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Friday, 30 March 2012

Can Scotland Afford To Stay In UK?

To date, what little "debate" there has been on whether or not Scots should vote "Yes" in the proposed referendum, has consisted of a series of threats from the Unionist side, together with a series of loaded questions based on questionable statistics. The SNP has spent much of the time on the defensive, attempting to defend Scotland's right to be independent or its "right" to be automatically included as a member of the EU. Despite the lack of cohesion in the Unionist camp, they have managed to run a campaign where the sole aim is to create uncertainty or fear of independence, in the minds of Scots. The most recent poll, one of a series of polls conducted at the behest of one section or other of a largely Unionist media, claims that 51% of Scots are not in favour of independence, that only 36% are in favour with another 19% who don't know. The poll was taken on a UK basis and the total number of Scots polled was 100 but it was given wide exposure. Unfortunately this kind of pathetic excuse for scientific study is allowed to be presented as worthy of serious consideration by political pundits and the headline writers in the news media.

What is slightly depressing about all of this is the defensive nature of the Nationalist reponse. The SNP spends a great deal of time making assertions, some of which are very quickly called into question and not just by Unionists. No where is this more evident than in the area of economics, the use of the euro and the question of the currency an independent Scotland will use. I have made my position on the euro and the use of sterling abundantly clear on this blog and for the moment, will say no more. I have to wonder however, why the SNP allows the Unionist camp to put Nationalism on the back foot to such an extent, on the question of whether or not Scotland would or would not be better off after independence. Unionist claims about the economic position of Scotland after independence, are no more than assertions, frequently based on false statistics and equally flawed arguments. Unionists can no more argue that Scotland would be worse off after independence than they can guarantee that the UK will be able to maintain its standard of living after the oil and gas runs out. Nationalists are continuously being asked what an independent Scotland will do when the oil runs out. The question is equally valid of the UK, therefore why is it not asked?

The latest claims suggest that even with its agreed share of oil revenues of between £8 and £10 billion per annum, Scotland would run a deficit of approximately £9 billion. The latest oil find west of Shetland has just increased the life span of Scotland's oil by approximately 30 to 40 years and, if we accept the analysis of oil analysts who have argued for years that there is a great deal more oil there, which has already been discovered but is not currently being exploited, the oil revenues will be ours for a great deal longer than that. The one major problem that everyone recognises, is that oil revenues will fluctuate in value as oil prices fluctuate, but that will apply whoever owns the oil. The argument therefore, that Scotland will be forced to rely on a volatile resource, will apply equally to the UK. If oil is currently providing the UK treasury with around £9 billion per annum and Scotland's deficit is still about £9 billion, that is at least £9 billion the UK Treasury is going to have to find when the oil runs out. According to Unionist politicians, the oil is running out much more quickly than we think and, the current level of oil prices will not be sustained, therefore the UK Treasury is already on that slippery slope at the bottom of which, lies the £9 billion black hole. If we also consider the enormous pressure the present government is under to cut back government spending - remember Fitch the credit agency has already put the UK on a negative outlook - is Scotland inside the UK looking forward to massive cuts in public spending and a continued downward spiral in the Scottish economy?

Just as it was worth while to look at the records of Brown and Darling as Chancellors and their impact on the Scottish economy, it is worth while to take a quick squint at some of the economic arguments of Scotland's Unionists and at some of the government's own figures. The one thing that we can say about the consistency of the Unionists is that they are inconsistent. In November 2011 Danny Alexander claimed that Transport Scotland saw the referendum "as an issue", which the organisation immediately denied and publicly contradicted him. Ruth Davidson recently claimed that Scotland "would not be able to finance its welfare and pensions bill as the government had spent £100 billion on benefits since 2002 whereas the total oil and gas revenues in that period was only £59.7 billion" That suggests a deficit on benefits and pensions alone of £40.3 billion but Michael Moore, a member of the same coalition government, recently claimed Scotland's deficit was a "staggering £21.5 billion since 2002". The Scottish Office's own figures show that Scotland's deficit over the past 30 years has been no more than £41 billion. Not to be left behind in the race to lead the "let's knock Scotland" team, Johann Lamont has decided "it would not be in Scotland's interests to have more power because it is better to have a unified tax system which re-distributes wealth to where it is most needed." It just so happens that in areas of multiple deprivation in Scotland, in the 15% most deprived areas in 2009, Glasgow City had 31%, North Lanarkshire and South Lanarkshire each had 6%, therefore 43% of Scotland's worst 15% areas of multiple deprivation had been Labour Party strongholds for generations. Despite that appalling situation, the leader of the Labour Party in Scotland would still rather see Westminster, with a Tory/Lib/Dem coalition government committed to further massive cuts in public spending, control Scotland's economy.

What is forgotten more often than not, when government figures for public spending are bandied about, is that what is being announced with such authority is IDENTIFIABLE public expenditure. In other words there is a great deal of public expenditure which is not identifiable or cannot be readily apportioned to the various countries and regions of the UK. Some expenditure is said to be for the benefit of the UK "as a whole". It is estimated that at least 17% of total expenditure is unidentifiable, the bulk of that taken up by defence. The unidentifiable expenditure in 2006 was £69.6 billion with another £26.1 billion as an accounting adjustment. The Centre for Economics and Business Research (CEBR) figures show that the UK has not run a surplus since 2001/2 whereas Scotland has run a small surplus in each of the last five years. The same organisation's figures for 2009/10 show that in terms of the Government's identifiable public spending, Scotland's deficit was £9 billion or 6.8% of GDP whereas the UK's deficit was £107.3 billion or 7.6% of GDP. In that same year, 2009/10, 50% of the increase of £2.8 billion of public expenditure was for "social protection" or benefits and unemployment. So the Unionist argument suggests that "our economic policies are creating unemployment, which increases your share of public expenditure. That contributes to a larger deficit, which is the reason you cannot afford independence". Circular or what?

When it comes to Defence spending the story is reversed with Scotland never having had its population share of that expenditure. The Strategic Defence and Security Review (SDSR) Commons committee refused to hold an inquiry into the concentration of defence spending in the South of England since 1997. Since 1997, there has been a loss of 10,500 defence jobs in Scotland and an underspend of £5.6 billion in Scotland between 1997 and 2007/08 when the figures became public and the MOD stopped producing regional figures for defence expenditure for "defence reasons". Nevertheless the MOD has estimated it has spent £1.57 billion in 2010/11 with Scotland contributing an estimated £3.3 billion. Had that defence underspend been spent on creating jobs in Scotland, in education or health or changing the shape of the economy, the difference in our economic performance would have been substantial. Would an independent Scotland have been involved in Iraq or Afghanistan, would it retain Trident; would our expenditure on defence be anything like what it has been as part of the UK?

Did Osborne's budget actually do anything for Scotland's economy, did it provide the kind of policy change necessary to lift the Scottish economy from the trough into which it has slid recently? No budget by any UK Chancellor has ever done anything specifically for the Scottish economy, although the creation of Entrprise Zones in Dundee, Nigg and Irvine will encourage business development in those areas but the refusal of the request by the SNP to bring forward £300 million from the capital budget, is another indication that there will be little to encourage any real change in the way the economy is allowed to expand. The cut in the corporation tax to 24% in 2012 and to 22% in 2014 will be welcome but the increase in the duty escalator which put 41p on a bottle of whisky now means that one of Scotland's biggest export earners carries duty which is 37% higher than that on beer and 30% higher than the duty on wine. The question is why? It makes sense to encourage activity in the North Sea Oil industry by tax concessions, given that the estimated revenues from oil will be in the region of £54 billion over the next five years. What UK government was ever not interested in getting as much as possible out of the North Sea?

One of the Bond fund managers at M&G has offered an interesting analysis of the UK's prospects. The country has now officially slipped back into recession as recovery in GDP fell by 0.3% in Q4 of 2011, slightly more than expected. The so-called recovery in the UK is worse than it was after the Great Depression of the 1930s as the GDP is still 4.1% less than it was before the recession hit and after 15 Quarters. Over the same time period after the Great Depression the GDP was less than 2% lower than the pre-recession level and the recovery now, is worse than those after the recessions in the 1970s, 1980s and 1990s when GDP returned to pre-recession levels after 13 Quarters. Ben Benanke has also fired warning shots that the USA is not "out of the woods" despite growth in that country having been over 2%. His comments caused an immediate slide in shares in Asian markets. There is now open speculation that there might be an attempt by Mervyn King to devalue sterling in an effort to give a fillip to the markets.

The longer Scotland is controlled from Westminster the longer we will be prevented from taking the economic measures that are needed to give the Scottish economy the lift it needs. Any control from Westminster will automatically have greater regard for the economy of the rUK and the longer Scots will have to wait for the reforms we so badly need. That is the message that needs to be given to the Scottish electorate. No one can give guarantees that Scots in an independent Scotland will be better off but there is ample evidence to show that we are unlikely to be worse off, with the potential to create a country which will provide opportunities to create a society worthy of our aspirations.

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