Ironically, rising anxiety over further austerity measures may not play into the Yes campaign’s hands, writes Alf Young
Forget that posh burger and chips, tweeted as he and his Treasury officials wrestled into the wee small hours with how to bring the years of austerity to an end. Set aside this Chancellor’s overwhelming predilection for putting party political positioning before the sound management of the nation’s finances. This week’s UK Spending Review demonstrated, yet again, that George Osborne is simply bereft of ideas on how to put the UK economy back on the rails.
In his first spending review in 2010, taking his cue from his Labour predecessor, Osborne did what chancellors in a fix have done down the decades; he took a great big axe to capital investment. This week he and his Liberal Democrat Chief Secretary Danny Alexander would have us believe a renewed boost to capital investment is now the answer to our current malaise.
But it’s an investment boost that won’t kick in until April 2015, a month before this fixed-term coalition government is due to face the voters again. Its full impact won’t begin to be felt until the end of this decade. And, for all the talk of more investment in rail than the Victorians delivered and a dynamic vision for the future of Britain’s infrastructure, this programme will still mean, as the Institute for Fiscal Studies has pointed out, that public sector net investment will, after years of flat-lining, start to shrink again.
It will, the IFS calculates, fall from 1.6 per cent of GDP in 2014-15 to 1.5 per cent in 2015-16. And it will fall further, as a share of national income, in the two following years. Some boost that. And some of the big-ticket items that are being trumpeted, like the ever-rising cost of the HS2 high speed rail project to Birmingham and, in time, to Manchester and Leeds, won’t be fully realised until well into the next two decades. Another, the attempt to build just one new nuclear power plant, at Hinkley Point, is dependent on the last interested operator standing, EDF, being willing to take on the risk.
Britain’s triple-A credit rating, long promoted by this Chancellor as a badge of fiscal credibility, is long gone. There are two more years of heavy cuts pencilled in beyond the one year (2015-16) this review covered. Dispassionate observers, such as the IFS, are convinced that, with big-spending departments like the NHS and schools ring-fenced, cuts elsewhere on this scale are so deep that the next Westminster government will have to resort to some new tax rises, too.
That’s what governments tend to do historically. If taxes have to rise, they like to put them up at the beginning of a parliament, not the end. That way the anger of voters might have eased by the time they get to vote again. Meanwhile, the really pressing problem in the UK economy – a lack of aggregate demand – isn’t going to be helped by another 144,000 civil service jobs going, a continuing cap of 1 per cent on public sector pay rises, and the threat to abolish progression pay, first in government service, then in the NHS, among teachers, police and the fire and rescue service.
Labour’s muted response to the Spending Review will dismay many in its own ranks who want what Polly Toynbee has called “full-throttle fury” about what the coalition is up to. She claims her in-box is full of Labour supporters asking of the Eds, Miliband and Balls: “Why preach Keynes and then knuckle under to Hayek?”
All this will be music to the ears of our SNP government in Edinburgh and to a Yes campaign struggling so far, judging by the polling evidence, to put any real momentum behind its case for embracing independence in 2014.
Squeezed living standards for most of this decade as part of the UK, with more spending cuts and possible tax rises to come in 2015, will surely encourage more Scots to choose what many in the Yes camp have characterised as hope over fear. Hope in a fresh beginning over the fear of the unknown. That might be the case if there was a parallel economic universe into which a Yes vote next year could propel us. But the dominant voices on that side of the independence debate, the SNP leadership, are not promoting any such thing. They are as obsessed with promising Scots, if only they vote Yes, higher GDP and increased personal prosperity.
GDP? Such a ropey measure of national output we are now told there never was a double-dip recession in the UK. But the output lost overall was greater than previously claimed. All those old arguments over whether Scotland had a more benign recession than the rest of the UK were based, as they often are, on numbers that are shown, in time, to have only a tentative relationship with economic reality.
Of course, Alex Salmond and his colleagues want an independent Scotland that will tie itself to a sterling monetary union, to a continuing free trade area on these islands, to a social union and the free movement of people. If that’s what they want, they will struggle to demonstrate how it can generate the escape velocity to behave radically differently, in fiscal terms, from the spending, welfare and other parameters the Westminster coalition is putting in place.
When there was talk recently of Osborne rethinking the affordability of the triple lock on increases in the state pension in the next parliament, John Swinney moved swiftly to claim the triple lock would stay in an independent Scotland. When pressed this week about the Chancellor’s threat to progression pay in the civil service and elsewhere in the public sector, Scotland’s finance secretary hinted that, in an independent Scotland, such automatic service rises might be protected, even if they disappear south of the Border.
At some point, Mr Swinney will have to explain how such pledges and hints are to be funded. Like Labour at UK level, the SNP will eventually have to spell out what kind of tax and spend envelope an independent Scottish government would expect to operate within.
This week the IFS described the UK Treasury’s latest Spending Review documentation as “woeful”. If the Scottish Government’s white paper is littered with uncosted and unfunded pledges, it will risk its own fiscal credibility.
The Yes campaign’s chief strategist, Stephen Noon, wrote a personal blog last month in which he talked about the kinds of campaigns that might secure success in the referendum. One of his rules, which he said he had not written about explicitly before, was “perhaps the most important”. Scotland, he wrote, “will not vote Yes in a mood of acrimony or in an atmosphere dominated by anxiety”.
I agree. Indeed, I wrote about the risk of acrimony last week, in the wake of the First Minister’s talk of wars, phoney or otherwise. Noon is also right about the risks from an atmosphere of anxiety. For nearly five years and counting, economic anxiety has dominated the mood across the UK. Osborne did little to alleviate that this week. But if that anxiety persists through to the autumn of next year, far from being a campaigning coup for the Yes side, it could prove another mountain to climb.