by Raphie De Santos
The SNP was elected as a majority government in the recent Holyrood elections partly because they were seen as the best option to protect Scotland against the worst of the Coalition’s £111 billion austerity programme of cuts and tax rises. In order to do this, they face enormous challenges within the framework of this austerity programme dictated from Westminster and the new Scotland Bill which is working its way through the Westminster parliamentary system. In order to mitigate against some of the likely financial impacts of both these measures, the SNP has argued for some changes to the latter.
Their first solution the SNP put forward in their election pledge was extending their five-year council tax freeze which has already cost the public sector about £240 million in cuts while dropped their alternative to it a progressive local income tax. But the cost of this is a two-year public sector freeze – in effect a 10% pay cut with inflation running at 5% a year.
They have to administer and manage the Coalition’s £1.3 billion cut to the block grant for 2011/212. So Alec Salmond’s remarks in the Holyrood parliament in his first address after being re-elected as first minister “in Scotland the poor won’t be made to pick up the bill for the rich” ring hollow.
Of course, there is much worse to come in the way of cuts for Scotland. By the end of Coalition’s term in May 2015 the annual cut to the block grant and non-devolved services will be in the region of £6.4 billion – 20% or 25% adjusted for inflation. On top of that £1.6 billion will have to be cut off the National Health Service budget to match the efficiency savings that are being made in England. Interesting deputy first minister Nicola Sturgeon is already openly talking about the need for the NHS in Scotland to make efficiency savings.
Here In the coalition’s cuts programme lies the SNP’s strategy. It will be five years to the next Scottish election because a four-year cycle would mean it would clash with the next Westminster one in 2015. By then the cuts will have gone deep and may have to be even deeper under the Coalition or possibly the IMF’s auspices. In the Coalition’s best case scenario – which is likely to prove too optimistic – public debt is set to grow to 105% of real GDP by 2015 and the annual interest payments alone will eat up to 15% of our annual tax revenues. The SNP cannot isolate themselves from a weak UK economy that was stagnating even before the World economy started to slow down.
With the SNP saying they are not to blame for the cuts – they are the Coalition’s brainchild to solve Labour’s mess – they will call a referendum on independence saying that the only way out of this is if Scotland has full independence and fiscal powers. They are about to start a fight with the Coalition over the Scotland Bill which is to have its third reading in Westminster and has had legislative approval by the Scottish Parliament at the start of 2011. It cuts basic and higher taxation by half while at the same time cutting the central grant by £11 billion a year to Scotland. Restoring the tax rates to their original level will only bring in an additional £6 billion in revenue leaving a £5 billion shortfall to the block grant. The Scottish Parliament can raise the tax rates higher than in the rest of UK to avoid the shortfall. But the aim of the whole bill is to open up the door to implementing the cuts the coalition needs to make in Scotland while shifting the blame for them onto the Scottish parliament – you can have cuts or tax rises.
The SNP’s additional proposals to the Scotland bill are to lower corporation tax and have Scotland’s own borrowing powers. Neither offers a solution to the tax hole created in the bill. The SNP intend to lower corporation tax which studies show does not create jobs but instead reduces taxation collected. Corporations do not look at tax rates alone to when they decide where they will set up their businesses. A key measure they examine is likely earnings before tax and that is in a large part determined by wage rates and levels of automation. Scotland cannot compete against the cheaper more labour intensive countries of Asia. That is why investment has flowed from the UK to the east for over 30 years. Instead, we must build an economy not based on profit but on need.
Salmond has lobbied to George Osborne on behalf of the oil companies to have the new windfall tax on North Sea oil revoked. This is a long way from the SNP’s 1970s “It’s Scotland’s Oil” slogan and passes up the chance to point out the potential £50 billion annual revenues that would result from taking North Sea Oil under full common ownership and control.
More borrowing powers would not help the poor as the burden of repayment falls on the less well off. More borrowing would be a disastrous course with the public debt levels building up to crisis levels in the Britain. But Salmond hopes to use this to partly fill the £5 billion budget shortfall from the Scotland bill. He wants to avoid raising taxes above their current levels as this would be electorally unpopular to the SNP new broad based electoral support.
There are two dangers to the SNP’s strategy for a referendum on independence “well into the second half “of their five-year term. One, the Scottish people rise up against this austerity programme and say to the SNP: do something now about these cuts and tax rises. Two, the SNP have no programme to fill the £8 billion gap (£10 billion in real terms) in public spending by the time of possible independence in 2016 form a “Celtic Tiger mark II” economy. A solution to the spending gap would require amongst other thing taking North Sea Oil and the banks under public control and ownership, a rich tax on the super wealthy and progressive local and national taxation where the better off pay considerably more than the less well off.
These revenues could be used to clear off the Scotland’s share of the debt and finance an expansion in renewable energy, public transport, house regeneration and public services. Of course, the SNP is not prepared to do this and upset their corporate friends or wealthy and better off voters.
The SNP would retain the pound sterling as Scotland’s currency meaning we remain under the control of the Bank of England and City of London. The alternative of the Euro is no better, as recent events in Greece, Portugal and Portugal have shown. Scotland could set up its own currency, allowing us to set our own interest rates and determine what we wanted to spend on public services. The currency could be convertible into oil based on the US dollar/Scottish currency exchange rate. Scotland could work together with other small countries to set up a fund to defend their currencies from speculative attack.
The SNP’s economic proposals offer no solution to the Scottish people’s plight. Instead, we need to put forward an economic programme that makes the rich and wealthy pay for this crisis and takes the wealth and power under peoples’ control in Scotland. One that is independent of the Bank of England and the City of London and is not dictated to by multi-national corporations
The views expressed are his own and of no other person or organisation.