Today’s resource spending review announcement by Finance Secretary Kate Forbes confirmed what we already knew.
As it stands, Scotland’s public finances are heading for the rocks.
Fundamentally, we are spending too much, and not raising enough to pay for it. As the Institute of Fiscal Studies made clear last week, Scotland is facing a black hole of £3.5bn by 2026.
The consequence, as Ms Forbes set out today, is spending cuts to pay for it all. As usual, Local Government looks set to be getting hit worst of all.
What can be done to avert this?
The elephant in the room – ignored by Ms Forbes today – continues to be Scotland’s long-term failure to increase its growth rates relative to the UK.
Following the Smith Commission reforms, Scotland is now being penalised because of its lower growth rates. In simple terms, if Scotland earns less than the rest of the UK, then we will get less money to pay for public services.
With slower growth in employment expected in Scotland, this is forecast to get worse. The strategic challenge for Ms Forbes is obvious: we need to get growth rates back up to the UK average and, if possible, to exceed them. In this way, the new income tax powers will then work in our favour, putting more funds into Scottish coffers.
This is a goal that both the SNP Government and the pro-Union opposition in Scotland can unite around.
For the SNP, higher growth is essential if it is going to build firmer foundations for independence. Leaving the UK now, in Scotland’s current economic position, would be to condemn Scotland to a currency crisis and crippling austerity. This is precisely why most Scots currently say they do not want to do it. So the SNP needs to get the economy moving if it wants to achieve its political aims.
Similarly for the pro-Union parties, their own chances of success in government rest on growth too. If a future Labour or Conservative government in Scotland wants to afford costly policies such as free tuition, free prescription and higher benefit spending within the UK then they too need to focus on long-term growth to pay for it.
The urgency of the crisis means that choices, for too long put off, must now be made. Here are three steps that we believe the Scottish Government could take now, and which all parties should sign up to:
- Invest in growth
The recent National Strategy for Economic Transformation was a major disappointment, precisely because it conspicuously shied away from making firm choices on how to take the economy forward. Too often, the SNP Government is guilty of not wanting to rock the boat, for fear of upsetting interest groups it wants to win over to independence. This must end, and hard choices should be made. If a buyer for Prestwick Airport cannot be found, it is time to accept its closure. The decision to nationalise ScotRail should be reversed. Government is throwing good money after bad on non-productive lost causes, while cutting spending on University research. This is precisely the wrong way to go.
- Evaluate all current economic spending
Scotland currently spends more per head on economic development than any other part of Great Britain and yet our growth rates are the lowest in the country. Why is this? What is Scottish Enterprise contributing towards the development of start-up businesses? What are we getting for the billions spent on the Small Business Bonus? Is the leaderless Scottish National Investment Bank fully focussed on the task of generating extra growth and new jobs in Scotland? If not, why not? As the custodian of taxpayers’ money, the Scottish Government must be far more rigorous in its evaluation and assessment of economic policy.
- Accept the UK Government has a role to play
The roll out by the UK and Scottish Governments of City Deals and Growth Deals has shown clear evidence that, when London and Edinburgh come together to work on joint projects, the economic benefit can be far more than the sum of their parts. Yet in the National Strategy for Economic Transformation simply ignored the role of the UK Government in trade and economics. This is unsustainable. Our Scottish Future has proposed that the under-funded Scottish National Investment Bank becomes a joint venture, backed with extra billions of capital by the UK Government. Only in this way can we hope to shift markets and ensure Scotland becomes a world leader in key growth sectors such as renewables, financial services, and medical technology.