No, this blog is not about the Ibrox side. Unlike the Herald and Reporting Scotland we often let a day go by without mention of the latest crisis rocking that once-great team. Despite the last blog implying I was crying off politics, the jousting at UK level and the bun fight at Holyrood over whether today’s finance figures released for Scotland implied sunlit uplands or doom to rival Atlantis for its future was simply cadence to the bun fight at Westminster over whether Osbo’s austerity or Balls’ brinkmanship constitutes the most direct and unerring road towards total disaster.
The debate is unedifying. As Andrew Wilson accurately observes in SoS:
“The annual Scottish numbers fest is never an edifying sight and serves only to underline what a juvenile political culture and discourse Scotland currently has, at least when it comes to understanding the sustainability of public finances. Even otherwise informed and intelligent commentators indulge in the doublethink involved in framing the Scottish budget debate. It is, and always has been, nonsensical.”
The trouble is that normally competent spokespeople making the case for Scotland’s economic robustness and ability to go it alone like John Swinney have been drawn into said bun fight, accusing those who would question robustness of “talking Scotland down“. Several people other than Andrew have made more helpful (and not necessarily positive) contributions, including Kevin Hague in his Chokka Blog and Brian Ashcroft’s Scottish Economy Watch.
Now, however emotional you are on the topic of independence, it is irrational to bring that emotion front and centre when making the fiscal case either way. But that’s just what leads to a number of arguments masquerading as objective when the authors have an agenda. That Prof Ashcroft is married to Wendy Alexander does not disqualify his contributions. Let’s quickly examine some charts. Scotland does run a deficit worse than the UK’; this is shown in Figure 1
That’s pretty conclusive: Scotland consistently runs a fiscal deficit worse than the UK (with Scotland’s figures removed)—the 5- and 10-year averages underscore this. Looking at the absolute figures for revenues and spend for Scotland gives the charts shown in Figures 2 and 3 below.
The black line in both figures is the total of taxes raised and so anything above that constitutes a deficit. With a £2bn hole expected in next year’s figures for Scotland due to oil price drop, this picture won’t change any time soon. Several items jump out from these last two charts:
- increases in revenue raised through employment taxes and VAT have been offset by decline in oil & gas revenue
- education spending has effectively stagnated since the fiscal crash
- transport spend has been maintained after a more than doubling
- health and social protection have increased steadily by 10%
- everything else—including justice—has stagnated.
The Scottish Government Economic Strategy has the objectives of “achieving a productive, cohesive and fairer Scotland.” It will achieve this by boosting investment, innovation, internationalisation, and inclusive growth. Where Prof Achcroft diverges is, while accepting that the Computer General Equilibrium (CGE) Model used was a rigorous basis for analysis, assumptions made on the basis of implementing Smith Commission recommendations (a.k.a. “Devo Max”) were not. He finds no substantiation for:
an increase in productivity by 0.1% per annum over 10 years
a narrowing investment gap between Scotland and its competitors
- a boosting of Scottish export receipts by 50%
The Scottish Government’s response to GERS foresees greater GDP, jobs and tax revenues because of the ‘Full Revenue Retention’ concept. In this, all the tax revenues generated by growth are re-spent in Scotland, in contrast to the Smith Commission powers. Prof Ashcroft’s difficulty with this is the Scottish version of having your cake and eating it:
“It is wholly unrealistic to imagine a policy in which, in addition to the Barnett formula, the Scottish government also received any increases in Scottish tax yield.”
These seem valid points that have yet to be properly countered. In the Autumn Statement the gap between UK spending and taxation income sat at £64 billion for this year. Osborne made good that difference by borrowing and adding to the ballooning national debt. In this week’s budget, we will learn the latest plan of eliminating this shortfall, which both Labour and the Tories are pledged to do, just at a slightly different pace.
But, rather than pick up the cudgels offered in the discussion above, Scottish Labour’s deputy leader, Kezia Dugdale, warned Scotland that, effectively, these Tory led cuts were preferable to home rule and the devolution of financial control to Holyrood. It is a retread of the old saw that Scots should “hold on to nurse for fear of something worse“. So even when cogent arguments that could be deployed against even fiscal autonomy present themselves, they are ignored.
As Gordon Wilson, former SNP Leader and Dundee MP, and never one to temporise with the goal of full independence once pithily observed: “Fiscal Autonomy? It sounds like an Irish folk singer!”
So, while unionists are (again) doing themselves no favours by selecting increasingly strident cheap shots against a hated (but robust) SNP government, the SNP themselves are missing the chance to pitch more substantive arguments than their hapless unionist opponents seem able to manage, despite all the foregoing.
But, even leaving aside some of the more optimistic planks in their independence argument, fiscally responsible moves to address some of the detail are available to them. To date, they have made a virtue of sustaining a number of programs that need to be examined both in the light of present fiscal constraints and also regarding what needs to be done to change the relative position in Figure 1 above. These include:
- Revamping council tax. A blog three years ago made a proposal how to double council tax income by splitting upper bands and creating a ‘mansion’ element. That would gain around £2bn, entirely from people with houses worth £1/4m and more.
- Concession fares cost over £250m. While most are vital, there is neither distance restriction not means testing, both of which could save £100m
- Free personal care has tripled in cost to £350m since its introduction; free eye exams have doubled opthalmic costs to £100m. While both benefits may be desirable, but the question must be asked whether their free availability of either is affordable.
- While nobody argues against the NHS or its adequate funding, its performance in fiscal management falls woefully short of its medical prowess. An accountable management and clean-out of dead wood that allows heating to be controlled by opening windows or counts food plated as food consumed could save 10% of its £3.7bn increase over the decade cuts £350m off the deficit.
- But the biggest question is whether the Social Protection budget could be reduced or at least spent more effectively. The £7bn increase over the last decade also offers a chance for 10% savings through service re-provision and tighter control of private company mark-ups. This would shave a further £700m.
Given a fiscal deficit (see Figure 2) of some £10.5bn in Scottish public finances, even all these measures would only reduce the deficit by a third. But that is enough to reverse the relative position of Scotland and rUK. The question immediately becomes: if Scotland would not be viable then the argument must be that the UK is not viable as a country.
And were Scots to get more stroppily partisan, a chunk of the public expenditure burden currently allocated to Scotland could be quibbled with, as this synopsis does in Figure 4.
Some items listed on the right of Figure 4 could be quibbled with as valid expenditures on Scotland’s behalf. But, if you believe, as many Scots do, that Britain’s pretensions at being a world power are already threadbare, then Scottish funding of wars abroad or a £40bn defence budget that includes Trident and super-carriers but no maritime patrol capability demand rethinking. Even allowing refurbishing parliament and High Speed Rail may be acceptable burdens to share, some significant element of the £17bn “spent on Scots’ behalf’ would disappear with Scotland’s more modest role, were it to follow the Ireland of a century ago and leave the UK. Ireland’s posture now is nothing like the UK’s.
It would be helpful if both sides of the argument would address the above and paint a realistic picture of Scotland’s financial health as a standalone country and not one simply sliced off the UK as if nothing else would happen. With oil under $60 a barrel, nobody should argue that it alone provides Scotland fiscal salvation. But, given adjustments above, any Scottish deficit would be close to half that of rUK’s. That further adjustments to achieve balance must be made are a given. But these need not be as draconian as both Osborne and Balls are offering in their 21st © equivalent of ‘blood sweat and tears’.
Kezia Dugdale argues swallowing the UK’s huge fiscal time bomb is the lesser of two evils. But, turning around an £80bn oil/whisky/tourism/engineering economy £120bn in debt running a £1k per head deficit is more plausible—and easier—than solving the present £900bn UK service economy that is a whopping £1,500bn in debt and still running a £1.8k deficit per head.
Why keep hold of nurse if she’s actually drowning?