Scottish Daily Mail

A brave new world... or yet another false dawn?

- by John McLaren John McLaren is an economist with the Scottish Trends website.

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.

 ??  ?? Launch day: Nicola Sturgeon and Andrew Wilson
Launch day: Nicola Sturgeon and Andrew Wilson
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