When Alex Salmond unveiled the first official record of Scotland’s balance sheet under his leadership almost a decade ago, it was done with great fanfare. The nation’s media was summoned to the Scottish Government’s St Andrew’s House headquarters in Edinburgh. It’s not hard to see why.
The Government and Expenditure Figures (GERS) for Scotland were relatively rosy back then. At the time Scotland was still spending about £2.7 billion more on services like schools and hospitals than it raised in taxes to pay for them. But in relative terms this “deficit” was manageable, just 2 per cent of the size of the economy. Scots also paid marginally more in taxes per head than elsewhere in the UK, although public spending levels were far higher.
Fast-forward to last week and Nicola Sturgeon has inherited a less rosy, indeed downright dire, picture. The crash in the oil price means Scotland’s deficit is now five times higher than that which Salmond inherited. This £14.8bn black hole may seem a like a “big number” to many, but it would mean that a fledgling independent Scotland would start life at a massive disadvantage. Our public debt is now almost 10 per cent of the size of the economy. The EU has a 3 per cent cap, with Spain and Portugal only recently avoiding fines for deficits of 4 per cent and 5 per cent. How on earth could Scotland expect to avoid Brussels-enforced austerity as an independent member of the EU as Ms Sturgeon now so obviously wants?
Of course, the SNP can hardly be held responsible for the crash in the global oil price which is behind much of the current crisis. The solution proposed by the First Minister, as she prepares to launch a fresh independence drive this week, is to grow the economy and maybe borrow. This after the SNP, with Ms Sturgeon and John Swinney at its heart, has enjoyed almost a decade in power in Scotland. Economic growth is flatlining and has now dropped well below Salmond’s early target to match UK levels of growth. And let’s remember, even before the global price crash, the North Sea oil and gas industry was already in decline.
We are now way beyond peak oil with far more of the black gold having already been extracted than we will ever recover in the future. Production levels are up slightly, but as thousands are laid off, it’s unclear if the oil industry tax take will ever get back to the levels which produced billions of pounds annually for the exchequer.
This may be the new reality, but it feeds into a wider public debt crisis stretching way beyond Scotland. The financial crash of 2008 served to shine a light on unsustainable debt mountains accumulated by western democracies. It was the tipping point for years of fiscal mis-management which saw Greek postmen retiring in their early forties and vastly bloated public sector in Iberian states, particularly Portugal. The debt clock had been ticking on these countries for years.
The boom times of the 1990s and early 2000s, particularly in Greece, simply saw growth outstrip the mounting debt levels. No need to worry, or so it seemed. The economic shock on the real economy of these nations, like shipping and tourism, was certainly pivotal in the bailout they required after the crash. But the failure to keep the public finances under control saw Portugal’s deficit reaching 12 per cent of GDP by 2008, while in Greece it was up to 12.7 per cent as the crisis struck. And of course the upshot was some of the harshest austerity measures imposed in the modern age. Vast swathes of civil servants and other public sector workers have been axed, salaries have been scythed among some of the poorest and most vulnerable.
The Hellenic parliament in Athens recently voted through its 13th austerity package in the past six years to meet the terms of its latest €86bn (£73bn) bailout last year. Sweeping tax rises are also being agreed including VAT of 24 per cent, higher taxes on all fuels, and taxes imposed on just about everything from coffee to TV subscriptions, landlines and internet broadband connections. Austerity politics is the new norm for these smaller nations on the periphery of the EU where an independent Scotland could just find itself.
The SNP have railed against the evils of Westminster-imposed austerity in recent years. Perhaps they should think about how Scotland would fare under hardline austerity measures imposed by the Brussels Troika of the EC, the European Central Bank and the International Monetary Fund. It’s hard to see the current enthusiastic, majority support for the EU in Scotland surviving such a wringer.
Closer to home, the climate of austerity imposed by the coalition government of 2010 resulted in the biggest cuts in state spending since the Second World War. The then Chancellor George Osborne set out ambitious plans to get the country’s burgeoning public spending under control after the UK’s deficit spiralled to not far off £150bn in the aftermath of the banking bailout, about 10 per cent of the size of the economy. Osborne pledged this deficit would be wiped by the time of the 2015 election with Britain alone among the major western democracies in running a healthy surplus. He didn’t even get close.
The UK’s overall debt mountain now stands at a terrifying £1.6 trillion. It will never be repaid and will sit as an unwelcome inheritance for future generations. And despite the pain of the cuts in recent years, we are still spending a massive £75bn more in services UK-wide than we are raising in taxes to fund them.
This certainly ain’t Nicola Sturgeon’s fault. The £14.8bn deficit in Scotland came in 2014-15 when Holyrood’s budget was still largely being set by Westminster before the onset of new income tax powers. Ms Sturgeon has rejected the need for cuts or tax hikes. Perhaps she could successfully chart a different path for an independent Scotland which would see growth outstrip the debt mountain which haunts all developed economies. But it’s now time for the First Minister to explain how, because it’s this economic argument which will dominate a renewed independence campaign.