If you are Scottish, there was some bad news this week. It wasn’t just the weather or another droning policy speech from Nicola Sturgeon. It was this. Your taxes just went up. From the start of this tax year, Scotland imposed a new higher rate of 46pc on its highest-earning citizens. For the first time, the amount of your monthly pay packet taken by government will vary across the different countries of the United Kingdom.It is not just Scotland, however. If you are Welsh, and buying and selling a property, you will also face a new form of property tax. Likewise, in Northern Ireland you may soon have a different rate of corporation tax.Piece by piece, tax competition is arriving between the countries of the UK. You can debate the pros and cons of each individual tweak for as long as you want. But one point is surely indisputable. Different taxes for different parts of the UK are a good thing. It will encourage innovation, force government to behave more responsibly and make the system more flexible. The taxes themselves might be bad – but the competition will be great.The SNP has been arguing for years that the rich should pay higher taxes to support more generous public services. Now it has a chance to put that theory into practice. From this week, anyone earning more than £150,000 a year will pay more in tax than in the rest of the UK. The performance of the Scottish economy is already dismal, and maybe higher taxes are a way to fix that, but you wouldn't want to bet your last bottle of single malt on it. And yet, while that might be true, a majority of Scottish voters clearly support centre-Left economics, and they are surely entitled to see if it works.
As are the Welsh. From this month, the country has its own unique taxes for the first time in eight centuries. A land transaction tax and landfill tax will make a significant difference, with the regional assembly predicting they could raise an extra £1bn in revenue. Likewise, if the original timetable had been stuck to, Northern Ireland would have had its own rate of corporation tax from this week – it would have been 12.5pc to match the Republic. That was postponed, but is still on track for 2020. We are heading towards a patchwork of different rates. And yet no one should be scared of that, even if it will cause a few headaches for accountants. In truth, different rates could be great – for three reasons.First, it will encourage innovation. Maybe the Welsh way of taxing land will turn out to be better than the system of stamp duties – and given the way chancellors now change the rates about as often as their socks it could hardly be much worse. Perhaps Scotland will discover that a 46pc top rate raises revenue painlessly? Maybe Northern Ireland will find that lower corporation tax turns Londonderry into a tech hub? We will find out in the next few years. The more new ideas are tried, the better. If they work, the rest of the country can copy them. If not, at least we learnt something. Next, it will make the assemblies and parliaments more responsible. There is nothing easier in the world than spending other people’s money. As power has been devolved, the different countries within the UK have taken far more control of their own affairs. If they want to spend money, then they should be raising it as well. That way, they will have to explain to their voters what taxes they are increasing, and how they are planning to spend the cash.
Finally, it will be more flexible. The UK has an incredibly varied economy, from hyper-rich London, to middle-income manufacturing regions, to relatively poor ones. It may well be impossible to design a single tax system that suits all of them. In London, you could make a case for higher property taxes; in Lancaster, less so. Over time, tax rates could be tailored to local economies.
Lots of countries have flexible rates. Switzerland has tax competition between its cantons, and the US between different states. It may well have resulted in lower taxes overall. The taxes the Scots or the Welsh introduce might be good or bad. But the competition between the four UK nations can only be an improvement.
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