Be careful what you wish for, Scotland may not be the socialist paradise some people hope

Be careful what you wish for, Scotland may not be the socialist paradise some people hope

by Alex Massie
article from Tuesday 11, September, 2012

AT SOME POINT, the laws of probability being what they are, the SNP will be chuffed to announce they are now supported by a high-profile or otherwise influential figure who actually lives in Scotland. But not yet. Jim McColl, the Chief Executive of Clyde Blowers and reputedly worth a billion pounds, is heralded as the latest convert to the independence cause. He lives in Monte Carlo.

So, no wonder some Unionists scoffed at McColl's enthusiasm for independence. It is, they suggest, easy for him to say that. It reminds me of the disgruntlement felt by some Unionists in the pre-devolution era whenever some London-based exiles piped up to support the idea of devolution. Fine for them to say so; they wouldn't have to live with the consequences.

Even so, McColl's support should not be dismissed as a matter of no importance. McColl's apparent, if less than full-throated, support for independence is another reminder of the First Minister's ability to woo influential business figures. Since the risk of capital flight in the event of independence is a real one - and shouldn't be dismissed by thoughtful nationalists - Salmond's boardroom charm offensive is as sensible as it is necessary. It is all part of Operation Reassure.

Note, however, that McColl's support for independence is as much a consequence of Unionist stubbornness as it is the result of some Damascene conversion. He appears a reluctant nationalist, nudged towards independence by the Unionists' refusal - at this stage - to make an argument for greater, and perhaps total, fiscal autonomy.

His argument, then, is actually a conservative argument for independence. In the absence of fiscal autonomy or "devo-max", independence is the next best option. McColl is not, I fancy, the only person to view matters in this fashion but I also suspect there are relatively few people who, deprived of a middle option, will plump for the uncertainty of the unknown in preference to the safety of the known. This doesn't mean his argument is incoherent; merely that his argument is the kind of case more commonly found in boardrooms and on the newspaper opinion pages than in housing estates and suburbs across Scotland.

As it happens, I have some sympathy with McColl's frustration. I believe the Conservative party should offer a proper and vigorous argument in favour of fiscal autonomy. Not, you understand, because doing so might shoot the nationalist fox (though it might) but because it's the sensible, consistent case Conservatives and anyone else on the right-of-centre should be making. The present situation of a parliament that may spend but cannot (no, not even after the Scotland Bill) tax should be anathema to anyone on the right.

Instead, however, the Conservatives prefer to be frit, startled by anything even resembling an idea, let alone a new or even newish one. This is a party afraid of its own principles. No wonder its recovery still seems somewhat distant.

There appears to be a presumption that more powers should be resisted because Scotland is too left-wing a country to be trusted to use them properly. Perhaps so. It is certainly the case that many Scots who support independence do so because they believe an independent Scotland would be some kind of sanctuary from the cold winds of conservatism or hard-headed liberalism.

If some Unionists make foolish arguments that can be distilled to an essence of Too Poor, Too Wee, Too Stupid to be independent so some nationalists err on the other side of the balance. I rather doubt that independence guarantees a Warmer, Bigger-Hearted, More Decent, Better Scotland. By which they mean, of course, a more left-wing Scotland. It may not actually turn out like that.

Even if one allows that a transition to independence passed smoothly, it's plain that an independent Scotland's finance minister would enjoy relatively little room for manoeuvre. This is the case even if concerns - quite reasonable concerns, it might be said - about monetary policy are settled in some satisfactory fashion.

Scotland is sufficiently prosperous to make a decent fist of independence. By many measures the country is the third-wealthiest part of the United Kingdom (bested only by London and the south-east of England). All this is encouraging.

Less cheerfully, however, it is also the case that Scotland's fiscal position is more vulnerable than it might seem at first glance. The SNP, quite reasonably, argues that Scotland contributes her fair share of UK government receipts. According to the 2010-2011 Government Expenditure and Revenue Scotland figures, Scotland contributed 8.3% of UK revenue, more or less in line with her 8.4% of the UK population. If a "geographical share" of North Sea oil revenues are included that figure rises to 9.6%.

All this is quite encouraging too. Poke beneath the bonnet, however, and you quickly discover evidence that not everything is as healthy as it seems. For instance, Scotland contributes just 7.3% of UK income taxes, 6.8% of capital gains tax, 5.8% of inheritance tax and 6.7% of stamp duties. From this I think we may deduce that an independent Scotland would find it difficult to increase taxes on wealth. There isn't enough of it to tax in the first place.

By contrast, Scotland "outperforms" other parts of the UK - that is, contributes a disproportionate amount of tax - on tobacco, alcohol and betting duty. Perhaps more significantly - since these "sin taxes" make up less than 5% of non-North Sea Revenue - Scotland contributes 8.8% of UK VAT receipts.

So where will an independent Scotland's revenue come from? A broader or higher rate of VAT is one possibility. So too is increasing property taxes (Scotland contributes just 7.7% of council tax revenue).That will not be popular but it is feasible. Increasing taxes on income might also be possible but only at the risk of encouraging at least some Scots to move elsewhere. Whether one likes it or not those Scots who might find relocating elsewhere attractive are also those for whom doing so is likely to be easiest.

What about corporation tax? Well, excluding oil revenues, Scotland presently contributes 9% of UK corporation tax receipts. That's encouraging too but it's also why the First Minister has told business leaders he'd want to reduce corporation tax in Scotland to give the country a competitive advantage and make it even more attractive to foreign investors. This too is sensible, not least since many companies domiciled in Scotland could easily, if they chose, relocate south of the border.

All this being the case - and I think it is the case - it follows that, because of our location on the periphery and because of the size of our what would be our new neighbour, Scotland's non-oil wealth is a resource to be farmed responsibly and with, to use a favourite government buzzword, some eye on its sustainability. Otherwise those resources risk being depleted.

Perhaps this is what the Labour party fears. Labour's opposition to independence or more powers of any sort rests upon its belief that competition demands a "race to the bottom".

It's true that, on the spending side, Scotland could trim aspects of UK government spending that are relatively unimportant to Scotland (defence, some transport projects) and also true that, notionally at least, smaller government units can be more efficient than larger entities.

Many of our present arguments do not seem troubled by these realities. True, north sea oil revenues will help but if there's to be a national oil fund (a good idea, incidentally) then even oil revenues cannot be expected to cover everything or perform quite so heroically.

Which means it is a question of economic growth. This country enjoys several important advantages: we speak english, we have a relatively well-educated workforce and expertise in a number of important sectors likely to prove profitable in the future.

We should not allow ourselves to be carried away, however. An independent Scotland is not likely to be able to afford to be a high-tax country. That is, it seems quite unlikely it can cope with higher taxes than those applying in what remains of the United Kingdom. On the contrary, the logic of the balance sheet demands Scottish taxes actually be lower than those applied elsewhere.

Be careful what you wish for, they say, and perhaps this should apply to left-wing supporters of independence more than to anyone else. An independent Scotland might be forced to be a high-enterprise, low tax neo-liberal haven open to the world and, most importantly, open to business.

Which, now I mention it, may be why Jim McColl is backing independence.

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User Comments

Actually the SNP proposed defence budget is £2.5 bn, some £800 million less than the notional Scottish defence spend on £3.3 bn. Our model calls for expenditure of £1.8 bn, which does in fact indicate a saving of £1.5 bn. So we're cheaper than the SNP!

Posted on Tuesday 11, September, 2012 by Stuart Crawford
"It's true that, on the spending side, Scotland could trim aspects of UK government spending that are relatively unimportant to Scotland (defence, some transport projects)" You're rather understating the importance of this. Most estimates put the realistic cost of a Scottish Defence Force at around £1.5bn a year less than is currently contributed by Scots towards defence. That's £6bn over a Parliament, enough to pay for a vast amount of expenditure that currently has to come out of the normal budget. (It'd cover the new Forth Crossing, the dualling of the A9, the Edinburgh and Glasgow airport rail links and the Edinburgh trams in just one Parliamentary term, for example.) Add the long-term savings that would result from an SNP government eschewing PFI and even assuming everything else stayed pretty much the same an independent Scottish Government would have a fair bit of financial wriggle room before it ever started thinking about tax increases.

Posted on Tuesday 11, September, 2012 by Ann Grey

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