Helen Miller, associate director (tax) of the IFS, opened proceedings by discussing the current political landscape which has prompted wider discussion of tax devolution. ‘Historically the UK has had a very centralised tax system, with money being collected on the edges and pooled towards the centre’. She noted that ‘England is an outlier’ compared to the other countries in the UK. Unlike Scotland, Wales and Northern Ireland, England does not have its own government and has no devolved tax powers.

David Phillips, associate director at IFS, provided an overview of the arguments both for and against devolution. He noted that devolution had support because it improves accountability and allows local authorities to ‘align incentives on investment that have an economic return’. Centralised tax has a tendency to generate ‘a reliance on grants, which leads to lobbying of central government’.

However, he noted that significant disparities in earnings between different localities can reinforce inequality. In the case of England this was particularly true, he said, where in one-quarter of council areas, income tax was less than £3,800 per head, and in another quarter was greater than £6,200 per head.

Neil Lee, an associate professor at the London School of Economics (LSE), said that since the 1970s, and despite ‘initially quite negative’ empirical evidence, there has been a greater drive on a global scale for regional tax devolution among voters. He noted that one significant issue that was created through the devolution of some taxes (such as corporation tax) was a ‘zero-sum competition’, with local authorities ‘bidding down’ in a race to the bottom, therefore ‘giving too much power to the corporations’.

Based on the evidence collected in more recent studies, which show that the positive and negative effects tend to balance out long-term, he concluded that tax devolution ‘would not do us much harm’ as long as the quality of local government is kept sufficiently high. This, he said, was the major impediment to devolution of tax in England: ‘I think many local governments in this country are not up to the task’.

Joanne Walker, technical officer for Scottish taxes at CIOT, discussed the ‘small amount of flexibility’ available to Holyrood in managing tax and reiterated the body’s recently-published findings, which showed that 60% of Scots surveyed believed that the relationship between UK and Scottish taxes is difficult to understand. 52% said that they had little or no understanding of the definition of a Scottish taxpayer and 66% did not know that income tax was the responsibility of both Westminster and Holyrood. She took this as evidence that engagement with tax devolution was relatively low and understanding was generally poor across the UK and recommended ‘an improvement in awareness raising’.

Julia Goldsworthy, director of strategy at the West Midlands Combined Authority, agreed on this point, saying ‘there is probably limited appetite…for large-scale devolution’. Tax devolution was ‘quite complex, quite opaque to the punter on the street’ and ultimately ‘this conversation cannot be held in a vacuum’. She supported the general principle but said that it ‘about having a different conversation with government - making it a process rather than an event’. There were broader issues to discuss, including ‘getting form to follow function - you cannot have the debate about tax devolution without taking about what public services will be provided locally’. 

Report by James Bunney