Scott Macnab: Austerity dilemma won't go away

Nicola Sturgeon held Brexit talks in London this week, but faces hard questions here in Scotland. Picture: Getty Images

The Climate of Austerity has been the defining mantra which dominated UK and wider Western politics throughout this decade. So the admission this week from Treasury, when an internal briefing was “mistakenly” posted online, that all the cuts of recent years will fail to get near its bottom line of wiping out the UK’s deficit, was quite a moment.

The mass cull of disability benefits, schools, student numbers, libraries and other public services had met with a vicious public backlash and anger over the hardline approach adopted. But the latest revelations means the yawning £70 billion annual gap between the money spent on public services and the taxes raised to pay for them is unlikely to be wiped out any time soon. George Osborne had pledged this would be eliminated in five years when he launched the UK’s austerity drive after arriving in No11 in 2010.

This week’s revelation from successor Philip Hammond that ministers are “unlikely to bring deficit reduction back on track” has been widely hailed by opponents as a major failure of economic policy. The SNP have been among the fiercest critics of the hardline approach to deficit reduction, with Nicola Sturgeon openly campaigning on an anti-austerity platform in the build-up to last year’s successful Westminster election push. But as the prospect of a second independence referendum looms in the aftermath of the Brexit vote, and Scots are again forced to look hard at the outlook for the country outside the UK, this is an issue that won’t go away for Scottish ministers.

The global oil price crash has left public finances north of the border in a perilous state. Scotland alone has an annual deficit of about £15 billion, about 9.5 per cent of the economy. This is well over twice the UK rate. If Ms Sturgeon is serious about securing EU membership as an independent state, she must first formulate a plans to meet the 3 per cent deficit cap which the Brussels block operates. On the face of it, this means a massive £10 billion to be axed from spending. The most direct and obvious way to achieve this is more cuts - at a time when frontline council services, the NHS and colleges are all under huge pressure.

And is the SNP prepared to take the tough political decisions and wield the axe to protect the stewardship of Scotland’s public finances? The former finance secretary John Swinney used to love boasting about how he had always produced a balanced budget during his nine-year stint in the post. Well, he didn’t have much option. The Scottish Government’s devolved budget simply took the form of a £30-35 billion cheque from the UK Treasury. All Swinney did was divvy this up among the various Holyrood spending departments. This was nothing to do with the traditional approach of Government’s raising taxes and then allocating public spend in line with this. It was actually illegal for the Scottish Government to have overspent its budget during this spell.

The new tax raising powers and borrowing responsibilities which have arrived at Holyrood may start to change things. And independence would certainly leave the fledgling state with serious questions to answer in tackling this looming black hole in the public finances. But is the SNP ready to make the tough decisions needed to ensure responsible stewardship of the public finances? The recent omens suggest not.

Just over a year ago, a Scottish Government report on social security raised questions over the current winter fuel payment of £100-300 for all pensioners and suggested it could more targeted to bypass the better off to make the most of a “limited budget”. Fearful of an opposition backlash, the idea was shot down by the Pensioners Ministers Alex Neil, despite the near £200 million cost of the policy. Another report this week by the Government’s Fuel Poverty Strategic Working group makes a similar call for the winter payments to be reviewed. It remains to be seen if ministers will adopt a similarly dismissive approach.

And when Scottish councils raised the prospect of cutting teachers numbers in order save some cash, Swinney himself threatened to axe their funding in order to stave off such a move. Nobody wants cuts, but the role of Government involves confronting hard decisions on budgets.

Meanwhile, the former SNP leader Gordon Wilson this week warned that the prospect of a second referendum on independence would be a “waste of time” until ongoing questions over issues like the currency, economy and the deficit are effectively dealt with. He went as far as to say it could be anywhere between five and 20 years before the time comes for Nationalists and the demographic change kicks in to pave the way for a Yes vote.

When Nicola Sturgeon recently faced questions about the state of Scotland’s public finances and mounting deficit, she flatly refused to entertain the prospect of further austerity, instead pointing to the return of economic growth from its current flatlining levels as the answer. But every indicator points to bad news for Scotland. This week it emerged that manufacturing orders fell again in the third quarter of the year, while the high street is also suffering as more than one shop a day closed their doors in the first half of this year with the numbers up on last past two years. There is now a yawning gap between Scotland and the wider UK economy which is growing at the three times the rates being experienced north of the border.

Ms Sturgeon is also facing growing pressure from opposition parties at Holyrood to put up taxes to offset the impact of austerity. This is another dilemma for a party badging itself an anti-austerity alternative, while keen to avoid a backlash from working Scots.

As the First Minister this week engaged in another round of constitutional warfare with Theresa May over Brexit, suspicions abound that she is ready to use such convenient grievances to mask some stark choices facing her at home. The First Minister cannot hide behind another constitutional crisis - Brexit - to avoid the hard political reality in Scotland, especially if we are to consider the prospect of leaving the UK again.