Brian Monteith: SNP must face economic realities

Of course Nicola Sturgeon wants SNP MPs to vote on English policies affecting Scotland  where else would she get the money? Picture: TSPL

Holyrood can’t keep believing it lives in a place immune from economic realities, writes Brian Monteith

We live in hard times. Austerity rains down upon us, public services are under great strain, local councils face unprecedented cuts – all forced upon us by dastardly Tories like George Osborne and mean-spirited Liberal Democrats like Danny Alexander. It is all the fault of an out-of-touch Westminster.

Well, that’s how the Scottish Government likes to present it. Social justice secretary Alex Neil says Scottish public spending has been “slashed to ribbons”. Inconveniently for the SNP and Labour, who have both invested heavily in this same anti-austerity narrative, the truth is somewhat different.

In real terms the Scottish budget for 2015-16 is the second highest it has ever had at its disposal since the Scottish Parliament came into being almost 16 years ago. Interestingly the largest budget was also during another year of “austerity”, back in 2009-10.

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If there are pressures on public services, then they are of the government’s own making in not seeking to address the root of the problem – it continues to spend more than it raises. One way to solve that problem is to raise taxes, but as last week’s embarrassing U-turn by John Swinney, on his Land and Buildings Transaction Tax rates illustrated, simply having powers to hike taxes can come unstuck. Comprehending that more competitive rates might be set by neighbouring jurisdictions is only just beginning to sink in to the nationalists’ mindset.

Let me tell them something for free: any further attempts to raise taxes in Scotland will be met with more competitive rates being set by the coalition government – and I would not rule out such an outcome from someone like Ed Balls either.

This may come as a shock to those revolutionary radicals who have joined the SNP hoping for greater wealth redistribution through tax policies. It should also be understood by mild-mannered nationalist tax cutters, admittedly a rare breed seen less often than the Scottish wildcat. For I also happen to believe that if the Scottish Government seeks to cut any personal or business taxes it is also likely to find that such a policy would be shadowed by the UK government, not necessarily matching a cut, but never allowing the gap to open up too widely.

What this means is that the idea that a devolved or independent Scotland will gain a great deal of economic traction by either raising or cutting taxes is nothing other than a self-deception.

The difficulty that this and any future Scottish Government faces is not just that routinely it spends more per person than the UK average, but that over a number of years it has added new commitments that are building a structural deficit greater than that of Westminster’s.

Free tuition fees, free personal care, free bus passes, free bridge tolls, free prescription charges, free eye and ear tests – these and other policies have created fixed costs that have to be met this year and every year, forever – unless there is a change in policy and some of the cost is recovered by introducing charges.

Simply having a Scottish Fiscal Commission or an Office of Budget Responsibility will achieve nothing if our politicians choose to remain fiscally incontinent and irresponsible.

The evidence that most of our politicians have not learned anything from the nation’s indebtedness is clear, for while revenue that was once charged out has been foregone the Scottish Parliament actually wants to have more powers over welfare that will add to the structural deficit. Collectivists hope to increase benefits in Scotland to what they think are more civilised levels than those pertaining in England and abolish where they can many of the welfare reforms already introduced across the UK.

This is not about responding to popular demand, for we know from polling that the Scottish public supports welfare reform, including the introduction of the welfare cap. Expanding welfare provision in Scotland is little more than political self-gratification to make our ruling MacChattering class feel good about itself in the comfort of the costed offices of Holyrood.

Likewise the idea of enforcing by statute in Scotland what is known as the “living wage” – a rate set higher than the minimum wage – would simply export jobs to those areas in the rest of the UK or the EU that do not apply it. Ironically, such a policy has the most devastating effect in the poorest of areas where the numbers seeking work are higher and supply and demand makes nominal pay scales lower – hurting the very people it claims to help. This policy would also add to Scotland’s structural deficit for it would ensure that the wage bill of the public sector must increase.

As the stamp duty episode of competing tax rates between England and Scotland has shown, Holyrood cannot continue to believe it lives in a parallel universe immune from dreich economic realities. Thanks to the new enhanced devolution, the financial implications of Scottish public policy are now being exposed to competition and the ramifications will be immense.

This is why Nicola Sturgeon says any SNP MPs will vote on English policies to help influence the Scottish budget. A greater endorsement of the Union could not have been conceived before the referendum – for what would Ms Sturgeon have proposed to help find funds if Scotland had been independent?

Although the oil price has collapsed, and the oil tax revenues with it, Scotland will not suffer from the shortfall it would have experienced as oil represents only 1 per cent of the UK’s GDP and it can absorb the hit more easily. The idea that oil tax revenues could have created an oil fund for future investment was delusional, we cannot even rely on it to finance our existing structural deficit. So bad are Scotland’s public finances, an independent Scotland would have required an emergency loan from the IMF.

Those spendthrift politicians need to waken up, we need to reduce the salary bill of the public sector, and we need to reduce the scope of what it does. Anyone who argues otherwise must admit they are asking selfishly for their children and grandchildren to pick up the commitments they are demanding.

One day Scottish politicians will have to face up to the structural deficit of their own creation and there is no better time than now.