The SNP has come out in favour of Full Fiscal Autonomy (FFA) for Scotland as the next step in reforming the UK and securing more powers for Scotland. Unionists, and in particular, Labour, are strongly opposed to FFA. Why this virulent opposition to FFA by Labour? Part of their opposition seems to come from their ingrained habit of opposing anything the SNP proposes. Their other objections seem to betray some strange ideas about FFA and about economics.
Much of Labour’s opposition is based on a report from the Institute of Fiscal Studies (IFS). This report purported to show that in the year 2015/2016, Scotland would have a deficit of £6.6bn. Now it is important to remember that this report describes the current situation, ie Scotland’s financial position within the UK. This £6.6bn funding gap is therefore the product of our membership of the UK. Not much of a benefit for over 300 years of Union! Quite why Labour would want to be boasting about this is a bit of a mystery to me.
As this £6.6bn gap is the current situation, FFA will not in itself make any difference to this figure. Taxes will continue to be collected and public spending will continue to be spent. FFA will eventually provide some much needed clarity about exactly how much revenue is collected in Scotland and just how much is spent here. But FFA will not in itself change the numbers. If there is a £6.6bn deficit now, there will continue to be a £6.6bn deficit with FFA.
The key issue is what, if anything, to do about this £6.6bn? The whole of Labour’s opposition seems to be based on the claim that all of this £6.6bn has to found by raising taxes and/or cutting public spending. But this claim is just nonsense. We just have to ask where does the missing sum come from at the moment. It is not some gift or subsidy from the rest of the UK. The UK government continues to run an enormous deficit, not to mention the growing national debt. To make the books balance the UK government has to borrow. It is worth noting here that the IFS, in its report, stated that FFA would mean that the Scottish government would have to borrow if it’s spending were greater than it’s revenues. In other words just like the UK, and just about every other country in the world.
The Scottish share of UK government borrowing is relatively small. As FFA means that Scotland remains part of the UK, why does Labour want Scotland to be excluded from future UK borrowing? FFA could include specific powers for Scotland to borrow on its own account, but Labour does not seem to be propsing this. It seems that Labour’s opposition to FFA is based one one of two scenarios.
The first is Labour has given up on all this pulling and sharing of resources across the UK. This was the cornerstone of their anti independence campaign. By pulling and sharing we were all better together. But not now it seems. Scotland is to be cast adrift, financially speaking. With not even the powers to borrow on its own account.
The other scenario is that Labour now regards the deficit as so important that it has to be resolved at all costs, primarily through massive cuts in public spending. This of course is exactly the position of the Tories, and would put labour fair and squarely in bed with them once again. Presumably it will not just be the Scottish share of the deficit that has to be resolved. The rest of the UK will no doubt also have to endure its share of these massive cuts.
Returning to the IFS study, we must remember that it is an estimate based on the continuation of current UK policies. As such it tells us absolutely nothing about what might happen if FFA were introduced and different fiscal policies were in place. The whole point of FFA is that it will be Scotland which will get to decide which mix of revenue raising and spending policies to pursue. I guess at bottom, Labour’s opposition to FFA shows that they simply do not trust us, the people who live in Scotland, with this kind of responsibility. Shame on Labour!