THESE Nationalists have some nerve. Going ahead with a triumphalist party conference despite last week’s revelations about the £15bn financial black hole that an independent Scotland might have faced because of the collapse of oil revenues. Really, Nicola Sturgeon should be hanging her head in shame, not celebrating another – er – landslide election victory.
The Unionist parties indulged in another “gotcha” moment last week over the latest General Expenditure and Revenue Scotland (GERS) figures. But they fail to ask themselves why repeated attacks on the SNP for its failed forecasts on oil revenues in the past two years have done them little good where it matters: with the voters.
In the most recent opinion polls the SNP is still scoring between 50 per cent and 60 per cent. The last TNS poll had Nicola Sturgeon’s party 39 points ahead of Labour. From an electoral point of view the opposition parties in Scotland are flogging a dead horse.
But Labour’s Kezia Dugdale and the Liberal Democrat, Willie Rennie, couldn’t resist lining up with David Cameron and the Scottish Tory leader, Ruth Davidson, to relive some of their greatest hits from the independence referendum. “The case for independence is dead,” Dugdale declared. We even had tabloids like the Daily Express reprising “Scotland the poor man of Europe” headlines.
This is fighting the last war. You’d think Labour would realise by now that reminding voters of its participation in Better Together with the Tories is probably not the best way to position themselves for the Holyrood elections. Nicola Sturgeon has made pretty clear there isn’t going to be another referendum on independence any time soon. Which leaves the opposition looking as if they’re scoring political points over the plight of the North Sea oil industry.
Granted, the collapse of the oil price would undoubtedly have been a serious problem for any independent Scotland, and there is no doubt that the SNP got its forecasts wrong for oil revenue in its economic prospectus. Mind you, it was hardly alone in doing that. It’s only a few years since serious analysts were talking about “peak oil” and forecasting North Sea crude at $200 a barrel.
They don’t call it the “resource curse” for nothing. The task for the independence movement, as the Green co-convenor Patrick Harvie put it last week, is to place its prospectus on something more solid than a depleting fossil fuel. Despite its protestations, the SNP did lay too much emphasis on oil in the years when it was making the GERS figures look rosy. And if Nicola Sturgeon isn’t quite ruling out fracking this weekend, it is because some in the SNP hope that unconventional oil and gas might fill the energy gap.
But the point is that the voters don’t seem to be punishing the SNP Government for getting its numbers wrong. Most realise that oil prices go up as well as down. Also, many successful small countries like Finland and Denmark have no oil at all. And of course Norway, which had similar oil resources to Scotland, now has a $755bn sovereign wealth fund, the second largest in the world, which insulates it against precisely the kind of shocks we have seen in the last couple of years.
So this argument cuts both ways. The real story here is the chronic mismanagement and waste of this valuable asset in the North Sea by successive UK governments. They blew North Sea oil revenues on short-term spending, largely during the Thatcher/Blair years. As Nicola Sturgeon puts it, Scotland donated £360bn in oil wealth to the UK exchequer and got little obvious benefit, apart from the poll tax, the bedroom tax and the collapse of Scottish manufacturing.
And it’s not as if Scotland has insulated itself against deficits and financial shocks by remaining in the Union. Ruth Davidson said Scotland had “dodged a bullet” by voting No in September 2014, but it is still in the firing line of Conservative austerity. As the IPPR think tank reported last week, the Scottish Government faces an imminent £2bn shortfall because of UK benefit cuts.
The SNP may have insisted on “no detriment” in the negotiations over the fiscal framework for devolving income tax, but that was only in the narrow sense of avoiding the early consequences of phasing out the Barnett Formula, which linked Scottish spending to that of UK Government departments. There is no escaping policy detriment.
Reform Scotland, another economic think tank, argued last week that it would be folly to use Scotland’s limited tax powers to address this welfare gap. Under the Scotland Act, the Scottish Parliament has been given just enough rope to hang itself. It has freedom to restore benefit cuts but only by raising income tax. Reform Scotland argue that it should avoid using this “blunt instrument” as it would damage growth and raise little revenue.
IPPR Scotland agree that income tax increases alone would not be enough to meet the shortfall, though the public spending think tank isn’t entirely clear how it would bridge the welfare gap. The Scottish Government can’t simply increase fuel duties as the Chancellor, George Osborne, may do in this week’s Budget. Osborne has tied his hands by making it illegal to increase income tax in England until 2020 at the earliest.
He has also placed himself under legal obligation to run a budget surplus, which is going to be extremely difficult with a faltering economy. The European Union shocked markets last week by cutting interest rates effectively to below zero to try to get some growth into the European economy, which has been flatlining, largely because of its commitment to austerity economics. Austerity is self-defeating and self-perpetuating.
All of which leaves Scotland none the wiser about how it is going to pay the bills in future and keep people in work. The Scottish growth rate has lagged that of the UK and it seems unlikely that the new powers of the Scottish Parliament will be of much use in boosting GDP. The Scottish Parliament now has had the reverse of the so-called “harlot’s prerogative” through the ages: it has responsibility without power.
I can’t see how Nicola Sturgeon can avoid giving a commitment to increasing taxes in Scotland, even if they are the wrong taxes, because she has made such a big deal of Tory benefit cuts. But she must know that only by increasing taxes on middle-income earners can she really raise any significant revenue. There are only around 19,000 taxpayers in Scotland earning over £150,000 – the threshold for any 50p tax band – and most will avoid paying it.
As expected she yesterday ruled out any increase in the 20 pence tax rate, but there will be some fiddling with the income tax thresholds and further amendments to the council tax to allow councils to raise more of the money they spend. But there isn’t a magic bullet here. The very fact that independence is firmly off the political agenda now presents a problem for Nicola Sturgeon. The more she is measured against the limited achievements of the Scottish Government, rather than seen as the harbinger of a “better nation”, the less will be her electoral glamour.
In her speech yesterday she was unable to deploy fanciful forecasts of a better tomorrow under independence. It is back to politics as prose. Mind you, so far the lack of poetry doesn’t seem to be denting her popularity, any more than the collapse of her oil forecasts. She has a unique ability to win the confidence of Scottish voters, perhaps because she represents a dream of independence that Scots desire but suspect they can never have. Scots want to believe in Nicola Sturgeon because they want to believe in themselves.
From Sunday Herald 13/3/16