Tom & Gerry
Tom Miers has been in the news lately with his report from the think tank, “Policy Exchange”, entitled, “The Devolution Distraction”. I thought I’d take a look at it and find out exactly what he says and why he says it.
Tom Miers starts from the position that public services in Scotland have declined in performance when measured against other countries even though funding has increased, that the economy is behind the rest of the UK and Europe and that Scotland has not used its distinctive culture to enthuse its inhabitants and as a boost to its economy. What this means is that devolution has not made any difference to the efficiency of public services in Scotland or to Scotland’s cultural or economic well-being.
He identifies two problems with the body politic in Scotland which have caused this, the fact that politicians focus on the constitutional debate to the exclusion of solving Scotland’s problems and that there is an innate conservatism in Scotland among Scottish politicians.
So is he right or wrong in his analysis of Scotland’s public services and in his conclusions about his findings?
Comparing Scottish educational achievement to the educational achievement in other countries is a valid and useful exercise and comparing Scotland’s health system likewise but comparing its economy is not. I’ll explain why later.
Tom Miers regards Scottish educational attainment to be falling in comparison to England and that education in Scotland utilises more resources to give a lower outcome when measured against exam achievements. From the data he uses Scottish education does seem to have lost its advantage over English Education and to perform poorly in international comparisons. He also regards the Scottish NHS to be less efficient in terms of the, “productivity”, of the staff in the NHS by measuring attendance in terms of inpatient admissions and outpatient attendances versus the cost of the service. Both of these points are valid and should be investigated as to why.
But it is when he comes to the economy he comes unstuck. He measures Scotland’s performance against the UK and against other, “Organisation for Economic Co-operation and Development” (OECD) countries. This is simply not a valid comparison. You cannot measure the economic performance of a region against the economic performance of a country. It simply isn’t a valid comparison as a region has to work in the economic conditions its parent country creates. It may have limited autonomy but it is not free to control the levers of economic power in the way an independent country does. Scotland is a region and its Parliament lives off a block grant so comparing Scotland’s economic performance to an independent country and laying the blame for any shortfalls at the feet of the Scottish Government is not sensible.
Tom Miers’ answer to the problems he describes is for the Scottish Executive, (he’s not keen on ,”Scottish Government”), to use the powers it already has to radically alter the way public services are delivered in Scotland and to radically alter the tax burden on the Scottish economy.
For public services such as Education and the NHS he recommends competition and privatisation. It is a Conservative Think Tank after all, so these solutions are not a surprise but nor should they be dismissed out of hand as long as the service they are applied to improves and the cost to the taxpayer falls. It’s in his economic solutions that we start to enter an Alice in the Looking Glass world.
Tom Miers does not think that Scotland needs anymore Fiscal Autonomy because he believes it is already fiscally autonomous. This is what he says:
“If any government controls taxes that raise more money than it will ever either cut or increase, it is fiscally autonomous. This is because it determines the overall level of taxation in its jurisdiction. If it is also elected, it is by definition fiscally accountable.”
(I’m still trying to work out exactly what he means. Read the report yourselves and then offer suggestions.)
The easiest way to look at his proposals is to look at his worked example on page 32 of the downloadable pdf file.
His solution to Scotland’s economic problems is to make it a low tax economy. He does this in three ways. He proposes a 3p in the pound cut in income tax, no council tax and no non-domestic rates and in addition the corporation tax rate is reduced to 33% by refunding companies money on their audited accounts. In total this adds up to a £6 billion cut in Scotland’s tax bill. This, according to him, makes Scotland a low tax economy and makes the government very popular and attracts inward investment. These are all steps which the devolved government of Scotland could legally take.
It looks good but what lies behind is not so good. All these tax cuts have to be paid for and since the only money the Scottish Government gets is the Scottish Block Grant then they have to be paid for out of the block grant. A 3p in the pound tax reduction would be clawed back from the block grant by HMRC, the council tax and non-domestic rates would have to be refunded to the local authorities and the corporation tax refund would come directly from the block grant. The block grant is about £30 billion and is for funding public services in Scotland based directly on a proportion of the funding used for English public services. If there is a £6 billion hole in it then that amounts to a cut in public services of 20%. The only way to make these kind of savings is by job cuts and using rough figures where each public service employee costs about £40,000 a year to their employer then you would need to sack 150,000 to make up that £6 billion. Even with these rough figures if only two thirds of the savings were made via redundancies then it would still be 100,000 job losses. I don’t think it would be a popular government.
When other Governments’ make tax cuts to boost the economy, they either plan to get the money back as their tax base increases in a (hopefully) booming economy or they get it back from VAT on increased consumer spending. Even then most governments usually adjust the tax regime somewhere so that when they give with one hand they take away with the other. VAT or income tax cuts are paid for at least partially by raising taxes on selected industries or services elsewhere. However the Scottish Government does not control VAT or Corporation tax or in fact any taxes at all beyond a possible 3p in the pound in income tax.
The bottom line is that no Government on earth funds tax cuts directly out of cuts in their public services and expects no return on any increase in the overall economic activity they manage to create.
But Tom Miers dismisses the fact that the Scottish Government would not benefit from any economic upswing in one easy sentence, “A government’ s prime motive in cutting taxes is not to increase its own revenues but to lower the tax burden and reap the economic and electoral rewards of doing so.” The inconvenient fact is that any increased economic activity in Scotland and the resultant tax revenues would not be seen by the Scottish Government at all. The Scottish Government would be funding an increase in the economy of Scotland through cuts in Scotland’s public services where all the profits went straight to London.
The next area to be looked at in the report is Welfare and Tom Miers acknowledges that welfare is not controlled by the Scottish Parliament but he thinks that the Scottish Parliament can influence welfare, “For example, it could provide incentives and funding for successful charities to bring more people into work and away from benefit dependency. “, but this again would have to be funded out of the Scottish Block Grant when as a reserved matter it should be funded centrally.
As with Education and the NHS Tom Miers has a point about ensuring the excellence of Scotland’s higher education establishments and the way that planning and land use which is under the control of the Scottish Parliament has an impact on the economy of Scotland but in his section on, “Public Borrowing, Infrastructure Investment and Transport Policy”, his unsurprising recommendation is to use PFI.
Culture Tourism and Sport gets its own section and Tom Miers again has a valid point about the promotion of Scottish culture and sport but again any funding would have to come out of the block grant and the inconvenient fact that the overseas promotion of Scotland is reserved to the British Tourist Authority is not mentioned. His suggestion that the World Cup should be held in Scotland is wonderful but can it be paid for out of the block grant? The eternal balancing problem for unionists in Scotland of promoting Scottish culture while ensuring that it doesn’t spill over into nationalism is not mentioned.
In Tom’s eyes the failure to reform public services and to do radical things with tax in Scotland have several causes. For the nationalists it’s because a working, healthy Scotland is a threat to their drive for independence, for the devolutionist unionists the whole point was to insulate Scotland from the reforming zeal of Thatcher and to stop any movement to the SNP and the anti-devolutionist unionists now have either given up or don’t want to rock the boat. This is all allied with an innate Scottish parochial conservatism which looks only at England and at English reform in order to reject it unlike the rest of the UK which is outward looking and innovative.
“At the UK level, political discourse is informed by global intellectual trends, so that new ideas are systematically imported from abroad through media such as think-tanks, academics, the press and the politicians themselves. By contrast, new ideas in Scotland are weighed in the balance of public debate according to what is happening in England. Such is the suspicion of England-gestated reforms that they are usually rejected, and those who espouse them accused of trying to import Thatcherism.”
How does Tom think that Scotland should change in order to overcome the deficiencies that he has identified? He believes that there is no need for any further devolution of powers because Scotland has more than it needs to solve all the problems he has identified and that any debate on constitutional change is a distraction though his views on Calman are surprisingly in accordance with mine in that Calman is essentially no change at all. Not only can Scotland solve its domestic issues under the current devolved powers but, “…Scotland also enjoys global power and reach that would be lost for ever through independence.” In Tom Mier’s eyes Scotland already has all the fiscal autonomy it needs and independence would reduce its influence in world affairs. The Scots should abandon any discussion of constitutional change and work with what they’ve got.
It’s useful to list some of the assumptions that Tom Miers’ uses.
• He compares Scotland’s performance against independent countries in the OECD and finds it lacking. The obvious conclusion that Scotland would be better off independent is not drawn.
• All of Tom Miers’ tax cuts to boost the economy are funded directly out of cuts to Scottish Public services not from tax increases or from cuts elsewhere.
• The recovery of tax cuts via a more active economy is dismissed as not important even though any increase in tax revenues to London would be funded by cuts in Scottish public services.
• Since Scotland has already got all the fiscal powers it needs then talk of constitutional change is just a distraction.
• Scotland is much more powerful internationally inside the Union than out and would be left alone and unprotected if it withdrew from a “Great Power”.
• Since Scotland has a £12 billion hole in its tax revenues then it actually gets back all the North Sea oil monies and more every year and should stop complaining.
Tom Miers does have a point in that the Scottish Government should look at how the public services it runs in Scotland perform and it has powers such as planning and land use which it could use to boost the economy, but I find his idea that all tax cuts should be funded directly out of public service cuts with no claw-back from increased economic activity to be economically illiterate.
His assertion that Scotland is already fiscally autonomous when it lives on a block grant is not one that stands up to scrutiny and as all the constitutional talk he deplores is a reaction to the SNP his solution is to ask the SNP to shut up and go away so that people can get on with, “proper politics”. Asking Scots what they actually want is not considered.
So where does Gerry Hassan come into this? There has been a flurry of excitement among commentators in the media about the idea that the SNP has given up on independence as a goal and in several posts on his blog Gerry has been one of the cheer-leaders for a, “post-nationalist”, SNP.
Gerry Hassan believes that a, “post-nationalist”, SNP will bring in a new era for Scotland,
“An SNP which embraces explicitly post-nationalism was always meant to be the dream of thoughtful Labour politicians like Wendy Alexander and Susan Deacon. It was their dream because it would break the 40-year focus on the constitutional question, and allow us to concentrate on the economic and social challenges facing Scotland.”
The last sentence is a direct echo of the Tom Miers report, it’s a coming together of minds.
Gerry Hassan also wants full fiscal autonomy for Scotland and lays out his vision in his blog where he wants self determination not in the sense of an independent state but:
“…at a societal level, shifting power and challenging elites – both in the public and private sector in Scotland…This self-determination should inform and influence a genuine politics of self-government which can be summarised as post-nationalist Scotland – comfortable with the fuzzy ambiguities and fluidities of shared sovereignty in an interdependent age.”
The problem for this vision is twofold. Fiscal autonomy in Scotland will be a consequence of independence not a precursor to it and without independence and fiscal autonomy, (the control of the cold hard cash), nobody gets to reorganise anything.
The idea that the SNP has given up on independence is causing excitement because it would have far reaching consequences for politics in Scotland if it was true. It would transform the SNP into a tartan version of the Lib-Dems or perhaps even a tartan version of the British Labour party. It would be a party whose only ambition and possible achievement in the arena of UK politics would be to run the Scottish Parliament and to control the Block Grant they got from Westminster. They would disappear as a threat to the British state and to the Labour Party in Scotland.
It would also mean that discussions about Fiscal Autonomy for Scotland could be kicked into the long grass as they wouldn’t even need to pay lip-service to it anymore.
Fiscal Autonomy is a good buzz word but it means nothing without any description of what taxes or powers it would confer on the Scottish Parliament. In many ways it is academic because it will never happen as it can only be granted by Westminster. Alex Salmond can’t deliver fiscal autonomy because the Scottish Parliament doesn’t have the power to do it. All he can do is act as a spur to those who can and if nationalism is seen to be fading in Scotland fiscal autonomy will disappear from view faster than snow off a dyke on a sunny day. There seems to be a blind spot amongst the happy-clappers for fiscal autonomy about where it’s going to come from and who will legislate for it. It can only be granted by Westminster and it will entail a huge upheaval in the current administration of the UK which is not something I can see David Cameron wanting to take on with the economy in its current Labour created mess.
In all these things the simple question to ask is who benefits? It won’t bring any direct benefit to the Conservative party, the Labour Party or to the Lib-Dems and it will entail effort to separate out the current unitary system of taxation and spend. Why would any of them want to put a large amount of effort into the legislation and bureaucracy needed to implement fiscal autonomy for Scotland? It won’t happen in this parliament and the chances of it happening in the next are minimal whoever gets back into power.
Salmond knows as well as anyone that fiscal autonomy within the UK is a pipe dream. Even with the SNP on the up and running the Scottish Government the best the Unionist parties could come up with in Calman was an increase on the unused 3p in the pound income tax variation power to a 10p in the pound limit. Increasing the limits on a never used power and then declaring it as a massive step towards fiscal autonomy is propaganda of the highest order. Salmond’s playing a clever game. He’s being very reasonable and asking for fiscal autonomy within the UK knowing full well that Westminster can never deliver that and the only alternative is independence. This is where Tom Miers actually has got it right. Devolution and fiscal autonomy are distractions but they are a distraction not from, “proper politics”, but from the movement towards independence.
The striking thing about both Tom Miers and Gerry Hassan is that neither see independence as the way forward in Scotland. It’s striking because Tom Miers is writing from a conservative viewpoint which wants any movement towards further powers for the Scottish parliament to stop and for right wing reforms to be applied to Scottish public services while Gerry Hassan on the left believes in more powers for the Scottish Parliament and a move towards local control of services not their privatisation. In neither future, whether left-wing or right wing, does the governance or economy of Scotland move out of the control of the British Establishment.