FOR THE FIRST TIME in months this week’s jobless figures showed a discrepancy between Scotland and the rest of the UK. At the UK level the numbers out of work fell by another 7,000 to 8.1 per cent. But in Scotland, unemployment rose for the first time in six months and is now slightly higher than the UK average at 8.2 per cent
Meanwhile, a clutch of business surveys have also indicated a worsening in Scotland’s relative position. These are just straws in the wind. Let us hope they do not signal a significant slump in the local economy. But if they do it will be interesting to see how the Scottish Government plays it.
So far, the SNP has claimed credit for the relative buoyancy of Scottish economic performance, pointing to some minor tweaks in capital expenditure as the cause. No doubt we will get to admire Salmond’s political pirouettes as any downturn is blamed on Westminster.
Actually there are two sides to the Scotland / UK economic picture. Since 2008 output has fallen further in the UK than in Scotland (by 7.2 per cent to 5.8 per cent at their respective nadirs). The UK has recovered a little faster, but still remains further below peak than Scotland.
Employment levels, however, fell less in the UK and have recovered faster. In other words Scottish GDP was cushioned at the expense of jobs. From one point of view this smacks of an economy with too much government spending and a big public sector. Output has been artificially maintained by the Barnett bonanza but the squeezed private sector has not been able to create enough jobs.
From another, however, the figures could demonstrate the efficacy of public spending as a method of boosting production in a recession.
It’s time to put this to the test.
One of the benefits of devolution is that it allows different policy models to compete within the UK. Labour and the SNP both say they favour a ‘Plan B’ approach to the double dip, with higher borrowing and public spending to boost growth. Yet the Scottish Government has largely failed to put its money where its mouth is, claiming that the evil Brits at Westminster won’t give it the borrowing powers to implement Plan B.
This is nonsense and should be exposed as such.
It is true that Holyrood’s formal borrowing powers are limited. The Scottish Government cannot issue bonds in the capital markets. But this is only one form of debt. The nature of borrowing is to finance an asset over time using somebody else’s money. And there is more than one way to skin a cat, as government at all levels has shown all too adeptly in recent times.
The Scottish Government could sell assets and lease them back. Motorways, buildings, infrastructure, it owns billions of pounds worth of assets against which it could effectively borrow. It could also tweak the corporate structure of publicly owned companies so that they can borrow privately. Then there is the public private partnership model. It can commission infrastructure from private companies under contract to pay back over time.
The scope for such ‘off balance sheet’ borrowing is virtually limitless. I’m not saying any of this would be sensible, but it is certainly possible. The idea that the Scottish Government lacks borrowing powers is a myth propagated by the nationalists as part of their constitutional mischief making.
The truth is that Scotland’s total liabilities, formal and informal, including pensions, PPP and the rest, are already much higher than the UK. Indeed, John Swinney admitted as such when he instituted the Scottish Futures Trust on first becoming Finance Minster. SFT was designed to improve the procurement process for public infrastructure, but it also allowed the Scottish Government to call a halt to the splurge of PPP deals which had got out of control under the previous Labour-Liberal Democrat administration.
Nonetheless, if Labour really believes in a ‘Plan B’ of higher debt and higher spending, it should call the SNP’s bluff. Either Salmond and Swinney believe Scotland is already mortgaged to the hilt, in which case they can be portrayed as ‘Tartan Tories’, or they don’t in which case they are hypocrites.
A critique of this kind from Labour would have several advantages. It would allow them to demonstrate the potential benefits of devolution as a petri-dish for innovative policy making, while showing that independence was not necessary. It would also expose the SNP’s flank from the left, opening up a new front separate from the constitutional debate.
Johann Lamont, the Scottish Labour leader, has already changed the emphasis of her attacks on the Scottish Government. There is a natural division of effort now between Alistair Darling’s ‘Better Together’ campaign defending the Union, and Scottish Labour focussing on policy. Her developing theme is that the SNP is neglecting Scotland’s real problems in its obsession with independence. This was the essence of her attack on Nicola Sturgeon’s move from the Health ministry to a roving constitutional brief. That the SNP’s deputy leader is leaving healthcare to a lesser light shows its skewed priorities.
Scottish Labour could set out a clear job creation programme based on infrastructure investment and financed by off balance sheet borrowing. It could include projections for higher growth and explain how this would be leveraged into future repayments via higher business rates, council tax and income tax receipts, as well as future sales (at appreciated values) of the newly procured infrastructure.
A fully worked out Plan McB, in other words, to put the Scottish Government to shame.