In denying the Scots the option of devo-max, David Cameron made arguably the most monumental mistake of any recent premiership. The fairly narrow ‘no’ vote could lead to the worst possible of outcomes.

The economic justification for a union between two countries is that it allows for the provision of joint public goods more efficiently. This may include things such as border control (assuming that both Scots and English would like free migration between the two countries), foreign policy and defence, but probably very little else. It would also satisfy traditionalists who would like to see the two nations stay together: we may be ‘better together’ but we don’t have to have the same pensions systems.

Indeed, if we had a union with nearly all powers devolved, this would take us back to the situation that existed at the time of the Act of Union. At that time, the government did very little except manage debt and provide defence. Everything else was devolved – to the people.

So, what about everything else? Pensions, welfare to people of working age, education, health, policing, justice, and so on, make up the vast majority of public spending. The economic evidence suggests significant efficiency gains from fiscal decentralisation in these areas. However, these efficiency gains are only realised if the decentralised entity is also responsible for raising the taxes to finance the services.

As such, I would propose that, apart from a very small number of union-funded items financed by a single union-wide tax, Scotland should have complete tax raising powers and complete control of its own spending. There would be no direction from Westminster. Existing debt would be managed jointly but, in the future, the union as a whole would only incur debt in relation to the tiny number of things it financed on a union-wide basis. If Scotland could not raise the taxes to pay for spending on welfare it would have to raise debt on its own account with no possibility of any bailout. This debt would not be taken as collateral or bought in monetary policy operations by any union-wide central bank under any circumstances.

There would be other substantial benefits from this approach. The Rest of the UK and Scotland could decide on the policy mix that most closely matched the wishes of the electorate in each nation. Each nation could copy policies that worked from the other. And fiscal discipline arising from Scotland directly raising revenue to fund its welfare system would make it more likely that the system would be reformed. When it comes to issues such as regulation and monetary policy, the two nations – still in the United Kingdom – could either agree to go their separate ways or agree a common policy.

It might be argued that all this will all happen in any case now there has been a ‘no’ vote. However, if Cameron had presented devo super-max as a referendum option at the start, it could have been granted on his terms. There could have been a UK parliament to decide on a very small number of issues (such as defence) and Scottish MPs would have had no say on any other matters.

However, in the post-referendum chaos, it is likely that a scrap between the various interests will lead to a compromise position whereby Scottish MPs are allowed to vote on the additional devolved matters in the British parliament – especially if Labour wins the election in May. In other words, there will be a group of MPs who are voting on issues that have nothing to do with any of their constituents. This situation existed in the nineteenth century through the concept of ‘rotten boroughs’. They were mainly abolished in the 1832 Reform Act. The outcome of the negotiations following the result this morning risks taking us back in that direction. This is the fourth best outcome.

The best outcome would have been ‘devo super-max’, refused by Cameron. The second and third best outcomes (in no particular order) would have been independence and the status quo. The victory for the status quo is likely to lead to the worst of all possible outcomes – devo max with Scottish MPs still voting on issues that do not affect Scotland.

In many areas of government policy we at the IEA argue that the pursuit of the perfect is the enemy of the good. In this case, Cameron’s rejection of the perfect has been the friend of the worst possible outcome. Or, to put it another way, the pursuit of the mediocre has been the enemy of the perfect.


An earlier version of this article was published in City AM.

Comments (1)
The best option by far, would be for each MP to become the prime mover in his county, establishing an administration locally with exclusive tax raising and borrowing powers etc and for Westminster to become an administrative entity receiving a budget from each of the counties in order to undertake centralised operations such as defence and infrastructure as required. In other words a totally federalised country without a central parliament. This would bring power back to the people and, real democracy back to the UK and give these wretched MP's something to do other than chew the cud.

Post new comment

The content of this field is kept private and will not be shown publicly.
Type the characters you see in this picture. (verify using audio)
Type the characters you see in the picture above; if you can't read them, submit the form and a new image will be generated. Not case sensitive.

As in all IEA publications, the views expressed in this blog are those of the authors and not those of the Institute (which has no corporate view), its managing trustees, Academic Advisory Council or senior staff.

Previous blog posts


Len Shackleton
18 September 2014

Greg Dyke, the Chairman of the Football Association, is proposing a new set of rules about the eligibility of non-EU footballers for work visas. The proposals, which would aim to reduce the...
Ryan Bourne
17 September 2014

With low productivity, high inflation and terrible industrial relations, in 1977, Britain was a basket case. So that year, businessman John Hoskyns decided to dedicate substantial effort to analysing...
Christopher Snowdon
16 September 2014
1 comment

The economist Julian Simon once wrote that ‘the economic study of advertising is not deserving of great attention’, ruefully adding that ‘this is not a congenial point at which to...
Ryan Bourne
14 September 2014

Most politicians and commentators think the ‘cost of living’ and its inverse ‘low pay’ are areas of serious concern for public policy. But for some, like the journalist Owen...
Ryan Bourne
12 September 2014

Concern about ‘low pay’ and the ‘cost of living’ are two sides of the same coin. Pay is deemed ‘low’ when the prices of things we need to buy are rising...
Kristian Niemietz
11 September 2014
1 comment

In this video the IEA’s Senior Research Fellow Kristian Niemietz outlines a free-market approach to the cost of living squeeze. Building on his research in Redefining the Poverty Debate, he...
Andreas Strongolou
10 September 2014
1 comment

Planning controls constitute a significant denial of private property rights, with serious economic consequences. The most obvious is the severe housing crisis. However, businesses also suffer as...
Ryan Bourne
9 September 2014

Why do politicians advocate policies which deal with the symptoms of problems rather than the underlying issues directly? In the past week we’ve seen Liberal Democrats react to expensive...
Christopher Snowdon
8 September 2014

Owen Jones’ new book, The Establishment, promises to be more than your average left-wing polemic against austerity, banksters, globalisation and ConDems. The blurb promotes it as an expos...
Ryan Bourne
7 September 2014

Today marks the start of the IEA’s ‘Cutting the UK's Cost of Living’ month as part of our 2020 Vision programme – an attempt to shine a light on key issues which we...
Matt Ridley
5 September 2014

In this interview for ieaTV, Matt Ridley explains that shale gas is readily available in the UK and can be extracted relatively cheaply. Moreover, the environmental problems associated with the...
Philip Booth
3 September 2014

It is often argued by proponents of free markets – especially within the Conservative Party – that we should not pursue equality of outcomes but, instead, pursue equality of opportunity....
John Burton
2 September 2014

One of the most important controversies generated by the Scottish independence debate relates to the continuation (or not) of the present sterling zone between Scotland and the rest of the UK (rUK),...
Carlo Stagnaro
1 September 2014
1 comment

You can’t have your cake and eat it too – even when it comes to energy. Germany has been a champion of the ‘green economy’ for the past decade, but now the time has come to...
Kristian Niemietz
28 August 2014

“Labour’s summary of the ideas […] says they “clear the way for a massive shift of resources from the NHS to private companies”. […] [P]rivate companies (Labour...
Jared Meyer
22 August 2014
1 comment

Prime Minister David Cameron’s “all-in” push for developing the UK’s shale gas reserves continues to generate what seems to be strong public backlash. While vocal protesters...
Philip Booth and Kevin Dowd
20 August 2014

Proponents of Bitcoin like to suggest that it will be the money of the future. Critics point to its price volatility, the evidence of a Bitcoin bubble and other problems. Both sides make valid points...
Philip Booth
19 August 2014

For the last five years, politicians of all shades have been banging on about how we should adopt this or that aspect of German economic policy. George Osborne argued in 2011: "We want to learn...
Christopher Snowdon
18 August 2014

Obesity prevalence has increased sharply in Britain since the 1970s. Many public health campaigners portray Britain’s obesity ‘epidemic’ as being caused by the increased...