9 Sep 2014

Why Brown’s ‘new powers for Scotland’ are a dice roll

This is not the last throw of the dice. The last throw of the dice happens when we see Her Majesty The Queen pop up in full tartan regalia and plead with Scots to vote no.

But first we have the second to last throw: the “new powers for Scotland”. Announced by a man who has yet to explain why he lost the 2010 election, or what his party did wrong in government, or make any self-criticism for his stewardship of the UK banking system, which led to catastrophe.

The deal promised by Gordon Brown last night involves… what? All he spelled out last night was a Labour proposal on more economic powers for Holyrood, together with a cross-party agreed timetable for their implementation, leading to the publication of a bill in January and its passage by April 2015.

This is not the same as a cross-party agreement on the powers themselves – which is, of course, impossible, since the measures must go through the Westminster parliament.

It is being briefed that the no gambit gives Scotland:

  • – more powers to raise tax, and to vary pan-UK tax rates
  • – more power over its own welfare system
  • – the Lib Dem version of the plan proposes new borrowing powers as well

But until Scottish people see the details, it will be very difficult to take this as anything more than what it is, a dice roll.

Here is why. The no campaign has focused laser-like on the fiscal risks to Scotland. Heavily indebted banks but no central bank to bail them out, keeping the pound but with no control over interest rates, and the risk that the oil money cannot pay for the level of public spending the SNP wants to add over and above what the rest of Britain gets.

Tax-raising powers

Now, consider the UK Treasury and sterling in a world where Scotland alone gets tax-raising powers, the power to spend more on public services, and the power to borrow separately.

Right now the global markets are waking up to the possibility of a yes vote.

In fact, there is a clear answer to most of their concerns: in the event of a yes, Scotland’s debts are assumed by the rest of the UK and Scotland owes the rest of us. The bank deposits are guaranteed in London.

(By the way, when you read “panic” headlines in the newspapers it is always best to turn to the last available editorial they’ve run. In the case of the Times, the FT, the Mail, the Express and even the Guardian, they’re all in the no camp.)

In any case, the panic headlines could quite easily be stemmed by the prime minister or the chancellor getting up and saying: “The risks associated with independence are understood by us and we have a plan to mitigate them.”

Fiscal autonomy

In the absence of such statements, let’s suppose there is a no vote and Gordon Brown et al make good on the maximum programme outlined above.

Scotland will effectively have part fiscal autonomy. There will be a part of the British state that can borrow independently of the Treasury, and spend, and spend to different priorities, but it will have little power to shape the economy in which those taxes are collected and spent.

The risk is that this impairs the UK’s credit rating and impacts on sterling. Britain’s debt and deficit look less under control, and in the long term its future as a unitary state is in doubt.

Remember, here we are talking about a UK government that has to seriously consider de-ringfencing NHS and education spending after 2015, such is the scale of deficit reduction needed.

So to avoid paying a higher interest rate on government debt Westminster would probably have to cut the whole UK’s deficit faster and set a lower safe limit for the deficit going forward.

That is: fiscal autonomy for Scotland may not only be seen as unfair south of the border, it has real costs to taxpayers in the rest of the UK.

Democratic deficit

The gambit may work, in that it halts the yes surge – but at the price of creating what looks like a democratic deficit with the rest of the UK.

Why should taxpayers’ money in, say Clacton, England, go to paying higher interest on government debt when all the upside goes to people in Scotland? And why should Scotland’s MPs go on having an equal say at Westminster over the NHS, education and welfare? These questions were not answered in Gordon Brown’s speech. They will be asked persistently today.

Meanwhile for Scotland, here’s what is still at stake. The point of independence – as opposed to autonomy – is that you cannot only set your own tax rate, and borrow on the open markets, but you can use your entire economic policy to “grow the pie”.

You could slash corporation tax, as Ireland has done, or incentivise short-term boosts to oil revenue. You could even – though the green yes lobby will revolt – frack the North Sea.

The problem with part-fiscal autonomy is that it turns Scotland into a high-tax, high spending state without the possibility of it competing with its near rivals – Britain, the Netherlands and the Irish Republic – for inward investment and a changed trade relationship. The danger is that Scotland would turn into a sclerotic welfare state, with every extra penny of tax raised and spent sucking life out of the private sector, rather than pump-priming its expansion.

One final thought. The promise of the no camp extends, effectively, into the next parliament – for the 2015 government in Westminster would have to honour the budget pledges set in the new Scotland Act. Yet by 2017 Britain is set to vote in an in/out referendum on Europe.

I am just wondering whether the real final throw of the dice could be a promise to let Scotland vote separately, and stay inside Europe if England and Wales vote to leave?

Follow @paulmasonnews on Twitter 

15 reader comments

  1. och will says:

    Does this mean Brown has abandoned his “all that’s left is to bayonet the wounded” campaign; a quote from Ian Davidson MP?
    Why? That slogan had such an attractive ring to most of the Scots who
    read about it.
    Does this mean Brown realizes the Scots are tired of the condescending, unfair policies of the last 300 years? Are they worried Scots won’t populate the ranks of their armies any more and die in their wars in undue proportions?
    Or is it just that they’re going to let Scotland deal with its oil problem.(90% more royalty revenue alone, some problem). Experts say the Scottish North Sea will be producing significant amounts of oil for the next 100 years. Project Fear, you lose again. And why would England want Scotland if our oil revenues are going to stop? Hmmm. Does that make sense to anyone?
    Yeah…? Show your “sources” southrons….
    Why would Brown want to change those policies now? Its worked so well for Westminster so far?
    Slán Béarla ,
    Ná déan dearmad cuairt a thabhairt .
    na Highlands

  2. Sid says:

    These proposals seem highly irresponsible.

    If Scotland gets extra powers to set taxes but without the authority or responsibility to raise its own debt then that is a recipe for disaster: isn’t that an incentive to slash taxes, increase spending and have the resulting fiscal gap be plugged by the rUK?

    Isn’t that precisely the sort of fiscal incompetence that the No campaign keep claiming they’ll prevent?

    Part of being an independent nation is the responsibility to handle your own financial affairs even if that means taking a hit at first. These proposals smack of parents coming up with new “house rules” because their kid is keen on leaving home and they can’t bear the pain of seeing them go.

    1. Ross says:

      The proposed powers include the ability to raise tax rates, not lower them (as independence would allow).

  3. Andrew Dundas says:

    Labour has consistently advocated more powers for the devolved Scottish Parliament. Powers that would extend in stages so that their impact would be spread.

    Turning to the financial crises of the past. There is no need to explain Brown’s banking policy which both the Tories and their Republican allies called far too restrictive. Not restrictive enough as it turned out; has the Tory Party apologised for their obstructions? I don’t believe so.
    When Wall St collapsed, banks all over Europe when belly up too. Was Brown to blame for the bankruptcy of ABM-Amro or Dexia Bank? I don’t believe so.
    You, Paul, were an economic commentator at the time when Wall St was issuing dodgy loans to all and sundry. Did you call out in opposition to those risky practices? I don’t believe so.
    It was Alan Greenspan – Chair of the Fed Reserve who opined that the flood of cheap money would do no harm. He’s admitted his mistake ….

  4. DavyBoy says:

    I would have thought that any change in the constitution of the union (United Kingdom of Great Britain and Northern Ireland) she be decided on my a referendum of the population of the whole of the union. Not just the break-away section.

    Isn’t that when was explained to us about the legality (or otherwise) of the Crimean referendum?

    I also thought that a change in the constitution should be at least 75% of the electorate, that chose to vote, in favour,and not by a simple majority.

  5. ann says:

    people have already voted in the postal vote and here we have a ” new” intervention. desperation??

  6. Arabia grace says:

    Paul Mason says we lack the education to make our own informed decision. To accuse him of patronising us would be easy. OK, he’s an economist and could be accused of being blinkered by his own education and background into believing that money underlies all we do and care about. But we are looking at the source of power and how it affects us, democratically, financially, militarily and emotionally – not always a bad thing Paul when it affects our families’ health and welfare. So no need to knock anyone here. How about a bit of general respect all round?

  7. Sean Fernyhough says:

    – the depth of deficit reduction needed.
    – avoiding higher interest rates on UK government debt.

    Paul, you definitely need to be at Sheffield University this Thursday evening.

  8. iain taylor says:

    I have a particular opinion (very low) of The Man Who Saved the World, since the self confessed ex politician is my MP. MP in the sense of collecting salary & expenses, but that is all he does – unless you count speaking to carefully vetted gatherings of loyal local Labour pensioners.

    The rabbit he has pulled out of the hat is lamentable, and thanks for calling him out. The danger is that it is talked up by the media (BBC now refers to the No campaign as “we”) and swings just enough votes for a No win.

    Our friends down south need not fear his promises. They will go straight into the bin if there’s a No vote.

    For the record, no-one in the Yes camp would want the English voters/tax payers treated the way you outline. In fact (call me out if I’m wrong) the few SNP MPs don’t participate in Westminster business which is rUK only – they’re entitled to but would regard it as absurd.

  9. Boffy says:

    One thing no one seems to have picked up on, is that a while ago, the Scots were told that as a new state they would have to apply for EU membership rather than it being automatic. However, by the same token, what is left of the UK would also be a new state, so should equally have to apply for EU membership if that were required of the Scots.

    Could the Scottish referendum have been a cunning plan cooked up by both Scottish and English nationalists as a means of levering Britain out of the EU? (Joke)

    1. Andrew Dundas says:

      Hello Boffy,
      In case you missed it, the European Commission has already observed that the United Kingdom is a Member of the European Union whereas Scotland is neither a signatory nor a Member (yet) of the European Union.
      Nobody knows whether each of the 28 Members will accept an application from a new Scotland State either in advance of separation, or afterwards in 2016 or later. There is general agreement that, because of Scotland’s mostly legislative compliance on all except financial controls, debt obligations and statistics, accession could be straight-forward for as long as no other State objects.
      In summary, the UK is already a Member and Scotland is not.

  10. Alasdair Angus Macdonald says:

    It is time that a number of the people who are commenting realised that the United Kingdom and England are not one and the same. England has 85% of the population and just under 50% of the land mass. These 50 million people who live and work in England have a wide range of views which are not properly represented in Westminster. The emasculation of local government and the weakening of trade unions has deprived most people of ways to participate in democracy. England should have a Parliament and it should be situated somewhere north of Birmingham. It should have the same powers that the Scottish Parliament has, and the others it will have under the recent Scotland Act and whatever other magical powers that the pro-Unionist parties can come up with. The great mass of the people of England as they are everywhere else are fair-minded and compassionate. However, they are serfs to the power of the financial interests in the City of London and their handmaidens in the Conservative, Lib Dem and Labour Parties. London itself has the greatest inequalities anywhere in the UK. The people of London need to be empowered and get rid of the conniving, ambitious pretend-buffoon – but cynically clever and calculating – Mayor. Stop attacking those of us supporting independence for Scotland. We are doing you a favour!

    1. Andrew Dundas says:

      Hello Alasdair,
      You may have forgotten that there was a referendum in the North-East of England that sought support for the devolution you advocate. Our Geordie neighbours voted that down by a wide margin.

  11. Boffy says:

    Andrew,

    The United Kingdom is an entity that includes Scotland. If Scotland leaves, that means the existing entity, i.e. the United Kingdom itself ceases to exist. A new entity calling itself the United Kingdom of Scotland, Wales and Northern Ireland may establish itself, as a result, but it will NOT be the existing entity. It will be just as much a new state as will the new Scottish State. For one thing, all of the financial arrangements etc. will be different.

    If, therefore a new Scottish state has to apply for membership, on the same basis so should this new United Kingdom of England, Wales and Northern Ireland have to apply for membership.

    For clarity, I think the Scots should not vote for independence, because as a socialist I believe that the interests of workers is best served by removing borders not creating new ones. On the same basis, if Scotland does decide to separate I do not believe that either the new Scottish state nor the new United Kingdom state should have to apply for EU membership.

    If we had a rational solution which would be a single United States of Europe, this issue and that of Catalonia would become rather irrelevant. It would become a simple matter of different administrative arrangements within the context of the single state, no different than the redrawing of local authority boundaries in Britain.

    1. Andrew Dundas says:

      Hello Boffy
      [I’m a 50+ year member of the Labour Party so I suspect I would align with you on many issues.
      My concern about Scotland is that neither cutting Corporation taxes collected by governments by 13% nor halving Air Passenger Duty will do anything but help the rich. Moreover, Scotland’s education system is geared to the wishes of our elite and does nothing for our underachieving families. In short, the SNP has an agenda closer to the Oswald Mosley’s philosophy than Keir Hardy’s.
      Our constitutional law is clear: there is no definition of what is the UK’s territory in any European Treaties so that country will continue its Membership whatever Scotland may decide. Scotland is not recognised as a separate entity in those treaties and would be a new member. All of which has been verified with the EU already.
      That said, I’m intrigued that Farage agrees with my own position: that if Scots want out of the present currency union, the only viable alternative is to be a fully co-operative member of the EU (as “Scotland’s Future” asserts), and adopt the Euro as all the other States have agreed since 1993. Using another international currency such as the GBP or USD could only be a transient option. Either way, we’re already losing headquarters of our vast Financial Services industry. I hope that further destructions can be avoided.

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