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Thursday, 15 March 2012

It's The Economy Stupid.

Bill Clinton made much of that line during his presidential campaign in 1992, thereby reducing any achievments of George Bush, particularly in the field of foreign policy, in the minds of the American public. At the time of the campaign there was a street interview carried out by one polling agent, which was given a fair bit of air time. One man was asked if he was aware that George Bush had created x thousands of jobs, to which came the reply, "Oh yeh, I am holding down four of them!" as he walked on. Over many years of campaigning for independence I have often said that the desire for independence, has nothing to do with economics but unfortunately, for many Scots, it has everything to do with it. In fact, the last Social Attitudes Survey found that as little as £500 in their pocket, could buy the votes of some Scots for independence.

 To some of my fellow countrymen and women, if independence looks as if it might cost them a bob or two, they want nothing to do with it. Fair enough, they have been battered for years, by tales of how poor we are, what a disaster independence would be, how it would appear that of all the comparable countries in the world who have made a success of independence, with far fewer resources than Scotland, we are singularly incapable of making it work for the benefit of our people. When oil was first discovered, the claims were that there wasn't much  of it, but, there was sufficient to make a Scottish currency far too valuable on foreign markets, therefore Scots would be unable to "manage" it. In other words, we would now have been "too rich" to be independent. Even now, knowing of the existence of the McCrone Report and its contents, has meant nothing to those who still wonder "if we can afford it".

The negativity about independence by Scottish MPs, is well recorded, with some more guilty than others of painting a picture of Scots and their country, which is unrecogniseable to anyone prepared to be even fair minded. They have much to answer for, as they have relentessly chipped away at the self-confidence of the entire nation. The latest in a long line of Westminster's Scottish politicians, to enter the fray in the current debate on the referendum, is Alistair Darling, Chancellor in Gordon Brown's government until Labour lost the election in 2010. According to Mr Darling, Scots would be "taking a massive risk" and the "downside of independence would be enormous". As someone who was at the centre of government from day one, in Blair's various governments, closely associated with the policies which have helped to create the current crisis in the UK economy, that is a bit rich, even for a Westminster politician.

A close associate of Gordon Brown's and one of several Scottish Labour MPs who held office continuously from 1997 right through to 2010, he knows where the bodies are buried. He admits in his memoirs to having had a secret meeting with David Milliband to discuss what to do about Gordon Brown, in the latter stages of the Labour government, admitting they should have taken the decision to remove Brown. He also admits that the bitter battles between himself and Brown stripped Labour of its electoral credibility at a time when he, Milliband and others were allegedly concerned to cut public spending in order to reduce borrowing. His tenure of office as Chancellor was too short for him to make any serious impact on the economy but he introduced three budgets, none of which reversed previous mistakes and, having been at the heart of government from 1997, he was as responsible as the rest of that crowd for the debacles they created.

In the early years, Brown was given  an easy ride by the media. Mr Prudence could do no wrong but history will have an entirely different assessment and, it is in light of the record of not just Darling but the entire government, packed with Scottish MPs, holding the highest offices of state, that Scots should determine whether or not anything Mr Darling has to say is worth listening to. Scots in general and Scots Labour in particular love to portray themselves as more caring, more socially conscious and certainly more left-wing than our southern neighbours. Gordon Brown, that son of the manse, had a reputation as someone from the mainstream of the Scottish Labour heartlands, committed to social justice and the re-distribution of wealth to the less well off in society. Does his record in office and his economic reforms bear any relationship to those lofty ideals or, were the ideals long gone by the time he had achieved the highest office in the land?

In Brown's Mansion House speech of 2007, he had been Chancellor for longer than any other holder of the office and he had this to say to the financial services industry, "I congratulate you on these remarkable achievments, an era that history will record as the beginning of a new golden age for the City of London - I believe it will be said of this age, the first decade of the 21st century, that out of the greatest restructuring of the global economy, perhaps even greater than the industrial revolution, a new world order was created." According to his own assessment, he had already banished "boom and bust" and now, his deregulation of the banks and financial services industry, had created reforms which had outdone the effects of the industrial revolution. Delusional or what? In the same Mansion House address in 2004, he had told the same attentive audience of financial highflyers and power brokers, "In budget after budget, I want to do even more to encourage the risk takers." We now know who those risk takers were and the impact their risk taking has had on the economy. It is a far cry from Labour's alleged commitment to the under-priveleged.

Brown's reforms have had an enormous impact on the UK economy, which in turn has had a knock-on effect on Scotland, but some have had a far greater impact than others, and went far beyond what was promised and invariably to the detriment of the country. He was only weeks in office when he introduced the reform which has effectivley destroyed the pension industry in this country, abolishing tax credits on dividend income. It is estimated that this reform alone, has taken £150 billion in tax from pension funds, leading to the winding up of the vast majority of the final salary schemes operated by the largest companies in the country. The reaction of companies to the reduced returns from their contributions, was to wind up the schemes; while the reaction of those with personal pensions has been to save less, preferring other alternatives. The result has been to create the fear that entire generations will face poverty in retirement and to create antipathy to those in the public sector who have come under increasing and quite unfair attack for having what have been termed, again unfairly, "gold-plated pension schemes." The one group whose pensions remained unaffected is MPs.

Brown and his advisers considered gold to be a lazy asset, which earned nothing, therefore decided to get rid of 395 tons of it in 17 auctions between July 1999 and March 2002, earning the Treasury $3.5 billion at an average of $275.6 per oz. It is widely predicted gold will reach $2,500 by the end of this year and around $8,000 within 3 years. Even if it reaches the former, that is over nine times the value at which Brown disposed of it. But Brown will forever be known as the Chancellor who set in train, the reforms which are responsible for the crisis in which we now find ourselves. His appreciation of the proper place of financial services in the economy and his understanding of the impact of his reforms has always been suspect. He was given an early warning of what could happen when regulation failed. In 1998, he was informed that Equitable Life was in dire trouble but over the next two years neither he nor the FSA did anything about it. In fact the company was allowed to continue to advertise and collect premiums and investment capital right up until it closed to new business in 2000.

At that time I wrote a regular financial column and warned potential investors to be very careful, an act which prompted an official complaint from Equitable Life. By that time they were already too close to the wire and nothing came of it but, if the financial world was aware of what was going on, why did Brown and the FSA watch, and do nothing until the entire edifice collapsed, causing over 1 million clients to lose 50% of their pension funds. The Labour government's behaviour in the aftermath was nothing short of despicable, refusing to accept repsonsibility until forced to by the court. They still refused to pay compensation and thousands died over the next decade, still fighting to get what was due to them. Brown really did believe he had set up a new age when he deregulated the City, creating the FSA as a "light touch" regulator which, when it came to the banks, had no touch, no feel for and certainly little or no understanding of the risks that were being taken.

Many of Brown's reforms were no more than smoke and mirrors; PFI where government agrees to pay back borrrowing in 30 years and the debt is kept off the books; camouflaged inflation by changing the measurement from RPI to CPI; changed the timing of the "economic cycle" twice to change the measurement of the cycle and make the statistics look more favourable. He was an expert in the use of "fiscal drag" where failure to change annual tax allowances, can increase the amount of tax taken without changing tax rates. All in all Brown's reforms are the direct cause of the almost total collapse of much of the UK banking system, with the country's biggest bank, RBS, being taken into public ownership, together with Northern Rock and almost 50% of the Lloyds Banking Group, the aftermath of which is still being played out.

What did all of that do to Scotland, given that Westminster still controlled the economy? GDP figures showed that Scotland fell into formal recession in the first 3 months of 2002, five years into Brown's tenure of office. The Scottish economy had been underperforming the UK economy for some years and in the 2nd Quarter of 2002, GDP growth was 0.3% as opposed to 0.6% for the UK. Scottish growth between 1995 and 2002 averaged 1.9% per annum, as opposed to 2.7% for the UK. Scotland was more reliant on manufacturing industry than the rest of the UK at that time and exports in engineering fell from £13 billion in 2001 to £10 billion in 2002. The climate at the time was not conducive to sustain the economic mix that Scotland had in electronic engineering and in the 18 months prior to to 2002, both America and Japan had stopped investing. Brown reacted by imposing an "energy tax" which was predicted to cost Scottish manufacturing £90 million in 2001 and actually cost the industry £143 million in the first year. He topped that off with a 10% hike in corporation tax on North Sea oil companies, placing in jeopardy the development of marginal fields. The then First Minister, Jack McConnell, was moved in September 2002, to ask the dismal Jimmies _ and he was not referring to Nationalists - to stop talking Scotland down.

Alistair Darling held senior office from the time he was appointed by Blair in 1997, to the office of Chief Secretary to Treasury, a post he held until he took over as Secretary of State for Work and Pensions the following year, a post he held until 2003. He then combined the posts of Transport Secretary with that of Secretary of State for Scotland, until he was appointed Secretary for Trade and Industry in 2006, holding that post until being appointed Chancellor in 2007, the post he retained until Labour's defeat in 2010. In his first budget in March 2008, he allowed Brown's intention to abolish the 10p rate of income tax to stand thereby punishing 5 million of the lowest earners in the country. In reaction to the criticism this caused, he raised the tax threshold and borrowed another £2.7 billion to pay for it. So much for cutting back on debt. His announcement of £20 billion of new spending, earned him a warning from Mervyn King at the Bank of England about public spending. He increased NI by 1%, his department managed to lose the personal details of 25 million citizens, said to be worth £60 million on the black market and in his final budget, he was roundly criticised for what was termed a "pre-election con", when it was discovered that he had set aside money for only one year, to cover increases in benefits he had announced.

Darling recently called Alex Salmond a "complete fool" for endorsing the RBS takeover of ABN AMRO, the purchase of a Dutch bank loaded with toxic debt, which helped to destroy RBS. RBS was in competition with Barclays Bank, which was advised in its attempt to buy ABN AMRO by one, Naguib Kheraj, who was just as keen for the takeover as both Fred Goodwin and Alex Salmond. Barclay's bid failed and Kheraj was appointed as a special adviser to the FSA. Was he also a "complete fool" and when did Darling decide that Salmond and Goodwin and, by extension, Kheraj, were all fools? If his opinion of them was so low, why did he not stop the purchase, which he could have done as Chancellor? Why was Kheraj appointed as a special adviser to the FSA, fool that he was? He was at Barclay's when Barclay's tax avoidance schemes came to light in 2009 and it was learned the bank owed HMRC £500 million, which in itself should have disqualified him from any government position.

Perhaps Darling's worst act as far as I am concerned, was his use of the House of Commons' Additional Cost Allowance, or "Second Home Allowance" to dodge paying Capital Gains Tax. The scam is now well known, where MPs were allowed to designate one of their homes as their main residence and paid for their "second" home with expences. The "smart" ones "flipped" their homes so that they changed the main residence when about to sell one of their houses, thereby avoiding CGT. Darling "flipped" his home four times in four years, as cynical and despicable a use of the rules as it gets. His only defence was, "the claims were made within the House of Commons rules." 

If some Scots really are concerned about the potential financial costs of independence, if £500 in their pocket is sufficient to persuade them to vote for their country to be a nation state again, they would do well to take little or no heed of anything that is said, any warning they are given by Messrs Brown, Darling, et al. The economic record of the Blair regime, packed as it was with Scots MPs, is nothing to be proud of and if we are to learn anything from it, it is to avoid taking advice from those responsible for it.

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