Tax and spending devolution: for richer or poorer?

Four knights battle for advantage

The big question about the Prime Minister's plan to hand more control over taxes, spending and welfare to the four nations is how far this would end the subsidy of Scotland, Wales and Northern Ireland by England, and especially by London and the South East.

For all that it may sound attractive to the Scots, Welsh and Northern Irish to have greater influence over their respective economic destinies, presumably that would be less desirable if at a stroke they became poorer.

The point is that as and when there is an English parliament for English people - of the sort that the former Tory minister John Redwood has been demanding, and David Cameron seemed to concede today - the financial transfer from England to the rest of the UK may be harder to sustain.

So these constitutional reforms will be tricky, if not dangerous - if at least a part of the current glue that holds the UK together is a redistribution of resources from England to the rest, and that glue is progressively removed.

Being British right now means in part that public services and living standards are not too far apart in quantum and quality wherever you happen to live. But what if the overhaul of the UK's budget-making or fiscal constitution waters down that glue.

How much is at stake?

Well, spending on public-sector services per head is highest in Northern Ireland, £10,900 and it is lowest in England, at £8,500.

The figure for Scotland - beneficiary of the famous or notorious Barnett Formula, which formalises an income transfer from England to Scotland - is £10,200.

So expenditure on public services in Scotland is a fifth higher per person than south of the border, and it is 28% higher in Northern Ireland.

In Wales, the increment on public-service spending is 14% - which the Welsh have often complained is too little, compared with the transfer of income to Scotland.

Now one way of looking at the scale of the transfer is to look at the amount of income - or what is known as gross value added - generated in each country.

So English gross value added per head is highest, at just under £22,000, and it is lowest in Wales at £15,400.

The English enjoy public-service spending per annum equivalent to under 40% of the income they generate, whereas annual outlays on public services in Wales are equivalent to more than 60% of nationally generated income per head.

The ratios for Scotland and Northern Ireland are just over 50% and not far off 70% respectively.

In a UK of considerable social and cultural solidarity that prevailed for most of the twentieth century, these sorts of disparities between income and outlay between the nations were relatively uncontroversial: they captured the idea that all UK citizens are in it together, as it were.

But today it seems almost inevitable that in David Cameron's brave new world of greater national fiscal self-determination, some English nationalist MPs on the right of the spectrum may increasingly view Wales - and Scotland and Northern Ireland - as de facto socialist paradises excessively featherbedded by the English.

That said, if the nations are given much greater control over income taxes - which appears to be what is on offer - could they not pay for whatever public services they feel they need out of these locally levied taxes?

Not remotely.

Income and other direct taxes per head in Wales raise £5,564, considerably less than the UK average of £7,360, and nowhere near enough to cover public service expenditure.

There is a similar mismatch between direct income taxes and public spending throughout the UK.

Borrowing and indirect taxes, mostly VAT, make up the difference. And there is not the faintest chance that national parliaments will be given the power to increase VAT, because this would be an admin nightmare for businesses and undermine the UK as a frictionless single market.

All of which means that it may sound exciting and empowering in Wales, Northern Ireland and Scotland to make their own choices about taxing and spending.

But it may also be a bit nerve-wracking (or worse) if it provides cover for Westminster to reduce the income transferred to them from English taxpayers.