Why independence will disappoint the tartan libertarians

Scotland will not be forced to adopt a scorched earth approach to public spending if it leaves the UK.

The publication earlier this month of the first report by the Scottish government’s Fiscal Commission Working Group, into the macro-economics of independence, was met with a surprising degree of approval from an unlikely source. Writing for the conservative website Think Scotland, right-leaning journalist Alex Massie praised the report's apparent endorsement of austerity as the most effective economic strategy for Scotland should it leave the United Kingdom in the next few years: "[These findings] add weight to the notion that Scotland's future lies as a low-tax, flexible, nimble, enterprise…it seems quite probable that cutting public spending - for one reason or another - will be one of the first tasks facing an independent Scotland."

The idea that independence will provoke a shift to the right in Scotland, rather than to the left, as is commonly assumed, has been touted by a number of Scottish commentators for a while without having gained any real traction in mainstream debate. It tends to be composed of three parts. The first is that SNP leader Alex Salmond and his finance secretary John Swinney are closet Thatcherites who, despite their soft-left posturing on welfare and social issues, advance an aggressively neo-liberal economic agenda, as illustrated by their support for lower corporation taxes. The second is that an independent Scotland, carrying an inherited share of UK debt amounting to between 70 to 80 per cent of its GDP, will be under heavy pressure from the international financial markets (credit rating agencies, essentially) to demonstrate a commitment to ‘fiscal credibility’ in order to maintain low borrowing costs. And the third is that SNP plans for a currency union with the rest of the UK will tie Scotland to a fiscal stability pact which imposes severe restrictions on Edinburgh’s capacity to borrow, precipitating a reduction in debt-fuelled Scottish public expenditure.

Under these conditions, nationalist visions of an independent Scotland replicating the social achievements of high-spending Nordic welfare states would have to be abandoned. Instead, as Massie contends, the first independent Scottish government would need to observe strict budgetary constraints and take steps to liberate enterprise in an effort to soak up necessary public sector job losses. In this sense, independence would act as a disciplinary force against the prolifigate Scots, prying them away from their longstanding addiction to big government. (Something, ironically, successive Westminster administrations have failed to do.)

But the assumptions on which this libertarian fantasy rests are grossly exaggerated. To begin with, although there is a strong neo-liberal streak in SNP economic policy (hence the party’s position on corporation tax), Salmond and Swinney are not the Friedmanite ideologues some make them out to be. Indeed, in his repeated calls for increased capital expenditure as a means of growing the Scottish economy out of recession, the First Minister’s response to the financial crisis has followed a clear Keynesian logic. Likewise, Swinney’s decision to levy a charge on large supermarket retailers suggests a willingness to challenge commercial interests not commonly associated with free-market enthusiasts. The SNP’s aim of cutting Scottish defence spending and redirecting the savings towards more socially productive industries provides another indication of the nationalists' underlying loyalty to traditional centre-left principles.

The right’s insistence that, with independence, ‘market realities’ will amplify Scottish austerity is similarly unconvincing. According to the commission's report, between 2006 and 2011, including a geographical share of North Sea oil and gas output, Scotland’s average deficit was 5.1 per cent of its GDP. This compares favourably to the UK’s deficit of 6.4 per cent over the same period (p.158). What’s more, the report points out that by 2017, Scotland's population share of UK public sector net debt will be equivalent to 72 per cent of its GDP, five per cent lower than the UK’s anticipated share (p.170). By the standards of equivalent European countries, this represents a substantial debt burden. But it certainly isn’t unmanageable, nor does it make additional, radical cuts to public expenditure inevitable. At any rate, any future Scottish government, having witnessed the failure of the current coalition government’s deficit reduction strategy, will be acutely conscious of the effects austerity has on economic recovery.

The report also questions right-wing claims about the likely consequences of monetary union. While it concedes that any fiscal stability pact agreed between Edinburgh and London would have to enforce "discipline and sustainability" in the management of Scottish public finances, it simultaneously acknowledges the need to provide space for "national discretion to target instruments of fiscal policy to address key local challenges and take advantage of new opportunities" (p.132). In line with the lower debt and deficit levels Scotland is likely to enjoy outside the UK, this could allow for a limited programme of deficit-financed capital expenditure, with any subsequent increase in borrowing costs covered by the new sources of revenue independence would make available. These might include the aforementioned defence savings, a permanent tax on bankers’ bonuses (something Salmond has indicated he is sympathetic to) or a clamp down on tax evasion and avoidance, among other options.

Of course, the fact that Scotland’s overall fiscal position may improve slightly with independence doesn't mean an independent Scotland would escape ongoing economic difficulties. A heavy reliance on diminishing natural resources, massive inequalities of wealth and income and a burgeoning demographic crisis ensure Scotland, like the rest of the UK and most of the developed world, will be subject to severe financial pressures in the years ahead. There is, however, little to suggest those pressures are best alleviated by a scorched earth approach to public spending, and less still to back up the assertion that such an approach is necessary or unavoidable. The chances of independence transforming Scotland into some sort of socialist nirvana are slim; the chances of it turning Scotland into a libertarian paradise slimmer yet.

Scotland's First Minister Alex Salmond holds up the signed agreement for a referendum on Scottish independence during a press conference in St Andrews House in Edinburgh. Photograph: Getty Images.

James Maxwell is a Scottish political journalist. He is based between Scotland and London.

Photo: Getty
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Donald Trump's inauguration signals the start of a new and more unstable era

A century in which the world's hegemonic power was a rational actor is about to give way to a more terrifying reality. 

For close to a century, the United States of America has been the world’s paramount superpower, one motivated by, for good and for bad, a rational and predictable series of motivations around its interests and a commitment to a rules-based global order, albeit one caveated by an awareness of the limits of enforcing that against other world powers.

We are now entering a period in which the world’s paramount superpower is neither led by a rational or predictable actor, has no commitment to a rules-based order, and to an extent it has any guiding principle, they are those set forward in Donald Trump’s inaugural: “we will follow two simple rules: hire American and buy American”, “from this day forth, it’s going to be America first, only America first”.

That means that the jousting between Trump and China will only intensify now that he is in office.  The possibility not only of a trade war, but of a hot war, between the two should not be ruled out.

We also have another signal – if it were needed – that he intends to turn a blind eye to the actions of autocrats around the world.

What does that mean for Brexit? It confirms that those who greeted the news that an US-UK trade deal is a “priority” for the incoming administration, including Theresa May, who described Britain as “front of the queue” for a deal with Trump’s America, should prepare themselves for disappointment.

For Europe in general, it confirms what should already been apparent: the nations of Europe are going to have be much, much more self-reliant in terms of their own security. That increases Britain’s leverage as far as the Brexit talks are concerned, in that Britain’s outsized defence spending will allow it acquire goodwill and trade favours in exchange for its role protecting the European Union’s Eastern border.

That might allow May a better deal out of Brexit than she might have got under Hillary Clinton. But there’s a reason why Trump has increased Britain’s heft as far as security and defence are concerned: it’s because his presidency ushers in an era in which we are all much, much less secure. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.