Bill Jamieson: Sleepless nights ahead for Osborne

George Osborne wants to reduce powers for Scottish MPs and impose strict budget rules on Holyrood. Picture: PA

George Osborne wants to reduce powers for Scottish MPs and impose strict budget rules on Holyrood. Picture: PA

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NEW Holyrood powers plus the prospect of SNP influence in Westminster equals trouble for the Chancellor, writes Bill Jamieson

What is the effective remedy for sleepless nights? Kalms? Temazepam? Herbal infusions? Or a stiff whisky and milk?

George Osborne has good cause to stock up his medicine chest in the weeks ahead. Little wonder, given that the prospect of the SNP holding the balance of power at Westminster is keeping him wide awake.

He declared this week that it would be wrong for a UK chancellor to be “beholden” to Scottish Nationalist votes. He confirmed that draft legislation on the devolution of extra powers to Holyrood will be published today. And he gave a loud hint that restrictions on the voting powers of Scottish MPs would “have to apply on areas connected with the Budget” after most of income tax is devolved to Scotland.

He told the Treasury select committee at Westminster that proposals for “English votes for English laws” would be published before the election, and insisted that Scottish MPs should have their ability to vote on aspects of future Budgets curbed if powers have been devolved.

As if this was not enough, he said Holyrood will need to operate under strict rules when it is handed more powers over benefits and income tax, and that some form of “balanced budget” rule may be needed to ensure the Scottish government does not use the new powers to live beyond its means. A form of balanced budget rule that would not necessarily require a balance every year was “something that will operate and will be very solid and robust”, Mr Osborne said.

Welcome to the world of multi-dimensional politics – and the scorching reality of Alex Salmond’s warning that he would hold “Westminster’s feet to the fire”. With recent polls suggesting the SNP could win 30 seats and more, and declarations from First Minister Nicola Sturgeon that the party would seek to keep the Conservatives out of office and only consider a deal enabling Ed Miliband to form an administration, Mr Osborne may not need medication after all. For the likely outcome were the SNP to achieve this huge boost to their numbers at Westminster would indeed be a Miliband premiership.

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The Tory taunt, “Vote SNP, get Labour” may not be wide of the mark – indeed, it would be an outcome likely to please many of the SNP’s left-wing supporters. It would also be a dramatic illustration of the leverage that can be exercised by minority parties and a vindication of the rights of such parties not only to be represented but to be able to influence power.

“Get used to it,” may be our reaction here. But there are limits – and enormous risks, political and financial – as to how far the SNP can exert this influence.

What of the rights of the majority? For example, it is not at all inconceivable that the Conservatives secure a majority of votes across the UK – and particularly in England. A perverse combination of unreformed parliamentary boundaries and SNP “confidence and supply” support for Labour only could result in a Miliband premiership. And an empowered SNP could come to exercise considerable influence on the first post-election Budget.

The combination of the SNP securing substantial new powers over tax and spending in Scotland while selecting which measures it would – and would not – support in a Westminster Budget would test the patience of English voters. That, of course, may well be the SNP’s aim: to drive the rUK parties to such a state of exasperated fury as to hurl “more powers” at Holyrood to rid the rest of the UK of Scottish interference. The Union would then – in spirit if not in fact – be truly over.

But there are limits as to how far the SNP’s Westminster representatives can push this. An early priority of a Labour administration would be to establish its debt and deficit reduction credentials to financial markets. Was not the shadow chancellor Ed Balls a notable supporter last week of the proposed Charter for Budget Responsibility?

That support may prove vacuous in the light of the SNP’s repeated declarations that it would oppose “austerity” measures. In this context, almost every proposal aimed at spending restraint has been branded “austerity” and the public encouraged to oppose them. This would push Labour towards tax increases sooner than – and almost certainly greater than – the impression it created in the heat of the general election campaign.

And while a left-leaning Scotland might have less objection to this higher tax route, it would, as the economist David Bell eloquently set out on these pages yesterday, have adverse effects on the economy – specifically on investment, expansion and employment – and this amid notable concerns of late as to whether the UK could sustain the growth pace of recent quarters.

How this would go down in a Tory majority England can scarcely be imagined. More pressing for a Labour administration dependent on the SNP would be how financial markets might react. The economy would be particularly at risk on a decline in international investor support. Pressure would intensify for an early second election to produce a government with a stronger mandate. But the Conservatives may be reluctant to vote down a Labour finance bill until there is a good prospect that it could win a subsequent election. Such a stand-off could prevail for a year or more – the very prospect that could cause global investors to give the UK a wide berth. With such an outcome, the slogan “Vote SNP, get Labour” could have a venomous boomerang effect.

Hence Osborne’s unease at the prospect of a UK finance minister being beholden to Scottish nationalist votes in the next parliament and his indication that the powers of Scots MPs over Budget decisions at Westminster would be circumscribed. Ms Sturgeon has made clear SNP MPs would vote on English NHS matters.

Nor would politics at Holyrood be any less fractious, given the likely attempts by Westminster to impose some sort of budget cap on a Scottish administration armed with “more powers”. Well, good luck with that. An SNP-dominated Holyrood parliament would bristle at any attempt to impose cap and collar constraints, while Westminster would be sceptical of the robustness and durability of a Holyrood alternative.

So here, for the moment, matters “rest”: a gridlocked stand-off with increasingly bitter exchanges. However, grand-standing during an election campaign is one thing; the responsibilities of power and the imperative of deal-making another. Compromise can be reached. But the ability of our constitution to effect it will be stretched to the limit. Sleepless nights could prove the least of Westminster’s problems.

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