THE stark reality is that constitutional change is not the biggest issue we face right now, writes Bill Jamieson
What would be preoccupying political Scotland were it not the intense and prolonged discussion on constitutional change? As I listened to the independence debate at The Scotsman on Tuesday I could not help but wonder at that bigger issue displaced, one that will determine our circumstance and prospects more than any other.
For without question there is an issue bigger than our constitutional arrangement. It dominated the last general election. It has dominated every conference of world leaders for the past four years and will be the biggest issue at the 2015 general election. It is how we can pull the world’s economies out of a devastating tailspin.
Independence, or devo-max, or devo-plus, are not boltholes through which we can escape a sequence of events that could dwarf any change that results from the referendum and further evidence of that comes in today’s Fraser of Allander research paper on the likely effect of Scotland of Greece leaving the euro. What will shape our prospects in the years ahead is how exactly we can avoid a prolonged and ruinous depression – assuming, as some now question, that matters are still in the gift of governments and central banks to rectify.
This is a plea that, at the very least, our preoccupation with the referendum should not crowd out this perspective. No one doubts that the independence debate is important. But as David Watt, head of the Institute of Directors Scotland pointed out at the conference, few in business believe it is the most pressing issue we face right now. And what is pressing for business is less the prospect of prolonged uncertainty than malfunctioning bank lending and the immediate threats to survival.
Central to the SNP’s appeal is the aspiration that informs its campaign. Cabinet secretary John Swinney set this out with customary vigour on Tuesday. Backlighting this was the aide memoire circulated recently by the party’s deputy leader Nichola Sturgeon on reasons to feel confident about Scotland’s prospects. I would commend to this to advocates of our remaining within the union as a counsel against undue negativity.
But our understanding of economic reality is bedevilled not only by treating it of secondary importance but also by a series of troubling misunderstandings. The most pertinent here is the assertion of how better Scotland would be performing were it not for being “thwarted” by the “London-based parties”. Is it really the cussedness of Westminster politicians that is holding us back? Or a deep and pervasive lack of confidence across Western economies and financial markets, fuelled by a fear that conventional responses are inadequate in the face of prolonged recession and sovereign default?
No less problematic are the myths at Westminster about our public finances that political rhetoric has worked to obscure. Their effect is to sustain a troubling complacency about our situation. Stephen Tall, co-editor of Liberal Democrat Voice, drawing on Treasury figures and research by Tim Morgan at Tullett Prebon, has identified several of these – bravely, as they will make uncomfortable reading for many in his own party. One is that falling UK public spending is reducing our debt. In fact, spending has been going up year-on-year under the coalition, rising from £690 billion in 2010-11 to £744bn projected for 2014-15 – a rise of 8 per cent. Even when allowing for inflation, the spending reduction is modest: just three per cent over this period.
UK debt is not being brought down. Because the economy is not growing, and the government is maintaining near record levels of public spending, public debt will continue rising throughout the lifetime of this parliament. It is projected to rise in real as well as nominal terms and also as a percentage of GDP (from 61 per cent in 2010-11 to 69 per cent in 2014-15). These facts expose myth three – promoted by shadow chancellor Ed Balls and Scottish ministers – that the government is cutting “too far, too fast”. In fact, the bulk of public spending reduction is back loaded to the final years of this parliament and even extends into the next. The coalition’s deficit reduction programme is now less stringent than Darling’s 2010 Budget.
Arguably more worrying than this is the economic legacy from the debt and borrowing boom of 2000-8 that has seriously incapacitated large sectors. The debt-fuelled construction, real estate and financial sectors (CREF) grew by 42 per cent while big increases in real public spending drove up output from health, education and public administration (HEPA) by 28 per cent. The rest of the economy contracted by 5 per cent.
With the end of the borrowing boom these areas are now devoid of growth. In 2009 the HEPA sector accounted for 19 per cent of output and borrowing-dependent CREF activities a further 40 per cent. Add in a deeply depressed retail sector and almost 70 per cent of the economy is now constrained.
There is insistent clamour for public works or infrastructure projects without commanding evidence as to their efficacy. Similar public spending stimulus programmes years ago across the EU failed to lift either economic growth or reduce unemployment, while in Japan we ran out of fingers and toes to keep count the stimulus packages that failed to lift its economy out of a 20 year trough. The rhetoric of growth by more such spending and borrowing is a pillar of SNP policy. But constitutional change does not free us from this conundrum. Our predicament is not so amenable to solution. It is not even amenable to £325bn of quantitative easing and the other emergency measures to which the Bank of England has resorted.
The inescapable fact of our situation is that “the big issue” – the one having a direct and material effect on our lives – is our economic predicament, our vulnerability to the euro debacle and the evident failure of conventional policy responses to lift us clear from prolonged depression. This does not render the referendum debate unimportant. But context matters, because it has a vital bearing on the credibility of any outcomes. All sides need to focus more on a context that is by any measure the most challenging we have faced in modern history. The referendum debate must not become a cop-out for us.