‘Unicorn’ of full fiscal autonomy would ruin Scotland’s finances Murdo Fraser
Ishould start with a confession. In 1998, I co-authored a pamphlet for the Tuesday Club, along with Michael Fry and Peter Smaill, entitled “Full Fiscal Freedom for the Scottish Parliament”. In advance of Holyrood being established, we argued that it was a mistake to set up a new devolved Parliament which did not have financial responsibility, and this would be best achieved by giving the institution full control over Scotland’s finances.
In the interim 22-year period, I haven’t changed my mind on the principle of the need for a fiscally responsible legislature, one where the financial consequences of policy choices made by Scottish politicians have to be borne by the taxpayers who voted them into office.
However, it has been a long time since I have supported full fiscal autonomy, not least because it is one of the fundamental characteristics of being part of a larger union that there is a pooling and sharing of resources, with economically stronger regions supporting those with greater needs.
So, for example, in federal systems such as Australia or Canada we see a redistribution of tax revenues from wealthier states to those with greater demands, just as within the United Kingdom there is a fiscal transfer from London and the south-east of England to other areas.
Full fiscal autonomy in a Scottish context would be financially ruinous, given that the Scottish Government’s own statisticians calculate that our annual deficit now stands in excess of £12 billion, being the difference between the amount we raise in taxes here, and total public expenditure.
With the oil bonanza long since departed, fiscal autonomy for Scotland today would mean either savage cuts in services, dramatic tax hikes, or some combination of both – and that before we factor in the additional costs, and declining revenues, that are the consequences of the Covid-19 pandemic.
Against this context, it is not surprising that SNP politicians, once vocal in arguing for fiscal autonomy, went very quiet on the issue after the oil price slump six years ago.
It was interesting, therefore, to hear the Finance Secretary Kate Forbes telling the Scottish Parliament’s Finance and Constitution Committee on Friday that full fiscal autonomy was now back on the agenda as an SNP policy objective. As a means of assisting the Scottish Government’s response to the current crisis, full fiscal autonomy would be required as part of a suite of “more powers”, including borrowing, to fund additional government spending.
It is certainly true that much of the unprecedented fiscal support currently being provided by the UK Government towards business (already in excess of £10 billion in Scotland alone) is largely funded by borrowing. There is, however, a substantial difference between shortterm borrowing in order to address a crisis – as we saw at the time of the financial crash in 2008, and we are seeing today – and long-term borrowing in order to fill a structural fiscal deficit, which is what the SNP now seem to be proposing.
Governments cannot borrow indefinitely to fill fiscal deficits on an ongoing basis without substantial negative consequences. This would be particularly the case if we were an independent country, possibly with a new currency, and no certainty whatsoever as to our lender of last resort. From whom would Scotland in these circumstances be able to borrow, and on what terms?
The stock SNP answer to this is to argue that Scotland’s fiscal gap would be closed by economic growth. But it remains a mystery as to what exactly are the policies that would be pursued by a Scottish government of the time in order to deliver the exponential growth that would be required, and there is precious little evidence of our current crop of SNP politicians using the extensive powers already devolved to them to deliver economic growth – indeed, under their watch we are in a decade of economic underperformance compared to the UK average.
All this comes at a time when the Scottish Government’s response to the coronavirus pandemic is coming under increased attack from the business community. With the “R” rate in Scotland now apparently lower than the figure for the UK as a whole, questions are being asked as to why we are not moving at the same pace as England in terms of relaxing restrictions which would allow businesses to reopen.
Moreover, with the Prime Minister now talking about a relaxation of the two-metre rule, in line with international practice, thus far the Scottish Government are resisting a move which might well make the difference between survival or failure for thousands of businesses in the hospitality sector.
There is a growing concern, even from those historically sympathetic to the SNP, that this is a government that simply does not understand the economy.
Until his defenestration in February, Derek Mackay held the joint economy and finance brief, and as someone who was seen as a prospective future First Minister had the clout in Cabinet to ensure that the business voice was heard.
Now economic issues are split between three ministers – Fiona Hyslop, Kate Forbes, and Fergus Ewing – and however able they may be individually, there simply is not the same single-minded focus on business interests that there once was, nor is there anyone of sufficient superiority within the Cabinet to ensure that economic policy is given the priority that it requires.
Scottish economic recovery will require a laser-like focus, tough decisions, and real leadership from the top, not the chasing of unicorns like full fiscal autonomy. There is precious little sign that today’s Scottish Government have the approach that is required to get Scotland back to work.
Murdo Fraser is a Scottish Conservative MSP for Mid Scotland and Fife