The geographical balance of the UK economy

Devolution will continue to be an important policy issue.

By the end of 2013, the UK economy will be less of a highly integrated fiscal and monetary union than it was at the start of the year:

  • The tax changes in the 2012 Scotland Act will continue to bed down, with the Scottish Government looking beyond 2014 to the additional powers which an independence ‘yes’ vote (if it happened) might offer, or for a further review of the powers in the Scotland Act, in anticipation of a ‘no’ vote
  • The final outcome of the Silk Commission is likely to be a recommendation that the National Assembly for Wales be granted broadly similar powers to Scotland, with perhaps even greater flexibility around Income Tax.
  • In Northern Ireland, the long running debate around potentially devolving Corporation Tax varying powers may not have reached a conclusion - or at least one that satisfies everyone. However, there is likely to be a growing interest in a so-called Plan B – a commission similar to Calman (Scotland) or Holtham (Wales) to review wider fiscal powers.
  • Lord Heseltine’s proposals to devolve close to £50bn to stimulate economic regeneration will have been analysed and we will have a clearer understanding of just how far Westminster/Whitehall is prepared to go in devolving spending to the English regions, with the impact of the Birmingham pilot being influential

There will be discussions to reform Treasury funding. 

As 2013 comes to a close the Barnett Formula for allocating Treasury funding between England and the other three "devolved nations"/territories will still prevail, but a widespread belief that it has long been in need of reform may be stimulate demand for action. As the devolved nations flex their devolved fiscal muscles and the northern English regions experience a slower pace of economic recovery the notion that they a better deal in terms of government funding will probably become more widespread and the reality of wholesale Barnett reform, with significant implications for the English regions, may be coming closer.