Why the £5bn black hole John Swinney helped dig in Scotland's finances is only getting bigger
All political parties need to admit there is no money left for the usual political bribes ahead of the next Scottish Parliament election
Since the dawn of democracy, parliamentary elections have had a very bad habit of descending into a bidding war of electoral bribes, many of them unfunded. It is not a new phenomenon and not peculiar to Scotland or the UK, so I have no reason to expect anything other than this ugly trait to resume when the parties contesting the Holyrood elections launch their campaigns next year.
Politicians will say their policies are fully costed and claim they know how to balance the books. The reality of experience says different. Often the cost of a policy today is borne not by the taxpayers who vote for it (if they are taxpayers at all) but by their children or even their grandchildren. This can be described as generational theft, when today’s generation vote for consumption they will enjoy but that a subsequent generation will have to pay for.
Will anything ever be done to make our politicians live in the real world where actions have consequences and the high cost of their decisions is one of those impacts that can materially hurt our families?
Last week, a dose of reality was injected into Scotland’s political debate by the Scottish Fiscal Commission when it reported on the dire state of the Scottish Government’s finances.
Generous welfare payments and pay deals
The Commission explained that weaker growth of Scotland’s tax base compared to the rest of the UK, together with the over-commitment by SNP ministers on social security and public sector pay deals, was building up a “fiscal gap”. That’s a black hole to everyone else and it will amount to billions, not millions. By 2020, day-to-day revenue spending could be £2.6 billion above available funding, with capital spending busting the budget by a further £2.1bn.
The costs of more generous welfare benefits than in the rest of the UK – by definition not provided for in the fiscal transfers from Westminster – are mounting up. These are adding to more generous pay settlements for some public sector jobs than were settled in England, creating further spending demands that need satisfied.
Why not raise more taxes, and why not raise more borrowing? Surely the problem is easy to resolve by pulling these levers, as the Scottish Government has to deliver a balanced budget and just needs to make the necessary adjustments.
It’s not that simple. When you raise taxes, two things are inevitable, the first is you raise the costs of what you are taxing, which often depresses the economic activity because it is now more costly. The second is that people change their behaviour; they may change their spending patterns or decide to change their jobs, be less economically active or go so far as to leave the market by relocating to a more attractive and welcoming economic climate.
Inevitably the revenues that politicians expect to receive are not what they have assumed and they find themselves having to raise taxes further just to try and stand still. No surprise then the report warned of a negative tax reconciliation of some £850m appearing in 2027/28. It pointed out that despite commitments to make cuts, the devolved payroll employment since 2018/19 has grown rapidly. With all the other pressures, I reckon the “fiscal gap” is in fact going to be worse than anticipated.
SNP’s song and dance about borrowing
What about raising the amount borrowed? Well that truly is transferring a generational cost into the future. I’m happy to say the borrowing powers of the Scottish Parliament are restricted, are mostly for capital expenditure and, in any case, are already maxed-out (no surprise there).
The SNP makes a song and dance about Holyrood needing more borrowing powers but such powers would very quickly be tested to destruction as the debt would undoubtedly be taken to the new limit (duh, that’s why the powers are being asked for, after all). The Treasury is open to criticism for its own weakness in growing our national debt, but it's not so foolish as to let every other government institution join in.
What all of this means is that when the political parties draw up next year’s manifestoes they will need to recognise there is no money for electoral bribes. I repeat – there is no more money. Quite the reverse, even before they type any new policy onto a blank sheet of paper they should be typing out how they intend to repair the public finances.
The very minimum is to start by saying there must be a new comprehensive spending review run by the parties that form the new administration.
Too many quangos?
I would ask the question what will Holyrood be doing in 2026 that it was not doing in 2016 or 2006 – and can it be afforded? Were Scotland’s public services so bad back then that we would not go back to the spending levels of that time (allowing for inflation)?
It would not surprise me to find that, in many respects, our public services were in finer fettle then than they are now, but that we have added administrative or non-core demands onto the services and that productivity and outputs are poorer as a result.
Have all the demands of declaring equality-driven records and such like improved the services or have they actually caused more division? How many more quangos and agencies are now in receipt of funds that never existed before. Do we really need them?
Our political parties need to fess up about what their priorities are and cannot pass the blame on to Westminster. Holyrood’s black hole can only be filled by Holyrood’s decisions. More bluntly still, why trust the SNP when over the period it is John Swinney’s decisions that have resulted in the problem?
Brian Monteith is a former member of the Scottish and European parliaments and editor of ThinkScotland.org
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