Scotland’s vote to stay in UK heralds wide-ranging changes – but more stability for leasing

UK Prime Minister David Cameron has today confirmed his government’s commitment in principle to “devo-max”proposals to transfer additional powers to the devolved Scottish Parliament. These were promised by all the main UK political parties who supported Scotland’s successful Better Together campaign against secession. The devo-max legislative proposals are likely to be finalized in draft form within the coming weeks and enacted during the first few months of next year, to take effect perhaps in April 2016.

The promise of devo-max came rather late in the day, when it appeared that the referendum outcome might have been much closer. Its precise outlines are as yet still far from clear.

It nevertheless seems clear that personal income tax for residents of Scotland is likely to be at the heart of devo-max. The critical regulatory areas for asset finance that could have been very much affected in Scotland by separation – covering corporation tax, VAT and the regulation of both business conduct and capital adequacy in banking and other financial services – seem to be “off the boil” following the No vote.

Currently the devolved Scottish government, while responsible for a major share of public expenditure, obtains nearly all of its revenue through a block grant from its deemed share of the taxes imposed throughout the UK at common rates. The Scottish Parliament already has powers – though to date it has never used them – to vary its budget by making limited changes in either direction in income tax rates for Scottish residents.

It appears that Cameron’s Conservative Party, as the dominant partner in the present UK coalition government, will propose unlimited devolution of personal income tax rates (though not of the assessment rules) in Scotland. Other UK parties, however, having rather stronger commitments to redistributive taxation in general and some concerns at future possibilities of a “race to the bottom” on tax rates as between Scotland and the rest of the UK, may not wish to go so far.

The wider UK

Financial market sentiment affecting the UK as a whole, in both foreign exchange and equity markets, has now rebounded after the Scottish rejection of secession. The whole country will also be affected by constitutional issues affecting the relationships among the constituent parts of the UK, which are coming on to the political agenda in the aftermath of the Scottish vote.

The once famous “West Lothian question” in British politics, first raised nearly 40 years ago by the late Member of Parliament for West Lothian Tam Dalyell – one of the minority of politicians in Scotland who at the time opposed any form of devolution – has returned with a vengeance and is now riding high. Dalyell had questioned whether Scottish MPs could expect to retain a vote in the UK Parliament on matters that would cease to affect Scotland, under the devolution project which was then already at an early formative stage.

The effective answer to the West Lothian question to date, following the establishment of Scottish (and Welsh) devolution in 1999, has been “yes”. Scottish MPs in the UK Parliament have retained full voting rights on matters that do not affect Scotland (and although those from the secessionist Scottish National Party have chosen not to exercise them, those from the main UK parties do so). This has been widely seen as leaving an anomalous “democratic deficit” for England, particularly within the Conservative Party which has long been much stronger in England than elsewhere in the UK.

Given the promise of “devo-max” in Scotland, this question becomes more pressing. There are now widespread suggestions that in respect of devolved matters UK MPs representing Scotland – and on some matters (where there are varying degrees of devolved powers in other parts of the UK), also those from Wales and Northern Ireland – should not be entitled to vote.

The possible constitutional implications of this are extremely wide ranging, particular if income tax is to become as fully devolved in Scotland as is now envisaged. There is no question of these wider UK issues being resolved before the Parliamentary election due in May 2015. 

Nevertheless it does appear that asset finance business, and the wider private sector financial system, are not now caught up in the front line of the prospective changes in the UK political structure. Civil debt recovery proceedings, together with personal bankruptcy (but not corporate insolvency) law, may well continue to be among the relatively few areas of concern to the asset finance market which are devolved in Scotland.