A critical vote for the Scottish economy
The long running debate over Scotland’s future will enter a new chapter this week.
As the Scotland Bill continues its passage through the House of Commons, the choice facing Scots is what form of devolution we want within the UK.
Do we want to continue the pooling and sharing of resources across the UK, and the redistribution according to need, so spreading our country’s wealth fairly – or risk further separation?
On Monday, MPs will vote on amendments to the Scotland Bill which will make a lasting change to the shape of Scottish politics and how we fund public services.
Labour supports going beyond last year’s Smith Agreement, but without compromising the pooling and sharing of resources that guarantees the Barnett Formula and the UK pension for Scots. After all, the Scottish people voted to stay in the UK at the independence referendum with a powerhouse Scottish Parliament.
So as the Bill makes it way through Parliament, Labour MPs will vote to deliver the final say over benefits to Scotland. This will allow our Parliament to top-up and create new benefits, using the new tax powers devolved in the bill, if that is what Scotland decides.
This move will protect the most vulnerable in Scotland from the worst of this Conservative government – giving Scotland the power to set its own direction with its own choices.
SNP MPs will face a choice on supporting Labour’s amendments. They will also be tested on the courage of their own convictions.
The SNP were elected on a key manifesto commitment of full fiscal autonomy within the UK. This means all of Scottish spending being funded through Scottish only taxes, with a cheque sent to the Treasury for defence and foreign affairs.
The consequences for Scotland with this policy are significant and can’t simply be brushed aside. It would mean an end to the UK pensions system, at a time when the proportion of pensioners in Scotland is set to rapidly outgrow the proportion of people in work, the very people who pay the taxes which fund the pensions system.
It would also mean an end to the UK welfare state and the principle that if you have paid into the UK system you get at least the same basic minimum back out, regardless of where you live in the UK.
Edward Leigh, a Tory backbencher, has tabled an amendment that would deliver the SNP’s key manifesto commitment of fiscal autonomy by 10pm on Monday.
The SNP, in alliance with right-wing Tory backbenchers, could unite to deliver the SNP’s much vaunted promise of “full fiscal responsibility”, while of course at the same time ending Scotland’s relationship with the Barnett formula that delivers much higher public spending.
SNP Deputy Stuart Hosie admitted in Parliament this week that the end of Barnett would cost Scotland £4 billion immediately; others put the impact at almost double that figure.
It would also mean reneging on the “Vow” which guaranteed the continuation of Barnett, as Alex Salmond himself recognised this week.
In truth, the SNP know the cost of their plan would hit public services and taxpayers.
SNP constitution spokesperson Tommy Sheppard warned that losing the Barnett Formula as a result of full fiscal autonomy would be a ‘disaster’ for Scotland.
Meanwhile George Kerevan, the party’s MP for East Lothian, labelled the SNP’s flagship economic policy ‘economic suicide’.
The impartial Institute for Fiscal Studies (IFS) has provided comprehensive analysis. They calculate that full fiscal autonomy would cost Scotland £7.6 billion in 2015/16. And for complete clarity, this is only to reach the same level of deficit as the rest of the UK. So these are cuts or significant tax rises on top of any at a UK level.
What matters of course is the future.
By the end of the decade the gap in Scotland’s finances because of full fiscal responsibility is due to grow to £9.7 billion a year. The IFS conclude that “full fiscal responsibility would likely entail substantial spending cuts or tax rises in Scotland.” These impartial experts should not merely be dismissed by the SNP.
Could the additional gap be filled by increased economic growth and higher tax receipts?
Scotland would have to more than double the predicted growth for advanced economies. We would have to even grow by more than the average for developing economies.
Furthermore, rather than close the gap, the IFS conclude the SNP’s proposed tax cuts would “cost the government money, and widen rather than shrink the fiscal gap, even if they did boost growth.”
What about tax rises?
The new powers being devolved through the Scotland Act would allow for income tax to rise to cover the shortfall. The problem is, the gap is simply too big.
The IFS estimate that 15p would be added to every income tax band. This came with a warning, as a flight of high earners from Scotland would “likely mean increases would have to be even greater than this.”
Could we simply borrow more?
Under fiscal autonomy, Scotland would be borrowing immediately to fund a £7.6bn gap – to fund day to day public services. And then borrowing again to fund debt interest repayments.
Repeated year on year – with additional debt and a larger additional deficit – it’s Wonga economics, and the SNP know this but will not admit it.
Cuts to public services – £7.6 billion of cuts, which is simply to reach the same level of deficit as the rest of the UK – would be equivalent to cutting two-thirds of the NHS.
It would mean £1bn being cut from State Pensions in Scotland and an end to the UK State Pension. This would leave the average pensioner £18 worse off a week & £940 a year worse off on average.
It’s time for some honesty in the debate about our future.
Never one to let the facts interfere, the SNP’s UK group leader, Angus Robertson, was again caught out misleading on the size of Scotland’s deficit this week. He claimed Scotland’s deficit was £7.6bn.
The IFS set the record straight:
“Our figures are not that Scotland’s borrowing [under the SNP’s plans] would be £7.6bn in 2016-17. Our figures suggest £14.2bn.”
It’s not the first time the IFS have had to intervene and to comprehensively demolish the SNP’s misleading claims on full fiscal autonomy.
So the SNP must answer some simple questions:
- With the gap between what we raise and what we spend set to grow larger than if we shared spending across the UK, what would the timetable be for introducing full fiscal autonomy? Their amendment to the Bill merely fudges the issue.
- What assessment have they carried out of the impact of full fiscal autonomy on Scotland’s finances? Labour have proposed an amendment that askes for a full and independent report to show the real impacts on Scotland.
- What spending cuts or tax rises would the SNP Government introduce to make up the independently assessed extra £7.6 billion deficit that would arise from full fiscal autonomy? This is key and the SNP leadership merely misquoting or misinterpreting the IFS figures is simple not economically credible.
Labour are clear in how we will be voting this week. We will be voting to protect Scotland’s interests and ensure we have the best of both worlds. We will deliver one of the most powerful devolved parliaments in the world whilst, at the same time, maintain the benefits of pooling and sharing resources across the UK. The Tories may support the amendment by Edward Leigh to bring forward Full Fiscal Autonomy as per the SNP manifesto. The SNP, well, who knows. They have the chance to deliver FFA as per their promise to the Scottish people. I think they know it is so economically illiterate that they will have to find a way out.
We said time and time again during the General Election that the worst possible scenario for the future of Scotland would be a large SNP group demanding FFA and a majority Conservative Government delivering it for them. We could be just a few hours away from that nightmare scenario coming to pass. It’s time for people to stand up and be counted for Scotland. That is why Labour will strongly oppose FFA as it is not in Scotland’s interests.