Let Scotland’s woes be a warning to Westminster

As the SNP increases yet another tax this week, business growth and confidence decrease

There was a bit of good news last week from the Office for National Statistics. The UK economy grew a smidgen more in 2017 than previously thought – up 0.1 per cent to 1.8 per cent. Not exactly setting the heather alight, but if there needs to be a revision, at least it is in the right direction.

The UK’S lacklustre growth rate, and stubbornly low productivity, was a key focus of the last Budget and saw Philip Hammond commit to a £25billion cash injection to strengthen the economy. But there is one part of the UK where no such concerns exist and no levers are being pulled to improve results – and that’s Scotland.

According to Nicola Sturgeon, “Scotland’s economy is strong and we are determined to make it even stronger.” So what is the SNP’S secret? How are they – alone – confounding the economists and surging ahead?

Well, as with everything when it comes to the SNP, it’s worth reading the small print. In fact, Scotland’s growth rate last year was precisely one third of that of the UK as a whole, just 0.6 per cent. And according to the Scottish government’s version of the ONS, Scotland’s growth rate will be below 1 per cent a year for the next five years – marking the longest period of low growth for more than six decades.

Scotland’s leading independent economic research body – the Fraser of Allander Institute – hazarded a guess as to why in its annual economic commentary. A cluttered policy landscape with too many strategies, advisory groups and discussion forums, overseen by multiple agencies and public bodies, had resulted in confusion, weakened accountability and loss of focus.

The institute helpfully went on to list them. “Across the Scottish Government and its agencies, we now have an Economic Strategy; Digital Strategy; Energy Strategy; Circular Economy Strategy; Climate Change Plan; Trade and Investment Strategy; Labour Market Strategy; Social Enterprise Strategy; Hydro Nation Strategy; Strategy Action Plan for Women in Enterprise; STEM Strategy; Manufacturing Action Plan; Youth Employment Strategy; an Innovation Action Plan; a National Islands Plan; an Agenda for Cities; and even an Arctic Strategy.”

All of these strategies and plans are overseen by nine separate Government agencies, 32 local authorities, and are, in turn, informed by at least 18 further advisory boards.

In a breathtaking piece of understatement, the report suggests: “Back in 2007 [when the SNP came to power], the Scottish Government promised a streamlined and effective policy landscape for the economy. Ten years later it may be time to look at this again.” But the mistake is in thinking that the SNP government of 2018 under Sturgeon is the same sort of beast as it was back in 2007 under Alex Salmond.

For all his myriad faults, the oil economist in Salmond was prepared to argue the case that Scotland needed a dynamic tax regime to increase attractiveness as a place to do business and to encourage inward investment.

Indeed, two huge economic planks of his plan for independence rested on Scotland undercutting the UK’S rate of corporation tax and scything air passenger duty in order to increase air routes, business to business travel and access to export markets.

Sturgeon, however, prefers to laugh in the face of the Laffer curve. Under her tenure Scotland has seen a rise in property taxes, in environmental taxes, in business taxes, and – for the first time this week – Scotland will have a rate of income tax distinct from the rest of the UK, punishing anyone earning more than £26,000 per year. The First Minister might as well hang a sign at Gretna that says: “Welcome to Scotland. Higher taxes here”.

This has real-world consequences. When the SNP traded stamp duty for a steeper Land and Buildings Transaction Tax, they found it brought in £60 million less in the first year than they thought. Why? Because they expected the same number of people to move house as under the old regime – when, in fact, punitive taxes changed behaviour. Similarly with business taxes. The rate of the large business supplement in Scotland is twice that of the UK. Scotland now has the lowest rate of business growth among the home nations, while the latest survey shows business confidence north of the border running at a full 24 points below the UK as a whole. It is almost as if the Nationalists’ focus is constitutional, rather than economic.

Scotland’s example should serve as a warning for the UK government. Yes, Brexit is immediate and the timetable for a deal is tight. The shape of that deal will, of course, impact the UK economy. But ministers cannot lose focus on the twin challenges of productivity and growth, and the levers that exist in Whitehall to aid both.

It’s been a long road from the financial crash in 2008 to a UK with record employment and borrowing as a percentage of GDP down to a fraction of its peak. But as the Treasury turns the spending taps on again with pledges for health and defence, along with wage increases, it is worth remembering that the best way to put public services on a healthy financial footing is to ensure the economic growth required to pay for it.