George Kerevan: SNP must convince the cautious to say ‘yes’

John Swinney’s ‘unconventional fiscal policy’ will have to work well to win over the fence-sitters, writes George Kerevan

AROUND 1.5 million people took part in last week’s big pro-independence rally. In Catalonia, that is. It was the largest ever crowd to turn out for the annual Catalan National Day march to commemorate the Siege of Barcelona in 1714, which marked the end of Catalan autonomy.

It must be the marching season: tomorrow Edinburgh sees the Rally for Scottish Independence, organised by the Yes campaign. The turnout will be closely monitored (by both camps) for an indication of support for independence.

The difference between the Catalan and Scottish situation is over the popular reaction to the economic crisis. In Catalonia, the experience of recession has boosted support for independence, though the wily Convergence and Unity party (their equivalent of the SNP) is pushing for devo max and control over local taxes.

In Scotland, the mood is more wary. Double-dip recession has made many people frightened rather than fighting mad. For the Yes camp to succeed it must win over this cautious centre ground. Broadly speaking, these are folk who describe themselves to pollsters as “more Scottish than British” but still feel a bit of both. They are caught between hoping independence might free Scotland from austerity and that leaving the comparative safety net of the UK is too big a risk. On this the referendum will be decided.

So John Swinney, the SNP government’s financial wizard, who yesterday presented his budget for 2013-14, has a lot resting on him. Swinney promised a budget for jobs and economic growth. His problem is that Holyrood has only limited control over its gross expenditure. Chancellor Osborne is slashing Scotland’s block grant by 11 per cent between 2010-11 and 2014-15. Nor can Swinney borrow to fill the gap – new capital borrowing powers devolved in the Scotland Act cunningly don’t come into operation till April 2015.

Since he can’t increase total demand in the Scottish economy, Swinney has become adept at what economists call “unconventional fiscal policy”. This involves switching funds within a capped budget to those areas that promote growth and job creation. Recently, the IMF told George Osborne the time had come to try out unconventional fiscal policy instead of clinging to his discredited austerity programme.

A case in point is Swinney’s bold decision to switch £700 million of Holyrood spending from the revenue budget (wages and consumables) to capital spending on construction projects, between 2012 and 2015. The current double-dip recession is caused mainly by a catastrophic slow-down in construction, itself the result of swingeing cuts to capital spending imposed by Alistair Darling in 2009. But spending on construction and infrastructure is just what you need in a downturn because of the ripple effect on the rest of the economy.

The trick, of course, was how to find that £700m of new capital. Swinney is a fiscal conservative, as I’ve noted before. He is quite ruthless in forcing efficiency savings on lumbering public sector bodies, especially local authorities (which were hit in yesterday’s budget small print). It’s not something Swinney boasts about too much because, in our adversarial Westminster-style politics, opposition parties always oppose any cash reduction on principle, even if you provide the same service at less cost.

There are two obvious criticisms of Swinney’s “unconventional” strategy. First, one person’s efficiency saving is another person’s cut. I’ve just had my council waste collection reduced from once a week to once a fortnight. I dare say I’ll survive, but the leaflet I received telling me this was an “improvement” read like something from George Orwell’s 1984. At the same time, I still think Swinney is correct to prioritise capital investment over revenue.

The second criticism is that public sector efficiency comes at the expense of jobs. Labour accuses Swinney of shedding 30,000 civil service and local authority jobs with his efficiency squeeze. Swinney would reply that he’s managed to slim down the public payroll – which was inevitable after Darling and Osborne imposed austerity cuts to the overall Holyrood grant – without recourse to compulsory redundancies.

In yesterday’s draft budget, Swinney again worked his magic trick and switched money around for growth projects. There’s an extra £40m for house building and £80m for new schools, starting immediately. These are not huge sums, but if they impact positively on private business confidence, stimulating extra private investment, they will be worth it. Note: I agree with my old unionist sparring partner, Professor Brian Ashcroft, that the quality of capital investment is as important as the quantity. My advice to Nicola Sturgeon, Holyrood’s new infrastructure minister, is to ensure that Swinney’s windfall is used wisely; eg in innovative projects promoting new technology.

Yesterday’s budget also signalled the end of the public sector wage freeze for those earning over £21,000. Doubtless this has something to do with the run-up to the referendum, and to a recognition that you can’t hold down wages forever without provoking resistance. The risk here for the SNP Government is that they don’t control wage negotiations at local authority level. Polling suggests people’s expectations of future inflation have begun to rise sharply, which could mean tougher wage negotiations ahead.

Swinney is still betting he can avoid a wage confrontation if he protects the “social wage”. So yesterday’s budget continued the council tax freeze, free prescriptions, free personal care and no student fees. It’s a tribute to Swinney’s political skills that he’s found the cash to keep these policies in place till the referendum. And you can bet he’s keeping something in reserve for his 2014 budget.

Has Swinney done enough to boost growth and persuade referendum fence-sitters that in an independent Scotland, he could do even better? Much depends on what happens next in the UK economy, where the SNP government has no influence. If Britain remains in recession, and Osborne refuses to budge from austerity, Middle Scotland might turn against the union – on the grounds that independence can’t be any worse, and that nice Mr Swinney is a competent fellow.