The financial fantasy of "Scotland's Future"

Submitted by SJW on 30 May, 2018 - 11:21 Author: Dale Street
Scotland's Future

After two years in the making, the SNP’s Sustainable Growth Commission Report “Scotland – The New Case for Optimism – A Strategy for Inter-Generational Economic Renaissance” was finally published last week.

The 354-page report is meant to remedy the deficiencies of the SNP White Paper “Scotland’s Future”, the basis of its pro-independence campaign in the 2014 referendum.

“Scotland’s Future” was criticised at the time for its facile economic assumptions, reckless predictions, and glib optimism about the economy of an independent Scotland. The new document effectively concedes the validity of those criticisms.

In doing so it throws up a new set of problems for advocates of Scottish independence. It also makes a variety of new off-the-wall claims about the economy of an independent Scotland.

The report claims that independence would eventually produce a windfall of £4,100 for every Scot. This is based on the wishful-thinking hypothesis: “If we had the same GDP/capita as the Netherlands.” But the report does not explain how Scotland might become a second Netherlands.

The report cites twelve high-growth, high-income small countries as “proof” of how prosperous an independent Scotland would be. This is a transparent sleight of hand. It is no more logical than citing twelve low-growth, low-income small countries as “proof” of how poor an independent Scotland would be.

In any case, some of the twelve countries cited in the report have achieved their rates of economic growth through policies which the SNP claims to disavow, such as the low-tax and high-income-inequality policies pursued by Singapore and Hong Kong.

To complicate matters even further, the report proposes that an independent Scotland model its economic policies on those of Denmark, Finland and Norway — but their growth rates are no higher than those of large advanced economies (including the UK’s).

The promised windfall does not even offset the loss of the fiscal transfer arising from the current UK-wide pooling and sharing mechanisms. That transfer would end on day one of independence. But when the supposed £4,100 windfall would kick in is anyone’s guess.

The report claims that it would kick in after 25 years. But only by assuming that Scottish economic growth would be 0.7% higher than if Scotland were to remain in the UK. And the assumption is just that: an assumption.

In the meantime, full-blown austerity would be on the agenda for at least a decade, and probably a lot longer.

The budget deficit of an independent Scotland would be cut from 8% to 3% within a decade. The total debt ceiling would be no more than 50% of GDP. (UK debts currently amount to 86% of GDP.) And £5 billion a year would be paid to the UK-minus-Scotland as a “solidarity payment” in order to service Scotland’s debt.

None of these could be achieved without major cuts in public spending.

In an attempt to answer the question of what the currency of an independent Scotland would be — in 2014 the SNP had promised a currency union although this had been ruled out by the UK government — the report proposes at least ten years of sterlingisation.

Scotland would simply continue to use the pound sterling, without asking anyone’s “permission”. But this means that an independent Scotland would have no say over interest rates and mortgage rates. Nor could it print its own money or devalue in an economic crisis.

In a worst-case scenario, this would reduce Scotland to being a cross between Panama (uses US dollar) and Greece (no control over currency in use).

After a decade of sterlingisation (and hyper-austerity) an independent Scotland would (or could, or might, or might not) opt for an independent currency.

If this is not confusing enough in itself, even more confusion lies in wait in what the report has to say (or not say) about an independent Scotland and the EU.

At times the report implies that Scotland would seek membership of the EU, in order to achieve “frictionless borders” with EU countries. But elsewhere in the document EU membership is no more than a vague possibility: “If Scotland became an EU member in the future ….”
Would an independent Scotland use the euro if it were an EU member-state? The report’s answer is variously “No” (“Scotland would retain sterling”) and “Yes” (“Scotland would join the euro only if and when such a decision was in the best interests of Scotland and the EU.”).

As one of the report’s analysts has put it: “So, Scotland might be in the EU or it might not, and it might join the euro or it might not.” But this report is meant to clarify the questions left unanswered by “Scotland’s Future”!

The only positive aspect to the report is that it has deepened divisions in the pro-independence camp.

The purists have been angered by the sterlingisation proposal (which hardly amounts to independence) and the report’s admission that many of its proposals could be achieved without independence (so why bother with independence?).

The Kool-Aid drinkers who deluded themselves into thinking that an independent Scotland would be the harbinger of socialism in one country have been angered by the cuts in public spending needed to achieve the report’s economic targets.

And the more rationally minded have dismissed the report as so much empty verbiage with nothing positive to contribute to clarification of the route to, and the nature of, an independent Scotland.

It would therefore be unfair to be overly critical of the report: It is a positive contribution to dividing, weakening and undermining the campaign for independence.

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