Scotland is doing OK, Part 6: It’s the economy, stupid

GDP is one of the indicators economists get exercised about. Gross Domestic Product, to give it its full name tells us how much wealth we are generating. And that, in simple terms, means by you and me and everybody else.

The largest part of GDP is the money in our pockets that we use to buy food and goods. When we spend that money circulates around the economy allowing the economy to grow.1

Our graph takes the difference between 1996 as the starting point and the latest figures for 2009 taken from the recent Centre for Public Policy for Regions (CPPR) Background Paper number 1.

By subtracting 1996 GDP ratings from those of 2009 we arrive at the measures of relative performance shown above.

Those above the zero line have improved their position from 1996 (England, UK, Scotland and marginally N Ireland) those below are showing a net loss. (G7 excluding UK and Wales).

CPPR are issuing these papers to inform the coming election debate and to provide information on how key economic performance indicators have changed, or not changed, over more than a decade of devolved government.

Starting in 1996 Scottish GDP lagged that of England by 1.2. In 1997 Tony Blair swept into Downing Street. Two years later in 1999 the Scottish Parliament was set up but in those first two years of Labour Government at Westminster the gap widened with Scotland then trailing England’s GDP by 3 points.

Did the SNP Government do well?

Or we could ask – Did Labour do badly in government? From the figures we have extracted from the CPPR Briefing the answer is Yes – however we phrase the question.

After 2 years of the first Labour/Libdem coalition in Scotland the gap had now doubled to 6 points. At the end of the first Scottish Parliament the gap stood at 5.3.

After a total of 8 years in power at the end of the second Lab/Lib administration in 2007 the gap had narrowed slightly to 5 points.

Three quarters of the way through the SNP Government’s term the Scotland/England gap had closed dramatically to 1.1

It is what happened in these first three years of the SNP minority government that the CPPR statistics get really interesting. From 2007 all economies except N Ireland were showing growth but then turning downwards in 2009.

But Scotland’s GDP kept rising during 2009 against the trend in the other UK nations and even more significantly against the G7 downward trend.

We do not have the results for 2010 to complete the picture for the end of the third Scottish Parliament but this provides evidence that may well demonstrate that the performance of the SNP Government, in utilising the economic powers they do have at their disposal, has contributed to this improvement in the Scottish economy.

Proving the link between SNP Government policy and objectives and this result might be difficult in absolute terms as CPPR indicate in their report.

But disproving it would not be difficult – it would be impossible.

Is there a downside to success?

The Scottish Parliament does not raise its own taxes nor does it have the powers to do so.

Calman mini, medium or max is a red herring and as much use to us as a red herring left to rot in the warmth of a summer’s day.

We would still be effectively reliant on a Westminster block grant. But if Scotland is doing OK, as this series argues, the Barnet consequentials are at risk. Powers to set a part base income tax rate, as is proposed in the Scotland Bill, is a smoke screen.

Working from a block grant allocation, in the same way quangos are allocated grant-in-aid is a recipe to prolong the grievance culture and no way to set Scotland on a path of continuing sustainable growth.

As Professor James Mitchell argues, in a recent Scottish Review article, Scotland must move forward from the politics of grievance. He usefully and concisely sets out the three values of tax raising powers.

‘We need to return to first principles when considering its (The Scottish Parliament’s) fiscal powers rather than consider these in party political gamesmanship. Broadly, taxation and fiscal policies serve three purposes: raising revenue to pay for goods and services; redistribution of wealth; and as a lever to encourage or discourage behaviour.  The debate within Calman focused on only the first of these and even its proposals in this respect have been found wanting.’

That seems pretty clear to me and the only direction that it makes any sense for an ambitious Scottish electorate to demand is that we move towards fiscal autonomy with control over all forms of taxation with the exception of VAT.

Under EU rules we would need to be independent to set our own rates of VAT.

For the Conservatives and Labour parties, the summit of their ambition is power at Westminster and any success in the Scottish Parliament is just a stepping-stone to the longer term goal.

The Lib/Dems used to believe in federalism. Where stand they now?

There is little to suggest that the SNP will make the May Scottish Parliament election an independence election.

If devolution is a process so is independence and control of taxation in Scotland is not just a sensible goal it is one that has all the forces of logic behind it.

As Hugh MacDiarmid said ‘if there is ought in Scotland worth haeing there is nae distance to which it is unattached.’

So just look ahead for the arguments and Boris Johnstone raging that Scotland is getting more than its fair share.

Not true of course, because as we have revealed in this series, more Scots pay income tax, Scotland has had a surplus over the last three years, our GDP levels are back close to those of England, more Scots are economically active, and the percentage of our population on benefit is the same as England’s.

The situation is a bit like that of a man and his wife who both work but only have one bank account – his. So the wife’s earnings go into his bank account and he as account holder decides how much of her earnings the wife should get.

In the nineteenth century a women’s wealth became the property of her husband when she married. That has changed but it appears the relationship in political unions has not.

Now lets look at the situation from the London point of view and in particular that of the Treasury. Certainly the first premise would be to have access to and control of all the sources of income in a centralised system of government.

If Scotland is one of the substantial contributors to the London Treasury then it is important that they do not decide to go off on their own because that will limit the freedom of manoeuvre and tax inputs at Westminster’s disposal.

So why is it that Labour, Lib/Dem and Conservative MSPs have decided to move forward on Calman which transfers a couple of minor taxes but on the crucial issue of real fiscal responsibility is a mere illusion of power devolved and the reality of power retained?

If these MSPs in a Scottish Parliament, responsible to the Scottish electorate are failing to fully represent the interests of the Scottish people and the Parliament they are a part of then they should be facing some very tough questions in the weeks ahead.

Of course they will disagree and claim that their proposals are in our best interests. To paraphrase Mandy Rice-Davies ‘They would say that wouldn’t they.’

The people at the Treasury are not daft. They may think it wise to keep Scotland in the fold but there will be other pressures for scarce resources to be targeted to the areas most in need like Wales, Northern Ireland and the underperforming English regions north of Watford.

So expect further steep cuts tumbling down the line in Scotland’s block grant after the election if the Labour party is returned to Holyrood. Scotland will have made the wrong choice and it will be too late for regrets.

If the SNP go into this election campaigning strongly for fiscal responsibility and the establishment of a Scottish Exchequer then they will be seeking a mandate for the transfer of real taxation powers.

We have yet to see their manifesto. For the moment they are campaigning on the proposition that they have governed well for the last four years and as a minority administration have delivered most of what they promised and the opinion polls indicate that the electorate agree but strangely are a bit ambivalent on who they will actually vote for and Labour it appears has a small lead.

Old loyalties die hard, but Labour would be foolish to place an over reliance on traditional loyalty and the inroads they seem to be making on disillusioned Lib/Dem votes.

Of course the Labour Party in Scotland may come up with a visionary and thoroughly costed manifesto that also puts real taxation powers for the Scottish Parliament at the forefront of their objectives.

Any Scottish government after May that has not put real taxation powers at the forefront of their manifesto will be unable to deliver and will have failed to secure a mandate to draw Treasury teeth.

It is a strange irony that it is an SNP government that has in this third parliamentary term delivered a performance that demonstrates that Scotland is now pulling its weight within the Union.

The Lib/ Dems have backtracked so far from the aspirations in the Claim of Right to turn reasoned principle into shreds of confusion.

Perhaps the Lib/Dems will find their federal voice and beak away from the Calman alliance and also argue for genuine taxation powers and responsibility.

Hello. Is there anyone there?

Russell Bruce

Notes and Sources

• 1 GDP is the sum of Consumption (Household expenditure)  + Investment (in plant and assets by business and new house building) + Government Spending (ie the taxes we pay) + Exports less imports.
• Centre for Public Policy for Regions (CPPR) Background Paper number 1. March 2011-03-27
• Scottish Review, Article by James Mitchell, professor of politics at the University of Strathclyde.
• Professor Mitchell’s article is an extract from ‘Devolution without self-government’, a chapter in ‘Radical Scotland: Arguments for Self-Determination’, published by Luath Press @ £12.99