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politics, scotland

How the £1,400 indy tax bombshell bombed

Sunday 1 June 2014

Scottish voters can no longer say that they’ve been deprived of the facts. We’re knee-deep in them now. However, it’s not the size of your fact base, but how you use it that counts. And the parties have reduced the argument to one deceptively simple counter-position: UK Treasury Secretary Danny Alexander says independence will cost £1400 per person per year; while the SNP’s Alex Salmond says that Scots will ultimately benefit by £1000 per person per year. The Union Dividend versus the Independence Bonus. Most voters will split the difference, believe neither, and conclude that things will continue much the same as now.

Indeed, the £1400 Independence Bombshell unveiled by the Treasury Secretary Danny Alexander last week was rather smaller than I was expecting. Given the margin for error in these forecasts, multiplied by public scepticism, it doesn’t seem all that threatening. It brought to mind the Tories’ original £1250 Tax Bombshell campaign against Labour in the 1990s, which worked well in England but not in Scotland.

However, a bombshell of a different kind detonated under the UK Government’s claims about the start-up costs of an independent Scottish state. The Treasury had said it would cost £2.7 billion to create Government departments for matters such as welfare, defence and so on. But then Professor Patrick Dunleavy of the London School of Economics, on whose work that figure was partly based, tweeted that it was “bizarrely inaccurate”. He said the UK Treasury had misrepresented his research and overestimated the cost of setting up the apparatus of independence by a factor of 12. The true cost, he said, would be around £200 million.

This was highly embarrassing to the Treasury, which revised its figure down to £1.5bn, only to find that it was disowned in turn by another eminent adviser. Professor Robert Young of Western Ontario University said he didn’t recognise this figure, which was said to be based on his work. To misrepresent one professor is unfortunate; to misrepresent two looks like carelessness. Alexander’s credibility was only saved by an inept and evasive performance by the Scottish Finance Secretary, John Swinney, on Wednesday’s Good Morning Scotland. He failed to use the ammunition handed to him by the Government’s own advisers, and refused 11 times to give his own estimate of start-up costs. One of the great missed opportunities of the entire campaign.

This allowed Alexander to wriggle free by claiming that the dodgy figures were kind of irrelevant, since the immediate start-up costs of independence only amounted to 4% of the overall Tax Bombshell bill. But this was a pretty remarkable concession in itself, since it means that one of the main negatives about independence — the cost of setting up the architecture of an independent state — can no longer be regarded as a major issue.

Of course, Danny Alexander insists that Scotland would be in financial difficulties after independence irrespective of start-up costs, because of high public spending, falling oil prices, an ageing population and unsustainable debt repayments. Alexander also totted up all the spending pledges in the independence White Paper, like free child care, and stacked them on the top. This spending deficit, equivalent to £1400 per person, he said, will necessitate cuts in spending or tax increases. Mind the fiscal gap. It’s a tough argument to crack, not least because of the Institute for Fiscal Studies and other think tanks agreeing that on present trends there could be a deficit of some £2-6bn facing an independent Scotland.

However, what they don’t seem to take into account fully is that the Barnett formula on public spending in Scotland is itself up for review and this may alter the “dividend” significantly.

The UK Treasury has taken an essentially static view of the economy, extrapolating from existing demographic trends, oil prices and tax revenues.

The Scottish Government, on the other hand, takes a dynamic view of the economy and insists that growth will save the day. An independent Scotland could: increase immigration to meet the age gap; get more women into work; use business taxes to boost entrepreneurialism and employment; save the costs of nuclear weapons; and run a more efficient tax and revenue system. Oil revenues will recover in the medium term after the current wave of investment in the North Sea is completed. This would furnish an independence bonus once the transition is complete.

Well, as I say, the public will take a sceptical view of both sides of the argument — which is right and proper. Indeed, it’s good to have got this out of the way early because this referendum campaign has been far too obsessed with dismal statistics and petty materialism. The reality, as even David Cameron has accepted, is that Scotland would be a viable independent country. It is already wealthy by international standards, and would be placed around 14th in the GDP tables produced by the OECD. Scotland has great advantages over other successful small countries in Europe like Denmark, which doesn’t have any oil, Norway, which had very little else, and Finland, which used to have very little except trees. Scotland has five-world class universities, abundant green energy, valuable food and drinks industries, financial services, life sciences and so on.

What this debate should be about is how an independent Scotland would use this wealth. Yes Scotland has to be careful not to fall into the trap the SNP fell into in the 1970s with the “It’s Scotland’s Oil” campaign. In politics people tend to be motivated by morality rather than crude materialism. I know that this runs counter to most conventional wisdom, but it is true. People want a better life for themselves and their children, of course, but they want to know that they live in a fair society that isn’t disfigured by poverty, disease and ignorance.

People in Scotland have voted on the morality ticket for most of the last half-century — defying the narrow materialism of both SNP and the Conservatives. After all, why did Scotland give up its oil, all £300bn of it, in the 1970s and 1980s? Because Scottish voters believed it would be used for the common good in a United Kingdom that claimed to be a society of equals. It wasn’t, of course, and it isn’t.

But that’s under the bridge. Scots are now faced with the prospect of remaining in a UK that is not only run for the few in the City of London, but is also falling under the spell of Ukip — introverted, anti-Europe, hostile to immigrants and welfare claimants. A union in which a discredited Tory Chancellor comes north like some Game Of Thrones potentate to deliver absurdist threats of monetary exclusion. Scots can’t be in any doubt about where the UK is going – they have 16 weeks to decide whether they want to be a part of it.


About iain2macwhirter

Writer and journalist.


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