Will tax tear the Union apart?

From Irish Home Rule to Scotland now, money is always a bone of contention

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“It is impossible to be sure of anything,” Benjamin Franklin declared, “except death and taxes.” No doubt. But does one want to read a book about either? Taxes often determine history. In 1765, the Stamp Act, taxing the American colonists , led to the war of independence under the slogan “no taxation without representation”.

Irish nationalism was fuelled by the unwillingness of British taxpayers to send money to “unthrifty” Ireland during the famine of the 1840s. Much of the debate on Scottish independence is coloured by Scottish claims that the British tax system prevents them from exploiting their full potential, while the English retort that they are fed up with subsidising their tiresome northern neighbour. As Alexis de Tocquveille noted in the 19th century, there is hardly any political question that does not “derive from taxes or end up in taxes”.

No wonder, then, that the claim of fiscal injustice so often underpins campaigns for devolution and independence. The titular “Dreadful Monster” of Julian Hoppit’s new book is the taxing state, headquarBrexit tered in London, while the “Poor Relations” are Northern Ireland, Scotland and Wales, and some of the regions of England. Hoppit shows how the history of financial relations within the United Kingdom, from the 1707 Acts of Union between England and Scotland to the present day, is profoundly relevant to the current constitutional debate.

The United Kingdom has long had to confront two major imbalances. The first is that between an over-centralised, overbearing England and the non-English parts of the kingdom, an imbalance easier to resolve in the past than now, since the sense of Englishness used to be weaker than the sense of Scottishness or Welshness. That may be altering as a result of devolution and Brexit, both of which raise the dilemma of Englishness, first articulated long ago by Henry James in The Tragic Muse, which describes an Englishman, Nick Dormer, surveying a landed estate that he will never inherit, and feeling “the sense of England – a sort of apprehended revelation of his country”, which “laid on him a hand that was too ghostly to press, and yet somehow too urgent to be light”.

The second imbalance is within England itself, between London, Europe’s richest region, where most of the exam-passing classes live, and the rest of England, an imbalance which has had marked electoral effects. London was the only region of England to oppose in the referendum, and is geographically closer to Amsterdam, Brussels and Paris than to Belfast or Edinburgh. No fewer than one quarter of Labour MPs represent London constituencies, while the last three Labour leaders all hail from north London.

But it is Scotland that complains the most. In the 18th century, Scots felt “that British tax policy was largely developed with reference to English (and often metropolitan English) circumstances”. But some taxes were levied at a lower rate in Scotland than in England, and from the 1780s English rulers became more sensitive to Scottish needs. Under the Union, Glasgow flourished as a commercial city and Edinburgh’s New Town benefited from heavy public investment. Today, while Scots pay the same tax as their English neighbours, they get more of it back, with public spending in Scotland 30 per cent higher than the English average. That has not, of course, stopped the Scots complaining. Indeed, as PG Wodehouse pointed out, it is never difficult to distinguish between a Scotsman with a grievance and a ray of sunshine.

Ireland, as Hoppit emphasises, “was to be a very different story”. During the period of the Union from 1801 to 1922, the Irish complained, with justification, of the unfair burden of taxation. In 1886, one statistician claimed that Ireland was taxed about twice as much in relation to its total income as Britain. But this was offset by the expansion of central government functions in Ireland. It was difficult, if not impossible, to agree on what the net balance actually was.

The welfare legislation of the 1905 Liberal Government – old age pensions in 1908, health and unemployment insurance in 1911 – turned the balance radically in Ireland’s favour. It benefited disproportionately from pensions, since it had a bigger than average proportion of the elderly and, with registration of births in Ireland not having begun until 1864, applicants could overstate their age. One diarist recorded a pensioner in the west of Ireland, who was safely delivered of a strapping son.

An independent Ireland could not have afforded the same level of benefits as the rest of the United Kingdom. Unless the Irish standard of living were to be drastically reduced, Home Rule, as envisaged by Asquith’s Liberals in 1912, would have had to be accompanied by a British subsidy. But, as the Unionist leader Sir Edward Carson caustically pointed out, divorce is not usually accompanied by wedding presents – something that Scottish nationalists might usefully bear in mind. Nevertheless, when Ireland became independent, the British Government wrote off Ireland’s pre-1921 national debt obligations, while in 1938 the £100million owed in land annuities was compounded into a single payment of £10million.

Hoppit steers the reader deftly through complex historical statistics, though the narrative does get clogged with detail. He believes, mistakenly in my view, that there can be an objective determination of the needs of different parts of the country. But how can one objectively compare the needs of a remote area of the Highlands with those of, say, inner-city Liverpool? I suspect, instead, that whatever is politically acceptable will in due course come to be regarded as fair.

Hoppit is, of course, right to see fiscal matters as lying at the core of the United Kingdom’s tensions. Devolution has made explicit the territorial distribution of taxation and spending. Before that, taxpayers had been considered “without regard to geography and only in respect of how rich or poor they were”. It was a fundamental principle of the Attlee government’s welfare state that benefits and burdens should depend not on geography but on need, so that there were comparable standards of public services in different parts of the country. That indeed was why Aneurin Bevan was so opposed to the idea of a separate Welsh health service. Devolution now raises the question of how much divergence in welfare policies is compatible with the continuation of a social and economic union in the United Kingdom.

Hoppit quotes me as saying that “finance is the spinal cord of devolution”, and The Dreadful Monster provides much useful ammunition for both Unionists and Nationalists in their respective campaigns. But finance is not fundamental to arguments about independence. No former colony asked whether it could afford independence. Nor did Ireland. Nor does Scotland. “You cannot,” a Conservative official in Edinburgh has pointed out, “answer a poem with a balance sheet.” The Unionist case must be one for the heart as well as the head.

Scots pay the same tax as their English neighbours, but get much more of it back