His strapline is “Business bullshit, corporate crap, and other stuff from the world of work”, and from what I’ve read so far you get exactly what’s advertised: straightforward analysis of of business and economic issues.
Today’s post – “Are We Really About To Split Up Our Country?” – looks at the prospects for Scotland and the UK, separate and together, in terms of government revenue, spending, and deficits.
For those of you who are still hazy about what the deficit is, it’s what the government has to borrow each year, over and above what it gets from taxation, in order to meet all of its spending commitments. This year’s deficit gets added to all of the previous deficits to make up government debt.
Enthusiasts for Scottish independence will hate what Rick has to say and many will dismiss his reliance on the likes of the IFS for forecasts of how an independent Scottish economy might fare.
But we all need to pay attention to Rick’s discussion of the public spending conundrum that’s laid out so clearly in the Venn diagram above.
If a government pursues any two of the three policies the consequence is shown in the overlap between the two circles. For example, the current UK government has decided to try to eliminate the deficit by 2019 without (overtly) increasing taxes. The consequence is a collapse of some public services, the early signs of which are apparent across the UK.
The intersection of all three circles is labelled “La La Land” because pursuing all three policies at the same time is impossible .
If the people of Scotland vote for independence there’s a very strong chance that the Scottish National Party will win the general election in 2016 and form the first independent Scottish government. The SNP’s vision of an independent Scotland is set out at some length in its white paper, Scotland’s Future. So let’s have a look at what policies are being proposed with regard to public services, taxation, and deficits.
The bulk of public spending goes on health, social security and education which are covered in Chapters 4 and 5 of the white paper. Nowhere in these chapters is there any suggestion that an SNP government would cut the funding of any of these services. In Chapter 5 all of the “immediate priorities for action” that are listed will require additional spending, and in Chapter 4 there are unspecified commitments to investing more money in education. So SNP policy is firmly in the green circle: no more cuts to public services.
Taxation is covered in Chapter 3 of the white paper where four out of six of the “priorities for action” are effectively tax cuts. The other two priorities (ending tax allowances for some married couples and designing a more efficient tax system) might provide enough additional revenue to make up for what’s lost from the first four but they certainly won’t deliver any net revenue increase, which puts SNP policy in the purple circle: no tax increases.
The consequences of pursuing the green and purple policies are “increased debt and debt repayments”.
Public borrowing is covered in Chapter 2 of the white paper. Depending on how negotiations go on Scotland’s share of UK public debt the SNP calculates that the deficit will be somewhere between £2.7bn and £5.5bn, which means that an independent Scotland will have public debt, which will get bigger every year.
There is no explicit commitment in the white paper to reduce public debt but this paragraph suggests the intention is to follow the UK lead in attempting to reduce the deficit:
“Sound public finances will be an important part of the agreements underpinning a Sterling Area arrangement with the rest of the UK and for demonstrating our credibility to financial markets.”
Which is reinforced by these statements in Chapter 4:
“The Scottish Government recognises that a sustainable fiscal framework is important no matter the currency arrangement. However, it is particularly important in a well-functioning monetary union to avoid significant divergences in fiscal balances.
That is why such a monetary framework will require a fiscal sustainability agreement between Scotland and the rest of the UK, which will apply to both governments and cover overall net borrowing and debt.”
So in addition to pursuing the green and purple policies the SNP appears to be proposing to follow the UK policy of attempting to eliminate the deficit by 2019, which dumps us squarely into La La Land.
Independence enthusiasts will, at this point, direct me to the many paragraphs in the white paper that suggest increased economic activity in an independent Scotland will deliver the missing millions as additional tax revenue. This is the same “trickle down” economics that has been punted by neo-liberals for the last three decades despite all the evidence showing that wealth trickles in precisely the opposite direction. Regardless of your belief in the direction of the trickle, the GDP growth required to deliver enough tax revenue to eliminate an annual deficit of even £2.7bn is not credible.
Rick’s conclusion on voting for Scottish Independence (“It’s absolute madness!”) might be an overstatement but if you’re an undecided voter and are worried about the economic implications you should probably vote No. This won’t save Scotland from falling into economic chaos, but it will probably delay the descent. The UK economy is ten times the size of Scotland’s and this bulk means it can more easily absorb the idiocy of government policies until someone comes along with a plausible plan for redesigning our financial and fiscal systems.
In the meantime none of us are independent from the logic of the Venn diagram. If we stick with our current way of doing things it doesn’t matter whether we vote ourselves into an independent Scotland or stay in the UK, the only way to maintain our public services is to pay more tax or take on more public debt.
Anyone who tells you different is spinning fairy tales.