businesses.

The Commission argued that London’s growth demands heavy investment in infrastructure, such as the £14.8 bn Crossrail scheme now being built, which has to be mostly financed by central government.

But the mayor, the assembly, and the borough councils, the commission said, would be better able to prioritise the necessary projects. Indeed, if they were more dependent on the taxes they raised for the money they spend, they would be more likely to pursue investment which promotes economic growth.

Sounds very familiar, doesn’t it? It adds up to pressure across the political spectrum and in all parts of the UK for more tax devolution in the cause of promoting economic growth and at a time when the UK government really needs to do something about growth.

The weakness in the argument is that political certainty about the beneficial growth effects of devolving taxes is not backed by evidence. The London Finance Commission acknowledged that “existing academic evidence was inconclusive about the impact of devolving fiscal powers”.

Nevertheless, the coalition government in its partial business rate devolution and Manchester City Deal has sold the pass on that. Generating growth to bring a swifter end to austerity will be a high priority for all parties at the 2015 general election.

Irrespective of the outcome, but especially if there is a Conservative victory, Boris Johnson, because he is a new player in the fiscal devolution debate and carries big weight in Tory ranks, especially with less progressive elements, could well be the key player in making things happen. Anyone for the Boris and Alex show?