It is highly likely that the Scottish people will wake up after the votes have been counted in September’s referendum with their status as citizens of the United Kingdom confirmed. That outcome would please the government.
However, what would follow could be a constitutional shambles. The Scottish government would surely demand that more powers are devolved to Scotland – more spending decisions and more control of key areas of economic and social policy.
And, if there is a Labour majority in the UK parliament, why would the government refuse such demands? A group of 59 Scottish MPs – the vast majority socialist of one description or another – can act like MPs from eighteenth century rotten boroughs, using their numbers to impose measures on England and Wales that have no effect on Scotland.
At the same time, a socialist government in Scotland will run its own affairs in more and more areas of economic and social life.
In itself more devolution is no bad thing. Indeed, the coalition government should have engineered such a transfer of powers, but in an organised way that was accompanied by constitutional reform.
An historic opportunity was missed by the coalition in not offering the Scots the option of ‘devo max’ in the forthcoming referendum. That would have allowed the Scottish people to have voted for complete transfer of fiscal and tax raising powers to Scotland over nearly all areas of government spending.
At the same time, a coherent constitutional settlement could have been offered that ensured a ‘Rest of UK’ (rUK in civil service language) parliament was formed that included MPs only from England, Wales and Northern Ireland.
An rUK-Scottish inter-governmental body could have been established to deal with foreign policy, defence, monetary policy, and so on, which would be the responsibilities remaining with the Union. Interestingly, in fact, in the last poll conducted before the option was ruled out by the coalition, devo max was the favoured option.
In many senses, devo max would take us back to the Union that we enjoyed from 1707 to the turn of the twentieth century – in those days the government did not spend much money other than on foreign policy and defence.
What would be so good about the arrangement? Not surprisingly, the economic evidence suggests that simply delegating decision making about how centrally allocated money is spent - as happens in the UK at the moment – does not improve the efficiency of government. However, the dynamics would be entirely different if Scotland were responsible for both raising and spending, say, 85 per cent of all taxes levied on the Scots, with only a small supplementary tax determined jointly by Scotland and rUK for funding defence and other joint functions.
Evidence produced by the OECD suggests that a 10 percentage point increase in the proportion of tax revenue raised by decentralised units of government increases government efficiency by 10 percentage points. Fiscal decentralisation also delivers stronger economic growth.
The reasons for this are very clear. Perhaps, most importantly, the people of Scotland, if they raised all their own taxes, would have an incentive to increase the efficiency of spending and also reduce spending because they would feel the benefits in terms of lower taxes. They would have an incentive to reform welfare because the people of Scotland would be paying the bills and not the people of England.
There would be more possibilities for experimentation with models that were appropriate in the Scottish context. Of course, devo max would have to be accompanied by strong balanced budget requirements and a strict ‘no bail-out’ rule when it came to government borrowing.
Only 5.3 million people live in Scotland and 70 per cent of the population lives in the central belt that includes Glasgow and Edinburgh. When the welfare state is being funded by people living next door to the beneficiaries the incentives for reform will become that much greater.
Arguably, David Cameron also made a huge political mistake in preventing a referendum on the devo max option. The Labour Party won no elections in the ‘Rest of UK’ between 1950 and 1997.
With proper Scottish fiscal accountability, devo max could lead to Scotland rediscovering its classical liberal roots as well as a more market and business friendly government in the rUK.
Instead, we could be left with Scotland running its own affairs and its socialist members of parliament running England’s affairs too.
This article was originally published by the Daily Telegraph.