This picture is a stark illustration that those who argued "vote SNP and get a Tory government" might just have had a point. Certainly if you buy the argument that Labour's woes in England were exacerbated by Tory warnings about the risks of an SNP influenced Labour government, it's hard not to conclude that the SNP have contributed to the Conservatives' success.
No matter; we are where we are.
Sturgeon is now able to negotiate on behalf of Scotland with the extraordinary mandate that the Scottish people have given her party. They have 56 of Scotland's 59 MP's at Westminster (in case you hadn't heard).
The very fact that the meeting took place in Scotland may have been relevant; was this a conciliatory decision on Cameron's part? Of course he may just have been wary of holding the meeting at Number 10 in case Sturgeon attempted to deliver on her promise to lock him out.
What is clear is that the debate about more powers is going to dominate our political discourse for some time to come.
I confess to a certain weariness with all of this. We had the referendum, we had the Smith Commission, we've had the general election, we are less than a year away from the next Holyrood election and of course we now have an EU referendum to look forward to. It would be nice to think that somewhere in amongst all of this electioneering, referendum campaigning and constitutional negotiation our politicians would be able to pay some attention to the small matter of running the country.
But the drip-drip water-torture of the Nationalists' demands for more powers isn't going to stop anytime soon. They've been at this for a while. I was perusing a rather well-stocked bookshelf the other day and was amused to stumble across this book published by "London Scots Self-Government Committee" nearly 75 years ago.
I confess it requires more stamina and patience than I possess not to be at least tempted to consider simply ceding to the SNP's demands for Full Fiscal Autonomy (FFA) - as long as it really is full autonomy, including the removal of any Barnett-style subsidy.
The SNP have back-tracked spectacularly on this demand of course. In a move that must surely have had many of the less well-informed Yes voters scratching their heads, SNP MP & economist George Kerevan went on record last week to say
"For Scotland to accept fiscal autonomy without inbuilt UK-wide fiscal balancing would be tantamount to economic suicide"Remember the transparently misleading economic claims made by the SNP during the Independence Referendum? Their declared determination to "kick the last Tory out of Scotland"? In that context it would be understandable if David Cameron adopted the position - voiced by many senior figures in his party - that he should give the Scots the Fiscal Autonomy they appear to have asked for and see how they like it. After all, it would help his desire to implement English Votes for English Laws and be economically beneficial to the rest of the UK.
So it is to Cameron's immense credit that his statement after the Bute House meeting was so unequivocal;
“I think the option of full fiscal autonomy is not a good option for Scotland inside the United Kingdom. I think it would land Scottish taxpayers with £7 billion of extra taxes or the Scottish people with £7bn of extra cuts. I believe in the solidarity at the heart of the United Kingdom, so it is an honest disagreement between the First Minister and me about this. But we will deliver a stronger Scottish Parliament. Be in no doubt.”As an aside: the "honest disagreement" wording implies that Sturgeon was in fact arguing for Full Fiscal Autonomy without "fiscal balancing" (because that's where the £7bn comes from). The implication is that she was arguing for what her own economist MP describes as "economic suicide". Either we have a kamikaze pilot in control of Scotland's economic destiny or Cameron is playing word-games. What's scary is I find either option equally credible.
"With great power comes great responsibility"
Whether you think that quote is attributable to Voltaire or Spider-Man's uncle Ben, it has resonance in this debate.
The reason why the FFA debate has become so confused is that when the SNP now argue for Full Fiscal Responsibility with "UK-wide fiscal balancing" they are in fact arguing for fiscal power without the associated fiscal responsibility.
As long as we continue to share a currency, a central bank and responsibility for our share of the national debt then our economic fates remain interconnected.
Given that reality it would clearly be unacceptable for a Fiscally Autonomous Scotland to continually run a higher deficit and to be contributing disproportionately to our national debt. Whether some of that debt is ring-fenced to Scotland is beside the point - if the ability of Scotland to bear its share of the national debt becomes compromised, the cost of that would fall back on the rest of the UK. If Scotland is unable (or unwilling) to control its own affairs such that its deficit is in-line with the rest of the UK (i.e. without the need for balancing fiscal transfers like those Barnett delivers), it is only reasonable that the rest of the UK retains control over the fiscal levers. You can't have the economic power if you don't take the economic responsibility.
This is of course why the Yes campaign floundered so badly on the issue of currency; you can't be truly independent and share a currency, you have to adhere to fair fiscal constraints. Ask Greece.
So let's move on assuming that FFA is off the table. This means we need to focus our attention on the debate that was reignited by the referendum and progressed through the Smith Commission: what further powers (in addition to Smith) should be devolved to Scotland?
Fortunately the SNP's written constitution is very clear on this matter
"The aims of the party shall be (a) Independence for Scotland [..] (b) the furtherance of all Scottish interests'"If the Independence Referendum taught us anything it is surely that for the SNP clause (a) trumps clause (b) every time. Nobody can now seriously believe that the SNP were not aware Independence would have made us poorer. Remember that FFA is effectively Independence without the associated independence downsides (most notably currency and potential job losses as businesses who serve the UK from Scotland relocate to avoid exposure to export risk). Even the SNP themselves now tacitly accept - or in Mr Kerevan's case explicitly state - that Scotland's economy is in far worse shape than that we share by being an integral part of the UK.
A simpler illustration of this point is a quote that I have heard attributed to a civil servant describing John Swinney's motivation: "You have to remember, John would live in a cave to be free".
If we're devolving power into the hands of Nationalists motivated by the destruction of the UK then some of us might conclude that devolving more power is not necessarily a good thing. If you think I'm over-stating this case, let me remind you of the written SNP candidate statement made by George Kerevan
".. After Home Rule, independence will follow as the UK economy implodes .."This is the same Mr Kerevan who the Scotsman recently revealed is the SNP member invited to help "draw up plans for a federal UK". Just think about that for a moment.
But it's not just about the potential for what some of us would see as malicious misuse of these devolved powers. After all, if you're one of those who believe the paranoid conspiracy theories about Westminster's vendetta against the Scots, you are just as likely to distrust how those powers are used now.
The more subtle point here is that devolved powers may create a situation where rationally self -interested behaviour could still be value destructive for the UK as a whole.
Take two of the issues that appear high on the SNP's agenda when they argue that the Smith Commission proposals do not go far enough; the Minimum Wage and Corporation tax.
I'm intuitively in favour of raising the minimum wage. We have a problem with in-work-poverty and shifting some of the burden away from the state and on to business doesn't seem unreasonable to me. But as I argued in the Smith Commission submission I contributed to: allowing differential minimum wage levels within the UK would be value destructive. A higher minimum wage in Scotland would damage competitiveness of Scottish businesses and cause some businesses (or entrepreneurs) to move South at the expense of Scottish jobs; a lower minimum wage would be be potentially damaging to social welfare by encouraging a regional low-wage economy.
I've also covered the corporation tax argument elsewhere on this blog. I'm a businessman who would benefit from lower corporation tax in Scotland but I think it's a bad idea for three reasons
- Using differential corporation tax rates to shift business activity around the country is value destructive to the UK as a whole - it simply reduces the UK's overall corporation tax take and hands money back to profitable businesses instead of targeting the less well-off in society
- It creates incentives for creative accounting within businesses to ensure profits are reported in low tax areas of the UK without necessarily needing to change any real economic activity. Just look at the tax avoidance strategies of Google, Amazon, Starbucks etc. - if they'll do that across international tax borders we can safely assume they would apply similar accounting strategies within the UK
- It places an additional reporting burden on UK businesses who would have to report (and audit) Scottish profit separately from rUK profit. Trust me that for many businesses this would be a non-trivial exercise.
There are strong, rational, UK-wide arguments against devolving the ability to set the minimum wage or corporation tax rates.
The Smith Commission may have been necessarily rushed but it seems to me they did a pretty good job. They defined a series of further powers and a set of principles that delivered against "The Vow" whilst limiting the risks of these powers causing UK-wide value destruction. Of course they didn't go far enough for the SNP; nothing short of full independence will ever be enough for the SNP.
So surely it would be appropriate at this stage to focus on delivering the powers already proposed and seeing how these are actually used before pushing for yet more devolution?
Without FFA the SNP may be spared from showing how their "anti-austerity" rhetoric would translate into action if they were actually accountable for the resultant debt ... but with Smith powers they should be able to demonstrate their progressive credentials by redistributing the tax burden.
It will be interesting to see how the SNP's popularity survives when they start demanding a little less and are forced to start delivering a little more.
27 comments:
Fabulous piece. Cameron can as soon outwit SNP by offering too little via Smith as court disaster with FFA. They're still left with working out how to let hyped-up nat fanatics know just how little has been 'won.' And there's no end of scope for divisions within an impotent party to tear Smith to shreds and never be implemented at all. That's if the cunning little foxes don't floor the entire SNP and make mock of absurdity of EVEL right from day one.
Another clear and concise blog. How do i post this to my FB timeline ? The link doesnt seem to work ? Is the blog on FB i can't find it there ?
"The aims of the party shall be (a) Independence for Scotland [..] (b) the furtherance of all Scottish interests'"
If at least one of the interests of Scotland in (b) is to be economically prosperous, then (a) and (b) are demonstrably mutually exclusive.
To me the most pertinent item in this excellent article is the Civil Servant's statement about John Swinney being happy to live in a cave as long as he was 'free'. Given Mr Swinney's current financial and social profile I would question the validity of this statement; but, it underlines the reason why so many financially literate Scots support the SNP. If you ask them to define what comprises this 'freedom' that they feel denied of, they invariably struggle to provide a logical answer. Today is Sunday. I'm free to stay in bed, get up, go to Church, stay at home, worship where I please if I please, cut my grass, go to the pub (but not smoke in an enclosed public space), shop on line or in stores, voice political opinions; and all manner of things that a normal person would consider as 'freedoms' of choice or conscience within the law. What I am not free to do without the risk of judicial sanction, is to assault strangers in the street, sexually molest women, vandalise property, commit arson, torture animals, racially abuse people, groom children for evil purposes, sell drugs, etc, etc, all these things being freedoms I would not want anyway. Perhaps I'm living too sheltered a life.
Another great article.
Since the election I've been mulling over what might form the basis of a stable medium-term compromise that would satisfy some of the aspirations of the various parties and their supporters.
My own personal preference would be for the Smith Commission to be implemented and for us to take it from there, but I can also see a strong case for going further (the maximum amount of devolution that would be consistent with continued pooling and sharing) in order to recognise the aspirations of SNP supporters.
What makes the situation much more difficult is that, for any such compromise to be stable, the SNP would have to accept that the referendum really was once in a generation. Only this week, in addition to the EU vote, I have seen the Human Rights Act, Trident renewal and even poor performance of the UK economy all cited as potential grounds for a future referendum. In other words, even if the UK votes Yes in the EU referendum there is an open-ended list of pretexts for a further referendum if the SNP deems the time to be right.
Perhaps even more important, we need to know what the SNP really want in the meantime. It appears that they don't want FFA, while saying that they do, and that they do want the Smith Commission (with some add-ons), while saying that they don't.
A compromise solution lying somewhere between the Smith Commission and devo Max while maintaining pooling and sharing of resources will only work if all parties openly endorse it, instead of seeking to undermine it by constantly sniping at it for not being enough, raising the possibility of a 2nd referendum, or denying the benefits that Scotland derives from the pooling and sharing of resources in the UK.
Load o pish
If SNP were to get FFA and sooner or later get a bailout frm WM, would it not simply be internal accounting within the sovereign state?
After all, devolution is simply administration of the powers of the UK by an entity without sovereignty, located in the relevant part of the UK, not centrally at WM. In the same way that an indy Scotland outside of the Pound could use the Pound, but it would remain the UKs Pound, the powers exercised by Holyrood dont actually belong to them. These are UK powers so long as we are part of the UK.
In this (and other) respect Scotland cant be Greece as Greece is Sovereign.
How about FFA/FFR but with an explicit transfer mechanism enshrined in legislation? Meaning Scotland gets fiscal transfers when things are bad/oil is cheap, but send money out when things are good/oil is expensive?
Involve the SNP/Scot Gov to be involved in the definition to avoid anyone saying it's an MI5 accounting trick.
Then at least it's clear who is subsidizing who.
How do other countries manage this anyway?
@carl31 "If SNP were to get FFA and sooner or later get a bailout frm WM, would it not simply be internal accounting within the sovereign state?"
Check out this earlier post, which is very clear on this topic:
http://chokkablog.blogspot.co.uk/2015/05/guest-blog-neil-lovatt-on-n56.html
@Paul "How about FFA/FFR but with an explicit transfer mechanism enshrined in legislation?"
All countries have fiscal transfers - some explicit (typically in federal countries such as Germany and the US) some less so (through the funding of services such as health and education, non-contributory benefits, infrastructure spending etc). What is a bit peculiar in Scotland is the mismatch between the reality of fiscal transfers to Scotland and the rhetoric about Scotland getting a poor deal from membership of the UK.
Replacing the Barnett formula with something more transparent should provide clarity, but I wouldn't hold your breath waiting for the SNP to recognize that this is actually a generous arrangement from which Scotland benefits. And if a transparent replacement of Barnett led to a reduced level of support, you can be sure there would be plenty of people crying foul.
Had Scotland voted to become Independent last September we would almost certainly have had a massive exodus of businesses and people moving south to England and further afield. I know this because I personally know businesses and people who were getting all ready to go had the referendum went the "wrong" way.
It is quite ironic that the SNP is against an EU referendum for economic reasons but in favour of another Scottish Independence referendum citing the opposite economic reasons. Scotland has far more to lose by leaving the UK than the UK has to lose by leaving the EU.
The SNP has always argued that nothing material would change regarding the rUK had we left. We would still trade as normal. Negotiations would be cordial and suit both parties and we would reach an amicable separation.
HELL NO WE WOULDN'T. Negotiations would have been torturous and full of recriminations. We, as the smaller country would get battered and bruised. Business confidence would collapse alongside house prices. Where would we be then?
Considering the hostility between the yes and no sides Scotland would have been a dangerous place to be. The collapsing oil price has shown that the numbers the SNP put up were patently false. How would the people in council estates react when the money didn't arrive due to the collapsing economy?
I'll leave that to your imagination.
In September 2014 Scotland dodged a bullet. Let's all work hard to make sure that that gun is never loaded again and show that the SNP has been overselling their case for years. It is thanks to the work of Kevin Hague and many others that we can now challenge the case that the SNP makes for taking us down this road to oblivion.
Excellent - thanks. Living in a cave, what's a flag's for if it cannot keep a person warm.
I don't think there's too much harm in devolving the min wage and corporate taxation rates. Every US state, and lots of jurisdictions below the state level, impose their own minimum wage laws and corporate taxes without it becoming too big of an issue. I live in Illinois, about 20 minutes from the Missouri border and there are a bunch of differences in the tax codes as well as a different minimum wage, but driving from one to the other, you'd hardly notice the diffrence.
I am gutted Cameron wont give Scotland the 7bn extra cuts. Would have been something to watch for entertainment value.
Interesting as ever, but probably for the first time I disagree with Kevin here. His previous piece, 'it doesn't matter' outlines where Scotlnad has arrived at where slightly over half of the population will believe anything the SNP assert on any subject.
The SNP are a grievance machine, the saddest aspect in their GE performance is that the feed at least half the Scots nation's appetite. I am a Scot living in N England and for every naive lefty nitwit signing petitions about wanting to join SNP Scotland I'll show you a 1,000 who'd see Barnett repatriated to fuel the Northern Powerhouse.
Those of you who live in Scotland are clearly better placed to comment on whether the SNP's grievance machine will ultimately self destruct. From what I've seen they are merely feeding a demand from an increasingly self interested population many here find no common cause with.
Maguro
I have considered the US example. How would you assess the quality of "social justice" delivery in the US? I'd argue it's pretty poor and their lack of UK style country-wide pooling and sharing is a significant factor there.
M62 Scot
Disagreement is good - if everybody agrees with everything I write this would be pointless (I know it is kind of pointless anyway but humour me).
If you're arguing we should be given FFA and made to suffer I have a lot of sympathy with that view (I've been there). My worry is that would fuel further grievance and lead to independence - after all take away pooling & sharing and you lose an advantage of Union.
We are certainly not on the territory of some of my "economic staring point" blogs where I feel I'm asserting obvious truths - with "more powers" we're dealing with a series of complicated, nuanced and uncertain interrelated judgement calls
@Maguro
A couple of points regarding the US situation.
Firstly, state minimum wages are additional to the federal one. The equivalent in Scotland would be the power to increase but not lower the min wage.
Secondly, in the US, local corporation tax liability is classified as an allowable expense, so if a state or other local entity levies zero local corporation tax, the result is that the company has a higher federal corporation tax liability. This offsets at least some of the "beggar thy neighbour" effect of tax competition. Nobody is proposing this for Scotland, as far as I'm aware.
@Kevin - I don't think there is as much difference in "social justice" (I assume we are talking about wealth redistribution and social programs) between the US and UK as many would think. For instance, in 2013 the US had a Gini coefficient after taxes and redistribution of .42 vs .41 in the UK. Of course, social justice is one of those things that is very much in the eye of the beholder, so perhaps there are other measures by which the UK is spectacularly more just.
In any case, the overall level of social justice (however you want to define it) is not really central to my point, which is that there is room for adjacent jurisdictions to differentiate their tax and minimum wage policies without causing severe problems. If you think the UK is already a lot more socially just (i.e., redistributive) than the US, then Scotland can be even a little more socially just than the rUK without causing substantial ill effects. Yes, there will be effects at the margins, but nothing the average voter would likely notice.
The reason I bring this up is that it seems to me that the whole Scottish issue is not really driven by economics or policy, but rather identity. The Scots would like to differentiate themselves from the English and letting them raise the minimum wage and corporate taxes would let them do that without all risks of independence. So the SNP raises the minimum wage from £6.50 to £7.25 or something, it's not the end of the world. The economic effects would be small and politically, it would give the Scots tangible evidence that they have a say in their own affairs. Which I think is pretty important right now.
@maguro - they are reasonable points.
Are there Barnett-style redistributions between states in the US? I think that's relevant particularly if those redistributions allow (for example) one state to compete against another on corp tax.
I would still argue that corp tax differences is a transfer of wealth to corporations and given entrepreneurial activity is one if Scotland's challenges a higher minimum wage is a material hinderance to that (I am in favour of higher min wage but only if UK level playing field)
Are there Barnett style fiscal transfers in the US?
The US Federal government takes in and redistributes a staggering amount of money, but there is no unified Barnett-style formula that determines social spending of $_ per head. Instead, you've got a complex patchwork of social programs and wealth transfers that involve either direct payments from the Federal government (Social Security, SSI) or block grants from the Federal government to the states (SNAP, TANF, Medicaid). Federalism can make things complicated and what the US does is probably less efficient than social spending arrangements in centralized states like the UK and Japan. On the other hand, Federalism lets local governments adapt to local conditions and preferences. What makes sense in San Francisco may be horrible policy in Midland, TX and vice-versa. So there are tradeoffs to be considered.
I'd still argue that corp tax reduction is an inevitable wealth transfer to business and higher min wage is a hindrance to entrepreneurial activity. I'm in favour if higher min wage but only if UK level playing field.
You could be right on the economics - reasonable minds can differ on what the ideal minimum wage and corporate taxation rates are - but I don't think holding the line at the Smith Commission recommendations is politically feasible in the wake of the SNP landslide. The minimum wage is one thing that I think can be safely devolved without causing too much harm. They'll probably just set it a bit above the rate in England to prove they're more compassionate than the bloody English and hardly anyone will even notice it. Corporate tax rates are a little trickier, especially if the SNP wants a lower rate than rUK. Have to give that one some more thought.
@Maguro "I don't think holding the line at the Smith Commission recommendations is politically feasible in the wake of the SNP landslide"
Yes - I'd definitely agree with you there!
The other problem of course is how we manage to recreate some kind of consensus around this, rather than it just becoming the focus for mutual recrimination. I'm hopeful that the dust will gradually settle over the next couple of years.
First of all, why did Cameron go to Scotland to meet Sturgeon? Simple, from an English point of view. First, it makes clear he is the UK Prime Minister. Remember, Scotland has two Governments from Cameron's point of view, and by going to Edinburgh, Cameron is emphasizing his writ runs to Scotland. Second, it is in his interest to reinforce Sturgeon's position, in the short term. Why? Because Cameron knows, as do many others south of the Border, that the 56 SNP MPs at Westminster are largely toothless. They face 5 years of boredom and irrelevance. Wait for PMQ's. I wouldn't mind betting that Cameron responds to some SNP questions by saying that the matter, whatever it is, is under discussion with the First Minister, and it would be premature to disclose anything. It makes it look cosy between Sturgeon and the PM, possibly causing some unease in the SNP, and makes the 56 in London look silly and irrelevant. As for the Robertson/Sturgeon threat to attack austerity at Westminster, it surely is only a matter of time before someone at Westminster tells the SNP that austerity is nothing of the sort, mere the avoidance of fiscal incontinence of extravagant proportions. I have no idea what Scottish nightly TV bulletins look like, but the SNP runs the risk that they will contain serious attacks on SNP's understanding of economics by others who are more intelligent. No wonder Salmond wants control of the BBC in Scotland. I am sure Cameron told Swinney and Sturgeon last week that he will be Mr Nice Guy if they keep themselves and their troops moderately in check. But if the gloves do come off, then Barnett is up for withdrawal. And that will be incredibly popular in England. In the mean time, Osborne pursues his Northern powerhouse idea. I have been unable to discover whether it extends north of Hadrian's Wall, but my instincts tell me not. Osborne is preparing for a northern border at the Wall that will leave England performing even better, getting rid of duff Scottish assets on the way. Sooner or later, the Quebec effect will kick into the Scottish independence debate. It will be cheaper to service the English market from England, and disinvestment will start, both in services and goods. The brightest will soon follow.
The SNP's rhetoric is now completely incoherent. On the one hand anyone who claims Scotland would be worse off as an independent country is derided as a heretic. On the other hand the SNP themselves are acknowledging we'd be worse off, but that's ok because, er...
We have people out campaigning on the streets, fighting an ideological war over independence, yet the party at the head of the movement is tacitly admitting even if we were offered independence it would be a bad idea to accept it.
My previous comment about the SNP at Westminster wasn't correct in every detail, but it was right when it came to attacks on SNP fiscal policy. Cameron made it absolutely clear that FFA means no Barnett money, and this was confirmed by Labour. Cameron told the Commons that the SNP wanted to impose a £5000 a year burden on every Scottish family. The only difference with Labour was that Labour thought the SNP shouldn't be allowed to beggar Scottish families by giving into the SNP, an interesting form of Labour maternalism (given that it came from Harriet Harman). Simon Jenkins, in the Guardian, implied this morning that Sturgeon fully expected London to carry on funding Scotland under Barnett even as tax powers were devolved, and was taken aback to find a month ago that that was not the case. Certainly, Cameron's statement yesterday gave no room for misunderstanding. The SNP response? Angus Robertson was irrelevant bluster.
I have looked again at earlier comments about whether holding the line at Smith would be feasible, and suggestions in your Blog responses that it would not be, because of the size of SNP vote at Westminster. My sense of current English views is that, following the Queen's speech, both Conservatives and Labour feel they have to protect the Scots from themselves; that the consequences of FFA or Devomax would be so damaging to ordinary families in Scotland, because of the loss of Barnett, that the responsible English course is not to let it happen. The compromise is to have some devolution (i.e. Smith), and some readjustment of Barnett, to see how the Scottish like it. Withholding FFA may display high-handed self-interest by the English, and it may be paternalistic. But the self-interest could reasonably be viewed as the English wishing themselves to be free of the economically disastrous consequences of FFA north of the Border. It really doesn't help the English to have a failed state on their boundary.
I see in this morning's Scotsman (31/5/15) that a senior Westminster SNP spokesperson (Angus Robertson?) is reported as saying that FFA is off the immediate SNP agenda. It appears that the SNP's fear is that an FFA amendment to the Scotland Bill might be accepted by the UK Government, leaving the SNP with devomax but no Barnett money. If there is no pro-FFA amendment moved by the SNP, expect a lot of hot SNP air around the inadequacy of the devolution contained in the Scotland Bill; but nothing that would seriously jeopardise Barnett money. Sooner or later, it will become obvious that the SNP's policies can only be supported by voodoo economics, where there is a substantial cross-border subvention from rUK.
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