Better Together chief Alistair Darling would like us to think that this week’s report from the Institute for Fiscal Studies (IFS) leaves the economic case for independence “in tatters” (your report, 19 November).
I have read the report in full and found the opposite to be true. The detail shows Scotland clearly has firm economic foundations. For example, the report makes clear that Scotland currently pays substantially more than its population’s share of UK taxes.
It also finds that even if oil revenues are ignored altogether, the remaining tax revenue bases of Scotland and the UK are virtually identical.
It is also worth noting that the IFS – inexplicably – chooses to use oil price forecasts that are well below those of any credible source, and come from a body – the Office for Budget Responsibility – that Mr Darling himself has accused of being used by the Conservative-led government for its own purposes.
Using the Organisation for Economic Co-operation and Development or industry standard forecasts instead would have led to markedly different oil revenue forecasts.
The report also demonstrates the attractions of Scotland having economic and political policies better suited to the preferences of those who live here. Its analysis implicitly assumes a straight continuation of existing UK policy choices, but the whole point of independence is to do things differently where preferred.
For example, an independent Scotland could choose an EU-average level of defence spending, rather than the exceptionally high UK level. This would, at a stroke, plug any “fiscal gap” being talked up by Mr Darling.
Swapping Trident missiles for better schools and hospitals may not be politically palatable at Westminster, but would seems to be a likely path chosen by an independent Scotland. Arguably, the elephant in the room is what is missing from the IFS report.
It examines possible public spending levels under independence. It does not begin to examine what may happen to public spending in the event of Scotland remaining a part of the UK.
Given recent support from within both the Labour and Conservative parties for a wholesale re-evaluation of the Barnett Formula, what are the chances of Scotland’s relatively high public sector spending remaining intact in the event of a No vote? Mr Darling and the entire pro-UK camp are remarkably quiet on that one.
I listened to finance secretary John Swinney on Good Morning Scotland on Tuesday, giving his response to the Institute of Fiscal Studies report on the Scots economy in the event of independence.
When asked how Scotland might fill the gap in its finances, his reply was that we would “aspire” to match the growth rates of several other small European countries. The interviewer pressed for actual policies and the old line of Scotland having a corporation tax of 3 per cent less than the rest of the UK was trotted out.
This seems to be the only “economic lever” that the SNP intends to operate and takes no account of corporation tax in other European countries.
What if, for example, the rUK rate increased to 24 per cent, taking Scotland to 21 per cent and the Republic of Ireland had a rate of 12 per cent?
When it comes to key economic decisions, we must never forget Alex Salmond supporting the Fred Goodwin-led RBS takeover of ABN Amro, how Scotland would join the arc of prosperity enjoyed by Iceland, joining the euro and the cancellation of the Glasgow Air Rail Link.
Aspiration is not enough, Mr Swinney; we need to know about policies that will deliver. Saying that something will happen purely because the SNP and Alex Salmond say so is becoming rather tiresome.
There is a flaw in the Better Together response to the Institute of Fiscal Studies report. Indeed, it may be true that a hole will appear in Scotland’s finances when the oil runs out.
But we will only be better together if the English taxpayer is willing to fill this hole. Can Alistair Darling and Iain Gray really assure us of this?
The IFS and Professor McLaren have previously noted in The Scotsman that this hole corresponds roughly to the higher public spending per head in Scotland. But there have been many grumbles about Scotland’s higher spending on things like free prescriptions, a better health service, free higher education and other benefits.
Even if a Labour government is in power in 2063, Johann Lamont has suggested that these things are unsustainable.
Scotland might be better off taking its chance with independence to become richer like Norway, Denmark and Switzerland, as hoped by the SNP. But even if this fails, independence will offer the option of cutting other expenditure such as defence
West Acres Drive
The report from the Institute for Fiscal Studies, which says that an independent Scotland would face a “fiscal gap” of 1.9 per cent of national income, compared with 0.8 per cent for the UK, is the best recruiting sergeant for those in favour of independence, highlighting the dangers of continuing to have policies for Scotland decided at Westminster.
The report actually underlines the case for an independent Scotland with full control of its own economy and the ability to take decisions that can secure a stronger and more prosperous future for the country.
This new study also acknowledges that Scotland’s public finances are currently stronger than the UK’s, but then looks at what might happen over the next 50 years under current trends.
The IFS itself admits its projections in this report are “inherently uncertain and could evolve differently if Scotland were independent rather than part of the UK; in addition, they could be substantially affected by the policies chosen by the government of an independent Scotland”.
The whole point of independence is to equip Scotland with the competitive powers we need to make the most of our vast natural resources and human talent and to follow a better path from the current Westminster system, which stifles growth and which is responsible for the damaging economic decisions which this report – and its projections – are based on.
Between 1977 and 2007, smaller independent European countries similar to Scotland grew their economies faster than ours, and if we had matched those rates that greater output would now be the equivalent of around ££4.5 billion.
With Westminster in charge, nothing will be done. Scotland’s priorities aren’t Westminster’s priorities and we simply cannot afford a No vote.