Welcome to my Blog

I am a semi-retired former Scottish trade union policy wonk, now working on a range of projects. This includes the Director of the Jimmy Reid Foundation. All views are my own, not any of the organisations I work with. You can also follow me on Twitter. Or on Threads @davewatson1683. I hope you find this blog interesting and I would welcome your comments.

Wednesday 7 February 2024

Defence and security in an uncertain world

Everyone is suddenly talking about defence. Britain’s Chief of the General Staff, General Sir Patrick Sanders, discussed a ‘citizen’s army’. This has sparked nostalgia for National Service in some quarters (which Sanders rejected) and a more serious debate about defence spending in an uncertain world elsewhere. The prospect of a Trump presidency adds fuel to the discussion in Europe.

This week, I participated in a research workshop for a European client, building on a briefing note I wrote for them last year. I also presented on international defence procurement policy based on a paper I wrote for Prospect. I always find these discussions fascinating, as getting the countries' perspectives directly is much more helpful.

Colleagues in Poland, Estonia, Sweden and Finland have a genuine focus on the Russian threat, not to mention Putin’s not-so-little helper in Belarus. Other countries are also focused on what is happening in the Red Sea and Gaza, with the associated military and economic impact. With Pakistan and Iran kicking off as well, the Middle East risks a broader conflict, with ten countries now caught up in the fighting. For the first time, a Turkish colleague joined us, bringing another perspective to the discussion. He was more optimistic that the various players in the Middle East could reach a deal which would get the region back from the brink. Others were more sceptical that the Israeli Government would move on freezing settlements on the West Bank, an essential part of any long-term peace deal.

I pointed out that Britain’s defence spending is inflated by the fifth of the defence budget spent on nuclear weapons. If you take nuclear out of the equation, defence spending is about 1.75% of GDP, around the middle of the European league table. This means that the armed forces are struggling to keep existing equipment running. Even the Royal Navy, seen as a gainer in recent spending rounds, must decommission ships because it doesn’t have enough sailors. The Army is in even bigger trouble. When the Tories came to power in 2010, the British Army was over 100,000-strong. It is now due to fall to 72,500. Chatter about a ‘citizen’s army’ is not going to plug that gap anytime soon, and neither is the much-vaunted technology. As the Economist’s defence editor puts it, ‘Far too often, penny-pinching and short-termism have resulted in Britain buying high-end kit and then economising on the things that make it work properly.’

I was asked what a Labour Government might do – a frankly perilous speculation these days! I am impressed with Labour’s defence team’s approach, which appears to have a good grasp of the issues, including the need for procurement reform. The problem is that Rachel Reeves seems no more likely to challenge the Treasury’s short-termism, given her spending caution. Delaying expensive projects is a well-travelled Treasury route to balance the books. While Labour is comfortably ahead in the polls on most issues, they trail the Tories on defence and security by four points (YouGov poll below), although the gap is narrowing. 

I suspect this reflects a traditional view that Labour is not strong on defence. In an uncertain world, this is something Labour cannot afford to be weak on. If European security worsens later this year, the risk is that voters may put this issue at the top of their list of concerns. James Rose has pitched a package of policy ideas to help Labour seize the agenda on defence that I largely agree with. These include replacing the weapons sent to Ukraine and reversing Tory cuts, laced with more traditional Labour policies on support for veterans and ending failed outsourcing. To this, I would add the proposals in my paper for Prospect on defence procurement, a concern reinforced by the Westminster Defence Committee. This package would also have economic spin-offs and would be welcomed by the defence trade unions.

There is an adage that it is the first responsibility of government in a democratic society to protect and safeguard the lives of its citizens. Labour’s leadership would do well to remember that.


Monday 8 January 2024

Tough political decisions

 It could be a long political year if today's election pitches are anything to go by. 

Anas Sarwar was making a pitch to Yes voters in Rutherglen. It is a smart move given that despite the SNP's woes, the dial has barely moved on support for independence. However, a call for change alone may not be enough to firm up these voters for Labour. Anas needs to think further about what a serious offer on the constitution might look like to shift these voters at the UK General Election and, equally important, for the next Holyrood election if he wants to be First Minister. Lending votes to get rid of the Tories is only a short-term strategy.

I was at the University of Glasgow today, listening to the First Minister set out what an industrial strategy might look like post-independence. The media spin was more about the increase in household income independence might bring. This reinforces the recent soundbite script from SNP MPs, which puts the cost of living crisis before constitutional change. This reflects where the voters are, even if less popular with some activists. He further reminded some of those activists that Yes supporters should not simply shout "independence ever louder" but help set out an "alternative path: one that leads to a renewed sense of possibility”.


I was less interested in the political guff than what he had to say about industrial strategy, something grossly neglected in Scotland and the UK. Other small European countries have successful industrial strategies that have helped raise living standards. However, this didn't magically happen because they are independent; it resulted from a positive strategy.

There was a predictable and essentially correct analysis of the failings of the UK Government over many years. He argues it isn't a short-term crisis but the result of long-term failure, ‘creating a poor society with pockets of rich people’. His challenge to Labour is how they would change this given Keir Starmer’s cautious policy approach to the Green New Deal.

He proposed three pillars to an industrial strategy: joining the EU, a new ministry for industrial policy, joining up action across government, and public investment. He highlighted the success of public investment worldwide to 'crowd-in' private investment, particularly in the USA and China, with an albeit more modest response from the EU. It is less clear how an independent Scotland would develop the fiscal and monetary policy to finance a similar approach. He also highlighted EU strategies on CCS and hydrogen, which Scotland is well placed to contribute.

A crucial industry for Scotland is shipbuilding, although the FM didn't mention it in his long list of successful Scottish industries. Probably because on the civil side, the problems of ferry building have not helped the sector, with ships now being built in Türkiye. There should be opportunities for support ships in the renewables sector, but turning renewable energy prospects into supply chain jobs has been challenging.

Defence spending remains a vital part of the Scottish economy, providing 33,500 jobs and contributing £3.2 billion to the Scottish economy. It also provides high-wage jobs that provide income tax revenue, as Graeme Roy highlighted in the Herald today. Each percentage point of earnings growth in Scotland delivers around £25m more revenue than would be generated by the equivalent UK tax policy. 

For Scotland, a big chunk of defence investment and employment comes from naval shipbuilding on the Clyde and at Rosyth. The FM needs to clarify if an independent Scotland would pursue a Scotland First procurement strategy that considers the social value of procurement. The UK government has drifted away from this by awarding the Fleet Solid Ships contract to an overseas consortium. The more difficult question is how defence spending in an independent Scotland will sustain our defence shipbuilding industry. Some 24 warships will likely be built in Scotland between 2015 and 2035. It is hard to see how a Scottish Navy will need more than a handful of warships. Exports will be challenging given the global move to favour home-built procurement, or at least substantial offset, which Scotland may find challenging to offer.

Few would disagree with the ambition and vision the First Minister set out to achieve an industrial strategy that normal countries follow. However, the transition to a high-growth, low-inequality country is a long-term process that will require actions on a scale that will be challenging. In fairness, the FM didn't claim it would be achieved overnight, but his industrial strategy needs more detail and has to address difficult issues like shipbuilding. He and Anas Sarwar would be more credible if they faced up to the complex political issues.


Tuesday 19 December 2023

Scottish Budget 2024-25

 There were no big surprises in the draft Scottish Budget published today. I set out the background to the Budget in a briefing for the Jimmy Reid Foundation, and it was always going to be challenging given the economic environment and the appalling UK Autumn Statement. 

There was little cash to spread very thinly. The NHS and social care budget predictably got the lion's share, although even that is well below what it needs. Within that budget section, social care did best, which is the right priority given the impact of delayed discharge on our hospitals. However, welcome though £12 per hour is for workers, it is unlikely to bring significant numbers of new staff into the sector. We need £15 per hour, and we need it quickly, along with funding for sick pay. Mental health, drug, and alcohol services are going to have a difficult year.


NHS staffing will remain a big problem in the coming year, as growth in staff numbers is likely to continue falling behind the rest of the UK. 


The Scottish Child Payment is at least being uprated but short of where many organisations felt it should be to maintain progress on tackling child poverty. As the Scottish Fiscal Commission's (SFC) report shows, Social Security payments with no equivalent in the Block Grant are the biggest additional cost to the Scottish Budget.

On income, changes to Income Tax are a welcome progressive change to the banding structure. Again, the Deputy First Minister was urged to go further on tax reform by a coalition of over 60 organisations in a letter I signed on behalf of the Reid Foundation. Tackling Scotland's key challenges requires long-term thinking rather than more sticking plasters. 


There is also a shocking lack of consistency. Progressive Income Tax changes must be contrasted with the regressive Council Tax freeze. If fully funded, the resources could be better targeted to support public services and the cost of living crisis. This chart from the recent FoA budget report is a reminder of falling real terms local government spending, particularly on non-statutory services, over the last decade.


As with the UK Budget, I am more interested in the Scottish Fiscal Commission report, which gives a longer-term perspective. Their fiscal forecast is summarised in this chart. Revenue will be up 8% by 2028/9, but capital will be down by 20%. Our crumbling infrastructure is about to crumble some more! The Scottish Government is heading towards the capital borrowing cap, strengthening the case for the same prudential borrowing powers as local government.


The SFC also highlights the drop in living standards between 2021-22 and 2023-24 as the largest reduction since Scottish records began in 1998. They are unlikely to recover to 2021 levels until 2026. 


The SFC also assumes average devolved public sector pay growth of 4.5% in 2024-25. This includes an average basic pay award of 3.0% and pay progression and churn. They also forecast a fall in Scotland’s public sector employment from 2023-24 onwards. Overall, the SFC indicated slightly higher wage growth in Scotland than in the UK, plugging the current gap. Some sectors are doing better than others this year. 


In conclusion, the report card would have to say, could do better. Some steps in the right direction with progressive income tax changes and spending priorities. However, that has to be balanced by only modest tax reform and limited support for alleviating child poverty, coupled with the absurd council tax freeze.


Monday 4 December 2023

Pharmanomics - How Big Pharma Destroys Global Health

If you read one book this year about the economics of health, Pharmanomics by Nick Dearden should be it. The Director of Global Justice unpicks the way Big Pharma does business and rips us all off. This may not be unique in a capitalist society, but in the health sector, it costs countless lives. 

The COVID pandemic started to open the eyes of governments to this particularly rapacious form of capitalism. As Nick puts it, ‘They got to dictate who lived and who died in the most serious public health emergency in living memory.’ They prolonged the pandemic and entrenched global inequality for a generation with a vaccine that was invented mainly using public money. Corporations like Pfizer, Johnson & Johnson and Moderna  – used taxpayer support to get the vaccines that bear their names ready. Then, they privatised the  know-how  behind these vital medicines and refused to share it with the many countries that could have  joined the global manufacturing effort. Even AstraZeneca, whose Oxford vaccine was almost entirely funded by the public purse, turned what should have been a 'People's Vaccine' with an open license into an exclusive license, which prioritised rich countries. A practice they had undertaken before when they closed down early research into tuberculosis and malaria in favour of drugs for diseases affecting richer countries.

This book shows, page after page, how Big Pharma has been doing this for years. The patent system that underpins their profits delivers returns that manufacturing companies can only dream about. In the 1990s, Big Pharma discovered that their most significant asset wasn't research and development but intellectual property. So they lobbied in the USA and fought court battles to extend their patents and keep their data secret. This culminated in a trade deal known as TRIPS that enforced monopoly protection everywhere - described by one journalist as ‘a brute and profoundly undemocratic expression of concentrated corporate power.’ It is now a core part of the World Trade Organisation rules.

Examples include OxyContin, the drug behind the opioid addiction epidemic that has probably killed more than 300,000 people. You can watch how they encouraged overprescribing in the Netflix miniseries Painkiller. The drug generated $35bn for the company Purdue. They are now using the same discredited tactics to market opioids in China and other countries.

We are often told that these profits are essential to develop new drugs. However, Big Pharma does very little research into new medicines. They spend between five and eleven times more on advertising than on research. The drug is created by smaller companies, often funded by the public sector, and then bought out by a big drug company for the patents. They close down competitors and make small changes to drugs to extend patents. They are also one of the most financialised industries in our heavily financialised economy – stashing cash in tax havens to buy up companies and enrich shareholders. Medicine costs are entirely unrelated to research costs; they are hard-wired into the financialisation of the industry. As a Congressional investigator put it, 'The big Pharma fairy tale is one of ground-breaking R&D that justifies astronomical prices, but the pharma reality is that you spend most of your company's money for yourself and your shareholders.'

When you read the techniques that these companies use, it could drive you to despair. However, that is not the author's intent. He wants to open our minds to the possibility of change. We created the NHS, so why not the medicines they administer? 'If our healthcare is too important to be left to the market, then that must include the research and development of the medicines that keep us well.' It would save the NHS billions in the inflated costs that drain NHS funds. The purchasing power of the NHS has resulted in some small progress in regulating costs compared to the USA. Needless to say, the drug companies are a big part of the lobby trying to privatise UK healthcare. 

Governments need to stop being embarrassed about their role in the economy. There is a long list of technologies invented in the public sector whose ownership is transferred to the private sector and then rented back to us at enormous cost. We also need to reform the patent system to be shorter and more narrowly drawn. The pandemic and the profiteering of Big Pharma should be a wake-up call for governments in the Global North as much as it has been for the Global South. We should pressure governments to change.


Monday 20 November 2023

Public service reform is not a quick fix in a crisis

 The forthcoming Autumn Statement and Scottish Government Budget has inspired another round of calls for public service reform. Primarily wishful thinking as a substitute for public spending cuts, but the principle has merit.

The Chancellor appears to have some leeway in the Autumn Statement, although he wants to splash some of it on an Inheritance Tax cut that would benefit the wealthiest in society. This may shore up support for his boss on the back benches, but the politics are awful, particularly if it comes with benefits cuts for the most disadvantaged.

Audit Scotland has given a stark warning to the Scottish Government  in its annual audit of their accounts;

“The delivery of public services in their current form is not affordable, with inflationary pressures and public sector pay settlements having a significant impact. The Scottish Government must work with partners to develop a programme of public service reform, including workforce redesign, which balances the short-term financial pressures with the need for longer-term change, recognising that this may require financial investment.”

The Auditor was not alone in highlighting poor spending decisions. The ferry fiasco inevitably tops the list, with the latest final cost estimate approaching £600m. Then there is more than £50m on the BiFab fabrication yard, £52m on Prestwick Airport, £135m on the Lochaber smelter, up to £80m on the Rangers prosecution, and several IT projects. A less well-known example is the Shared Services Project. Many of us have been sceptical about the benefits of this approach in principle, but as predicted, costs have steadily risen. I'll believe the projected savings when they have been delivered!

While Tory MSPs regularly raise these issues in the Scottish parliament, they are less comfortable facing up to their own party’s record at Westminster. Nearly £100billion of taxpayers’ cash has been wasted, an average of £25billion every year since the 2019 election. The Best for Britain group’s chief executive, Naomi Smith, said: "The notion the Tories are safe with money has been blown out of the water. It's disgraceful the Government continues to squander public money while so many struggle to feed their families and heat their homes.”

The Scottish Government frequently references the National Performance Framework. However, as the Auditor also highlighted in his report, “I am concerned by the number of indicators not being reported five years after the first National Outcomes were agreed and it remains difficult to monitor the impact of policy and spending decisions on performance.” This is common, with initiatives launched under a blaze of publicity, only to quietly be lost as ministers move on to the next shiny announcement. I highlighted some of this in my recent report on Fair Work, and the Scottish Business Pledge is another good example of this process.

And before anyone tells me that the solution is private sector expertise. Let us remember that many of these projects involved private sector management consultants and big accountancy firms. Elon Musk has lost $41billion in just the last two weeks!

If we want to get serious about public service reform, let’s not forget that the template was set down by the Christie Commission 12 years ago. I was an expert advisor to that Commission, which showed how Scotland's public services require comprehensive reform by empowering communities, integrating service provision, preventing adverse social outcomes and becoming more efficient. The analysis in the report turned out to be pretty accurate. Sadly, too few of the recommendations have been implemented. 

Five years after Christie, I wrote a paper for the Reid Foundation on public service reform. This built on the Christie principles with a call to build integrated public services around recognisable communities, based on the principle of subsidiarity with service delivery at the lowest practical level. Proposals like shared services, the National Care Service and others show that the cult of centralisation still pervades government thinking. Preventative spending that could cut the demand costs on public services by up to 40% remains largely ignored. That report and Christie highlighted the importance of proper workforce planning and a staffing framework. This is a point again highlighted recently by Audit Scotland. 


Sadly, time and time again, these fundamental lessons are not learned. Public service reform is wheeled out as a solution during a financial crisis, just when the necessary investment is unavailable. There are only three years to go before I write my regular five-year blog on implementing the Christie Commission report. I suspect cut and paste will do the job yet again!


Wednesday 18 October 2023

Why another Council Tax freeze is wrong

 Yesterday, the First Minister announced that the Scottish Government would freeze the Council Tax next year. While many will welcome any help with the cost of living crisis, this is the least effective way to provide that support. I thought my days of explaining why had ended, leading me to agree with Andy Wightman’s response, “Dearie me. I thought we had finished with this nonsense." This refers to the 'stop-gap' freeze that lasted nine years until 2017.

I get the politics of this. The SNP has just been hammered in a by-election in which the voters made it clear that the cost of living was their number one priority, not independence. Yet the conference coverage has been dominated by the debate on independence strategy. In that context, the focus of the First Minister's speech needed to be on the people's priorities, hence the big announcements on the Council Tax and NHS waiting times. Not consulting the Scottish Greens was also a helpful nod to the SNP's 'tail wagging the dog' faction.

So, what’s wrong with another Council Tax freeze?

The Scottish Green's had a few hours to respond, and Ross Greer correctly says, “As we have repeatedly highlighted, council tax is a ludicrously broken system. It hasn’t been accurate since before I was born, with most people now paying the wrong rate as a result of those 1991 valuations." Since the excellent 2006 Burt Report analysed the options, the story of Council Tax reform has been one sticking plaster after another. I have lost count of how many consultation submissions I have written since then. I am also old enough to remember when the SNP leadership agreed! Another sticking plaster when the Scottish Government is consulting on new proposals, however inadequate, appears to demonstrate policy-making on the hoof.


The Greens were not the only ones caught out by the announcement. COSLA was also not consulted, which disrespects the new start promised in the Verity House Agreement. This is, after all, a local government tax, and the rate is a matter for individual councils, not the central government. It will also further reduce the proportion of funding raised locally. By dictating almost all council finance from the centre, councils become local administrators rather than local government – unable to respond to local needs and be accountable to their electorate.

Then there is the cost, at least £100m, to compensate councils. Only this week, the IFS highlighted the dire state of the UK finances. This means Barnett consequentials are unlikely to save the Scottish budget as they have in the past. Coming from a Scottish Government that has just told UNISON that there is no more cash for council workers pay, this is not clever industrial relations either. In fact, the only group to welcome the freeze was the tax dodgers alliance. As the STUC put it, "Local services are crying out for investment, and today's announcement combined with a decade of inaction will only make the situation worse." Let us not forget that the last freeze was not fully funded, and councils were forced to increase service charges.

The Scottish Government were consulting over a modestly progressive increase in the Council tax bands - proposing bills for Band E to Band H homes go up by 7.5%, 12.5%, 17.5% and 22.5%, respectively, in April. In contrast, a Council Tax freeze is regressive, disproportionally benefiting better-off households. This is a graphic I did in 2017, which shows just how much the last freeze benefited the wealthy.


If the Scottish Government has the cash to support families through the cost of living crisis, they should focus on progressive measures like the Scottish Child Payment and strengthening the public services we all rely on. A tax handout for the rich is a regressive policy.


Monday 11 September 2023

Naval Shipbuilding - UK by Default

I was at the Scottish Parliament’s Cross Party Group on Maritime and Shipbuilding this afternoon to present a report I wrote for Prospect, Design, build and maintain: Effective defence procurement. 



The report describes the current defence procurement regulations and my recommendations for a new approach. This is an explicit UK by default strategy linked to an industrial strategy, with workforce planning and social value at its core. Social Value measures the direct, indirect and induced impact of procurement. Around one-third of defence spending returns to the Treasury, so it makes sense to recognise this in bid evaluation. Procurement should also support public policy considerations, including the real living wage, employment standards, and ending tax dodging. My proposals on this mirrors my work on Scottish procurement legislation, so although defence is reserved, the Scottish Government can lead by example. 

 

Defence spending remains a crucial part of the Scottish economy. The latest data shows jobs have increased by one-third to 33,500 - contributing £3.2bn to the Scottish economy. For Scotland, a big chunk of that investment and employment comes from naval shipbuilding on the Clyde and at Rosyth. Babcock has built a new frigate factory in Rosyth, and BAE Systems is expanding its covered building facility in Govan. 

 

While the frigate programme is a solid work programme, the rest of the National Shipbuilding Strategy is vague regarding timescales and funding. Companies need greater certainty if they are to invest in the necessary facilities, equipment and skills. Potential opportunities are not sufficient. This helpful graphic (from Navy Lookout) takes the plan and highlights the capability gaps towards the end of the decade and into the 2030s. 




Other countries across the world build in greater certainly through local production strategies. The UK has the most open procurement regime in the world. The Royal Navy Fleet Solid Support ships have recently been awarded to a Spanish-led consortium, which benefits from the taxation treatment I recommend in my report. Countries like India, USA, Canada and Türkiye have explicit local procurement strategies. An Australian minister put it even more bluntly, 'We make no apologies for deciding to invest in Australian-built ships, creating Australian jobs and using Australian steel.' They point to research that shows that building ships locally has huge flow-on effects and can help underpin other advanced manufacturing. This graphic explains the security and economic benefits of investing in a domestic defence industry.



Having a shipbuilding strategy is a positive start. However, to make the plan a reality, companies must manage technological developments, the ever-changing political climate, economic uncertainties and a war on the continent of Europe. There are opportunities but plenty of pitfalls. What they need is a more stable procurement framework of the sort that is common worldwide.