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It mostly covers my work as UNISON Scotland's Head of Policy and Public Affairs although views are my own. For full coverage of UNISON Scotland's policy and campaigns please visit our web site. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Wednesday, 22 May 2013

Laffer Curve economy


The Scottish Government's economic case for independence is strong on historical analysis but light on how Scotland would address the challenges it highlights. It also falls into the same complacency as the Treasury paper, in not explaining why current devolved powers have not been fully used to tackle inequality.

The Scottish Government has published 'Scotland's Economy: the case for independence'.  It sets out their analysis of Scotland's relative balance sheet in terms of public finance and the strengths of the Scottish economy. It then claims a better future is possible if Scotland had access to all the economic and policy levers.

The first section sets out Scotland's relative financial strength with a balance sheet as an annex. I say relative because it still looks pretty challenging, but probably in the short term slightly better than the rest of the UK, if you include oil revenues. The debate is over the medium to long term because of the reliance on volatile oil prices.  Then we get a decent analysis of Scotland's economic strengths sector by sector. So far so good.

Then the paper starts to go downhill a bit. A predictable section on how Scotland has been held back by Westminster in tune with the daily refrain from Scottish ministers. Now, there is much here that I would agree with, particularly the importance of tackling inequality. However, there is little explanation of how the Scottish Government has used their existing powers to address this issue. You should always judge politicians on what they have done - that's the best evidence of what they promise for the future. Sadly, the Scottish Government's balance sheet on this is decidedly mixed. On many of the issues they criticise successive UK governments for, there is little evidence that they would have done anything different at the time. Banking regulation is an obvious example.

Finally, we get to how they would use the powers that independence would bring. This is the lightest part of the paper. Of course there are good examples of successful small countries. However, the paper gives insufficient weight to the challenges facing small countries with a large neighbour as their dominant trading partner.

Then we have the currency union argument. I have covered this at length before, but the proposal is being taken to new lengths of absurdity. It is frankly ridiculous to assert that if we vote to leave the UK then we have some sort of entitlement to remain within the institutions of that union. We are entitled to our share of the assets and the liabilities. That might mean 10% of the desks in the Bank of England, but not to put our bums on any of the seats that remain. And even if we did agree a new Sterling union, there would be significant constraints on our fiscal and monetary polices. All the policy drivers that earlier sections of the paper complains about.

That leaves us with cutting Corporation Tax as one of the few concrete proposals in the paper. The FM confirmed that this remains the cornerstone of their policy. In the context of this paper there is a rich irony in the FM wanting to adopt Osborne economics as they are clearly both supporters of the Laffer Curve. The problem is that not even Osborne really believes that it will work as the Red Book shows anticipated revenues falling, even when they predict the economy picking up. There is simply no chance of a future UK government in a currency union agreeing to differential tax rates and even if they did, it would simply lead to a race to the bottom.

Overall, the paper makes a decent case for Scotland's strengths as an economy and even for our relative position with regards public finances. The paper's big weakness is on how Scotland would use the powers of independence and the consequences of separating from the UK.  Much more work is needed on these issues.

1 comment:

  1. There is simply no chance of a future UK government in a currency union agreeing to differential tax rates and even if they did, it would simply lead to a race to the bottom.

    ReplyDelete