Budget for a better nation

I have a piece in The Guardian today responding to the Scottish budget statement by John Swinney. It was originally commissioned as a post for Comment is Free, but they then promoted it to the main paper. Bear in mind it is written for a readership unfamiliar with the nuts and bolts of devolved politics...but I was pleased that Libby Brooks, the paper's deputy comment editor, tweeted it as Scotland showing what a progressive budget could look like.

There is a more detailed look at the budget, explaining the agreement Swinney has reached with local authorities, at Newsnet Scotland. It also usefully details some percentage cuts across various departments. On a related topic, Peter Curran at Moridura looks at how the budget was explained on television and asks pertinent questions about interviewing techniques. 

John Swinney's assertion that Scotland must get full fiscal powers was the most important part of his statement for me. The finance secretary made a good a fist of what he got, but we're worth more than that. Anyway here is the McAlpine Budget, as outlined in a Scotsman column published on Wednesday morning before the speech to parliament. I think Mr Swinney's job is safe, but the point is to illustrate how flexible and creative we could be with real economic power. Let's face it, Britain is bankrupt. What do we have to lose? It would be great if others could suggest alternative budgets of their own for an independent Scotland. Five policies that would make things better.
 

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By Joan McAlpine

There’s little point in a pocket money parliament when the pocket money runs out.  That line got resounding cheers for Alex Salmond at the SNP conference. But for John Swinney, who must today eke out the sweeties from that reduced allowance, those words must be as bittersweet as a bag of soor plooms.

The cabinet secretary for finance is a meticulous man, and we have already had some hints as to how he will manage the hand-out from Big Daddy down south. Further speculation is pointless, as you will know the details some time today.

If Scotland is treated as a child under the current arrangements, it’s more like the successful teen star whose earnings are appropriated by controlling parents “for the good of the family”. The Government Expenditure and Revenues Statistics showed national income from Scottish sources in 2008-9 (the latest figures available) exceeded all state spending here by £1.3bn. That is a budget surplus of  0.9% of GDP (including contributions to bailing out the banks.

In order to cover up their embarrassment, the most recent unionist tack focuses on Scotland being profligate under devolution. We are Britney Speirs or Michael Jackson, too flaky to manage our own considerable wealth.  It’s an absurd analogy designed to mask exploitation – and besides, John Swinney is no Britney Spiers.

In a Scotland with economic powers – independence or full fiscal responsibility – Swinney’s budget would look completely different. It’s an interesting exercise to imagine how a Scottish Chancellor of the Exchequer might operate in the grown up world.

My list is entirely personal, I couldn’t second guess Mr Swinney. However you have to start with those oil revenues, which give a Scottish chancellor more money to play with. They account for a fifth of all UK corporation tax - £6.4 billion in 2009 according to the industry body UK Oil and Gas. This only covers production, the supply chain is estimated to raise another £5-6 billion. 

The Scottish government’s stated intention is to build up an oil fund like that of Norway, which has reached $518 billion. But we could immediately use oil revenue to move our economy away from the distorted UK model built on City of London speculation, property and services. We must develop renewables, skilled manufacturing, engineering, life sciences and digital industries. We need to encourage entreprenuership, and create a friendly environment for the small and medium sized enterprises that account for most private sector employment.

Diverting some oil revenue towards building an infrastructure for renewables would be an important first step – no hanging around for the UK Green Investment Bank. We wouldn’t have the problem of Scotland’s share of the fossil fuel levy being chopped off our block grant.  Indeed we could design a completely different model of transferring cash from carbon fuels to green energy.

Given Scotland’s ambitious targets for renewable electricity generation, it’s not unreasonable that an Edinburgh chancellor would feel able to reduce the cost of petrol at the pump. We have some of the highest prices in the world. It affects all business, not just in rural areas. So let’s use fuel duty, vehicle excise duty and air passenger duty to address any logistical problems we face because of geography.

Specific industries could benefit from a chancellor whose first loyalty is to Scotland. Take the digital industries – everything from mobile phone apps to computer games. Digital Inspirations, a report for Scottish Enterprise 18 months ago, found the sector employed 42,000 in Scotland and generated £3.16 bill. It predicted this could double by 2012 with the right support. Scotland is strong on creativity, but weaker on building commercial value. Digital Inspirations suggested tax breaks or the creation of an industry hub in Dundee. The coalition government in Westminster refused tax breaks and announced a gamers’ hub in London. That’s the sort of thing a Scottish chancellor could fix.

Of course all industries depend on digital infrastructure. The Royal Society of Edinburgh recently pointed out that Scotland was falling behind in high speed broadband – an area that is reserved to London. Westminster shows little inclination to act, other than offering a limited pilot scheme in The Highlands.  The RSE urged the Scottish government to fill the gap but admitted the £100m cost could not be met by the block grant. A Scottish chancellor with priorities closer to home, would not struggle to find the funds to upgrade broadband. What about a text tax to pay for it?  It would please the parents of teenagers. This might sound like a flippant suggestion, and it is. But the substantive point is, that with imagination and flexibility, any government can use the tax system to transfer money to where it will bring most benefit.

A Scotland in surplus could improve all infrastructure more easily if it had access to that surplus. Full fiscal autonomy would also give us the ability to borrow to invest – but not the crazy forfeiting of our future to the banks, which was the model of the Public Finance Initiative. We might choose to emulate the Catalans, who recently issued a government bond worth 1000 euro and offering an interest rate of  4.75%. Ordinary citizens snapped up 1000 million euros worth in the first week of sale.

It’s not just other governments that a Holyrood  chancellor might look to for ideas. The Scottish Green Party turned to the land reform campaigner Andy Wightman to develop an alternative to council tax and business rates. Wightman’s proposal, the Land Value Tax, proposes an annual valuation on unimproved land so property owners would not be penalised for improving their home. The idea is to redistribute the 80-90% gains enjoyed by property speculators - and stop the kind of craziness that cause the crash. It’s untried and new, but an example of the kind of imaginative proposal we could consider. One recent report said LVT could subsidise affordable housing.

The need for minimum alcohol prices would no longer exist with a Scottish exchequer  – we could raise the price of drink through duty without waiting for the UK. We could emulate the Danish experiment in taxing junk food at higher rates, then invest the revenue in free nutritious school meals. It would save the NHS by reducing illnesses such as diabetes.

Myriad options come with full economic power. These are just a few. Others might have better ideas. The important thing is that they are tailored to Scotland’s needs. It beats squabbling over the bag of sweeties. 

 

 

 

Comments

[GrassyKnollington]

I noticed the resident army of Jock bashers was unleashed as usual on Cif. It's funny how the Mail and Telegraph are usually cited as examples of rampant and ignorant Scotophobia when the good old liberal lefty Grauniad is usually much more of a hate fest when the word Scotland pops up.

Some days I worry that they may hate us more than they hate the French......

[joan mcalpine]

~Thanks for pointing out that mistake which is now corrected. It was simply done in a rush.Note to self - double check all mills and bills from now on

[EphemeralDeception]

Another excellent article. Though "They account for a fifth of all UK corporation tax - £6.4m in 2009 " Should be Billions not millions...

I would like to add that industry headquartered in London completely skews the employment market in sectors that are strong in Scotland. The Oil sector creates a lot of employment in Scotland - but also in the overpopulated South East UK and where Government policy is made - London.

Having core industry offices centred in Scotland (with Scotland being an energy economy) would create a large inward migration of skilled workers which would also attract inward investment.

However, imo, for this to really work Fiscal control is not enough. Energy policy would still be reserved. Energy policy control is what is also required, which we would not achieve without independence.