The EU questions Salmond must answer

The SNP leader should come clean on the euro before lecturing others.

With the exception of Paddy Ashdown, astonishingly few politicians and commentators have made the link between Scotland and Europe. But Cameron's decision to isolate the UK has significant implications for the Scottish National Party [SNP], which has long campaigned for "independence in Europe". As Ashdown wrote in the Observer, "If England is to be out of Europe, why should Scotland not be in?"

From one perspective, Cameron's stance strengthens Alex Salmond's argument that Scotland needs independence to pursue its own policy of European integration. As the SNP leader wrote in his letter to the PM:

Last week's developments in Brussels demonstrate that Scotland urgently needs a voice at the top table when our vital national interests are being discussed, by becoming an independent member state, instead of being shut out of the room.

He followed that up with "six crucial questions" for Cameron on Europe and Scottish interests. But if you strip away the rhetoric, Salmond is avoiding some inconvenient questions of his own.

Until recently, the SNP leader proudly declared that an independent Scotland would join the euro. In 2009, he quipped that sterling was "sinking like a stone" and argued that euro membership was becoming increasingly attractive. "There is no doubt that the plummeting pound and parlous state of the UK economy has caused many people in the business community and elsewhere to view membership favourably," he said. That, to put it mildly, is no longer the case and, consequently, Salmond has changed tact. Like Gordon Brown circa 2003, he now states that Scotland will retain the pound until it is in the country's "economic advantage" to join the euro.

Whether or not that day comes, there is no majority for Salmond's stance. Polling shows that the Scottish electorate is only marginally less eurosceptic than the UK electorate as a whole. According to a recent YouGov poll, 44 per cent of Scottish voters want to leave the EU (38 per cent want to remain) compared to 47 per cent of UK voters. Similarly, 45 per cent of UK voters think that Britain's EU membership is a "bad thing" and so do 41 per cent of Scots.

Even if Scotland were to join the euro, would Salmond sign up to a fiscal union? Having finally won autonomy over spending and borrowing would he happily submit his annual budgets to Brussels for approval? How would he respond if the EU blocked his long-promised cut in corporation tax? Until he answers these and other questions, Salmond has little right to lecture others.

George Eaton is political editor of the New Statesman.

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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR