Ruth Davidson: It’s the Scottish economy, stupid

US President Bill Clinton and friend James Carville, who is believed to have come up with the campaign slogan, "It's the economy, stupid." (Picture: AFP/Getty)
US President Bill Clinton and friend James Carville, who is believed to have come up with the campaign slogan, "It's the economy, stupid." (Picture: AFP/Getty)
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The SNP’s tax plans and management of the economy could see them thrown out of office, writes Ruth Davidson.

IT’S the economy, stupid. Credited to Democrat campaign strategist James Carville during Bill Clinton’s successful 1992 presidential campaign, the phrase has resonated ever since as one of the definitive political credos of our time. Get the economy right, the argument goes, and the political success will follow.

It has taken a while but, arguably, the issue posed by Carville has finally reached the Scottish Parliament. For the first 18 years of devolution, MSPs were largely insulated from economics. No matter what spending decisions we took, the same cheque would come to Holyrood every year. The only decision was about to carve it up.

But then income tax powers were devolved to Holyrood. And this year, the SNP Government has decided to use them in full – setting Scotland on a higher tax regime than that south of the border. If nothing else, the use of these tax powers has focussed attention on the powerful economic levers the SNP Government has at its disposal. And so, finally, the wider question of the economy has arrived centre stage to Scottish politics. No longer are MSPs solely arguing about spending taxpayers’ money. Now the question is about how we raise it as well. Who is likely to win over a majority of Scottish voters to their side over the coming years? The party which is best seen to support the economy, stupid.

This task is now, without question, Scotland’s most pressing public policy challenge. In December, the Scottish Fiscal Commission predicted a growth rate of less than one per cent until 2021. That is literally the lowest projected growth rate in the developed world – lower than every other OECD, G20 and EU nation. Even more striking, it’s lower than growth in the rest of the UK. By the time we hit 2022, Scotland will be a whopping £16.5 billion poorer than if we’d matched UK-wide growth since the SNP entered office. So important as Brexit is, it is self-evidently not the cause of divergence with the rest of these islands.

Such low growth isn’t just bad for the country’s reputation. Only an expanding and more productive economy will result in higher wages, higher disposable incomes and, in turn, increased tax revenues to fund the NHS, schools and other vital public services. So we need to act with some urgency.

Central to that is Scotland’s low productivity – what people make per hour. This is a tough challenge across the UK, with no easy answers. But I’d suggest four things to start.

Firstly, we need a much clearer role for our economic development bodies. The Scottish Government isn’t shy of spending: the enterprise agencies alone spend £700,000 every single day. But Scottish Enterprise still lacks a chief executive. We spend over double on business development than the UK average – but our rate of business growth is way behind. We lack leadership, direction, and focus from Ministers.

Secondly, we need to listen to business and their concerns about education and skills. By putting higher education on a pedestal, we have allowed Further Education and technical education to fall by the wayside. There is huge confusion, for example, over the role of the new super-quango created to coordinate skills. And the decision to cut college places, particularly part-time, is exactly the wrong thing to do to keep our adult workforce nimble, and able to adapt to a changing economy. So we need to look again at the arrangements for post-16 education in this country – to champion technical education and rebalance further and higher education.

Thirdly, we need better infrastructure. Can we really grow as a nation when, as happens right now, any attempt to plan and build new housing and infrastructure is bogged down for unnecessarily long periods in planning? Can we really grow as a nation when, as happens right now, large parts of the country are still denied superfast broadband?

And lastly, we need to stay competitive. And that’s where last week’s Budget comes in.

Tax rises are a short-term temptation to increase revenue. But what do they do to our reputation as a nation in which to invest? Already, business rates are higher for larger firms here than they are elsewhere in the UK. The tax on buying a home has also gone up. Now, if this budget is passed, tax is going up for anyone earning over £33,0000.

What will the impact be? We will, I suspect, soon see firms offering to pay a Scottish surcharge for staff paying more tax than they would elsewhere in the UK. Those firms will ask whether they prefer Edinburgh and Glasgow to Manchester or Liverpool as places in which to invest.

As Liz Cameron, of the Scottish Chambers of Commerce, has put it: “If Scottish businesses are taxed more and Scottish-based staff are taxed more, then that would not seem to be a situation designed to attract investment and grow Scotland’s economy.” Or, as Sir Tom Hunter has added: “The perception, if you are a talented person sitting in London, Manchester or Birmingham and Scotland wants to attract you, is that you may think Scotland is a high-tax economy.”

I fear he may be right. As Nicola Sturgeon has herself acknowledged, income tax powers in Scotland are not a toy. Decisions on tax have real-world consequences, often unintended.

The Scottish Government needs to be watchful that we don’t, in Scotland, put off investment thanks to our tax policy which – in the end – will only reduce the total tax take we earn.

Brexit undoubtedly poses challenges for Scotland over the coming years. But we are not helpless to act – far from it. A positive, focused, economic strategy from the SNP Government can help Scotland grow over these coming, turbulent years. A failure to do so will mean it is someone else’s turn to try.

And then it will be the economy, stupid, that did it.