Peter Jones: Debt worm sure to turn on Salmond's dream of fiscal freedom

Published on Tuesday 29 June 2010 14:57

HAS Alex Salmond abandoned independence as opposition political parties were quick to claim after his recent admissions that the "centre of gravity" of constitutional debate was not independence?

No, he is reverting to his core belief that independence is more likely to come about in steps rather than via one big leap. But in so doing, he is disguising the worm at the heart of the Nationalist apple.

If you want to know how Mr Salmond thinks independence would come about, look no further than his letter to The Scotsman two days ago. In it, he asserted his conviction that the centre of gravity of constitutional debate was moving to independence.

He went on: "A generation ago it was for an assembly, then for a parliament, then for Calman, now for fiscal responsibility, which is currently galvanising a range of opinion across Scottish society."

This was his political opinion too way back in the 1980s, when potential SNP participation in the cross-party Constitutional Convention (which eventually drew up the plans for the present Scottish Parliament) was mooted.

Mr Salmond was in favour of taking part, as I recall, because he believed that that achievement of devolution was an essential step towards independence.

Others, notably Jim Sillars, then the SNP's deputy leader and a powerful party figure thanks to his recent victory in the Glasgow Govan by-election, disagreed fearing it was a unionist snare which would trap the SNP, particularly if Labour reneged on delivering devolution, and prove to be a fatal diversion from the march to independence.

The row between the two men grew into a permanent and icy rift. The Sillars view prevailed and the SNP stayed out of the Convention. Mr Salmond's analysis, that independence would come about by gradual steps, only came back into fashion after Labour won the 1997 general election and delivered on its election promise to hold a referendum on having a Scottish Parliament.

Events since then seem to have vindicated Mr Salmond's view of the likely path of Scottish constitutional politics. Such constitutional change as there has been has added more powers to, rather than taken any away from, the Scottish Parliament. So where are we going now?

In understanding what Mr Salmond is about, it is important to recognise more than that he sees independence as a process and not just as a fixed event. He also sees independence as a continuum and not as a fixed destination at which he hopes Scotland will arrive one day.

The independence currently defined by the SNP is merely one version of many different degrees of independence. There are, for example, a minority of Nationalists who see political separation from the UK but political integration in the EU as no sort of independence at all.

If this continuum of independence is defined as ranging from "moderate" to "extreme", then Mr Salmond is towards the moderate end. That's because his own definition of the kind of independence Scotland should have is guided by a pragmatic recognition of the tools Scotland needs to have in order to prosper rather than any ideological or absolutist view of what is "pure" independence.

Viewed in this way, it becomes obvious that control of the taxation system plus borrowing powers gets pretty close to Mr Salmond's definition of independence. Close, but not there, if only because a Nationalist party needs further hills to climb if it is not to wither away.

Hence his enthusiasm for "fiscal responsibility", the snappy title for getting Scottish control of Scottish taxes and borrowing. According to his letter, he believes this is now "galvanising" opinion across Scottish society, and indeed that the financial time is exactly right for it.

Leaving aside the question of whether Scots are really massing beneath the fiscal responsibility flag (I rather doubt it), his assessment of timing rests on the last sentence in his letter: "The publication of the Government Expenditure & Revenue Scotland report - showing in 2008-9 a Scottish current budget surplus of 1.3 billion, compared to a UK current budget deficit of 48.9bn - is a strong illustration of the argument which both increases the urgency of fiscal responsibility as an alternative to a dismal decade of Westminster spending cuts, and also shifts the centre of gravity in Scottish politics towards independence."

I don't think it does. There is a big problem behind the 1.3bn surplus heading. Scotland's non-oil deficit has got a lot worse, rising by a third to 10.5bn and is only offset by a similar rise in Scotland's likely share of oil revenues to 11.8bn. This was a year in which the crude oil price peaked at nearly $150 a barrel, averaged more than $90 a barrel, and is unlikely to be repeated.

But the much bigger problem which has simply not been addressed by advocates of fiscal responsibility is how to deal with Scotland's share of the UK national debt. The key issue here is that the people who have lent (currently) 903bn to the UK government want certainty that this money will be repaid.

Part of their current certainty is that the UK government controls all taxes, for which they get their payments.

But what happens if the UK cedes control of part of its tax revenues to the Scottish government? Can UK creditors still be certain they will be repaid? Can they be sure, for example, that Mr Salmond, or some other Nationalist First Minister, will not achieve his ambition of independence and then repudiate debt payments?

There is no easy answer to this and half a dozen other questions which concern debt apportionment and management under a fiscal responsibility scheme. Nor can there be until someone asks all the lenders what they would find to be acceptable. That's one reason why the Treasury won't countenance fiscal responsibility as was signalled by Chief Secretary Danny Alexander at the Scottish Parliament yesterday.

And even if the questions were asked, I strongly suspect that the answers would involve tying Scotland so deeply into the UK fiscal system that Mr Salmond would find it to be a worm that consumes his fiscal freedom apple.