A brave new world... or yet another false dawn?
SO do the people of Scotland have room for optimism after yesterday’s longawaited Growth Commission report?
It is a much more realistic take than previous independenceminded views on the nation’s future growth.
That said, the claim made that small countries grow faster than big countries is unconvincing.
So, if you were anticipating an extra £4,100 in your annual income, don’t hold your breath.
The report is split into three sections. The first looks at how to improve economic growth. This includes some promising ideas, particularly the drive to attract skilled immigrants.
However, the report glosses over the potential losses of breaking up the UK economic union. It is difficult for the SNP to argue that Brexit poses the biggest risk to the Scottish economy while at the same time claiming that independence would be painless.
If expert economic analysis is used to support one argument, then it cannot be conveniently ignored when applied to the other.
The claim that Scotland could grow faster on an annual basis is much more an aspiration than an expectation. Significant turnarounds in long-term performance are rare. Furthermore, international concern over how to improve productivity is largely sidestepped. While Scotland wants to grow at a faster rate than in the past, it needs to understand how to reintroduce productivity growth of any size. So long as this stubborn problem remains, any talk of raising the long-term growth rate is a secondary issue.
The second section looks at how to attain sustainable public finances. This is tricky. Post the decline in North Sea fortunes, oil revenues have disappeared and Scotland’s fiscal deficit has widened.
This leaves the problem of how to close the gap. The report outlines a few areas where changes can narrow the gap between government revenues and expenditure, such as reducing military spending. Overall, though, it remains fairly opaque as to what will happen.
The implications of changes to tax and to spending are yet to be outlined and so it is difficult for the public to know how to vote at any future independence referendum.
One area of particular uncertainty is debt. A target of 50 per cent of GDP is proposed, but the current UK level is 85 per cent. The Office for Budget Responsibility has UK debt falling to around 76 per cent in 2022-23 but then starting to rise again. So how would Scotland manage to detach itself from such a projection? Greater clarification is needed here.
The third section looks at currency options. This remains a bit of a minefield. It appears there is no longer an obsession with retaining Sterling. However, given the strength of the tests set before a new Scottish currency could happen, ‘Sterlingisation’ it is.
This is not the same policy as previously proposed, which was a ‘sharing’ of the pound. Now there is an admission that Scotland would be ‘unofficially’ a Sterling currency and would have no say on UK monetary policy – quite a big concession for the SNP.
A new currency increases economic policy options but it also complicates economic management issues, involving setting up a central bank and setting interest rates, building up
currency reserves and managing market expectations. This is probably why sticking with the pound remains the favoured option.
There is a lack of clarity over the future relationship with the EU and the implications for currency, ie whether using the euro would be a pre-requisite for membership.
So, doubts remain about the euro, there are concerns over the pound post Brexit and a new currency is a leap in the dark. As a result, it is likely to remain an area of controversy and debate in any future independence referendum.
Overall, how can the report’s claims for economic regeneration be judged? I would say that they are viable but not probable, or even likely. This is because their achievement will be dependent on some very tough future choices having to be made.
Not exactly a strong point of the Scottish parliament post 1999.