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If Scotland had voted Yes in September we’d currently be preparing to stand alone next year. We voted No, but the SNP are now campaigning for Scotland to be fully fiscally autonomous (which means Holyrood controlling all Scottish public expenditure and having to fund that exclusively with Scottish taxes or debt). Within this context yesterday’s Government Expenditure & Revenue Scotland (GERS) report makes for very interesting reading.
We should remember these are last year’s numbers; they can’t tell us what a Yes vote would have meant for our economy as we grappled currency questions and job losses caused by businesses moving South to avoid becoming exporters to their main market; they can’t tell us how a radically different set of economic policies might (over time) change the shape of Scotland’s economy. What these figures can do is give us a better idea of where we’d be starting from.
The good news is that Scotland (if we got to keep our oil) generated £400 more tax income per head than the rest of the UK. The bad news is that the oil revenue within that was £600 per person lower than the worst case scenario the Scottish Government used in the Independence White Paper (and these numbers pre-date the recent dramatic oil price collapse).
Tax revenue is only half the story of course and at least - due to oil - we’re still generating more per head than the rest of the UK. The other half of the story is public expenditure where (as has consistently been the case) £1,200 per person more was spent in Scotland than the rest of the UK (because we spend more on health, social protection, transport etc.).
The net result is that Scotland’s deficit (the difference between taxes raised and money spent) was over £800 per person (or about £4.5bn) worse than the rest of the UK.
This money has to come from somewhere. Right now it comes from the Barnett Formula (the additional money we get from Westminster to fund our higher spending) but if we were independent or (as the SNP are suggesting) fiscally autonomous we’d need to find it by raising taxes, cutting expenditure and/or taking on even more debt.
If you think that’s not a problem consider this: £4.5bn is the equivalent to a 40% increase on all our income taxes or a 40% decrease to the Scottish health budget.
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With the freedom of this blog I would add the following:
Of course one of the ways to increase our tax income is to grow the economy. This is as true for the UK as it is for Scotland - every politician would rather grow the economy than drive unpopular cost cuts and tax rate rises.
Those campaigning for full fiscal autonomy argue it's the magic key to unlocking growth for Scotland. The question remains unanswered as to quite how or why. What is clear is how much has to be achieved - based on current oil revenues Scotland would need 10% real economic growth (above and beyond that which we are achieving in the UK) just to get back to being no worse off than we are now. If you're not used to looking at macro-economic figures let me tell you that's quite an ask.
Maybe that can be achieved - its not unfeasible - but remember that during that period (5 years? 10 years?) we'd require either additional austerity measures (although probably not because it's argued these restrict growth) and/or more debt than we are currently creating within the UK. So the argument appears to be: with full fiscal autonomy we could run a higher deficit and increase borrowing at a faster rate to stimulate growth. Remember that because we already run a deficit our (Scotland's and UK's) debt is still growing at the moment; we didn't hear many politicians arguing during the indyref that the UK's problem was we weren't increasing our debt fast enough.
There are further implications of this strategy. There is certainly no room for tax cuts or public spending increases - if these are made the size of the debt mountain increases faster. There may be opportunity (which I would personally welcome) to redistribute who carries the larger tax burden or who benefits most from public spending - but that's a zero-sum game: for every winner there is an equal loser. The SNP do not have a track record of implementing redistributive policies; we wait to hear who they propose the losers will be if they are serious about tackling social injustice.
A final note: the value of your economy can go down as well as up. There is certainly no guarantee that full fiscal autonomy will unleash economic growth for Scotland - that argument seems to hinge on faith in the competence of politicians in Holyrood over those in Westminster - all we know for sure is that full fiscal autonomy would give us a starting handicap versus the rest of the UK.
