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 Images
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What do Labour's lost voters make of the Labour leadership candidates?

What does Newsnight's focus group make of the Labour leadership candidates?

Tonight on Newsnight, an IpsosMori focus group of former Labour voters talks about the four Labour leadership candidates. What did they make of the four candidates?

On Andy Burnham:

“He’s the old guard, with Yvette Cooper”

“It’s the same message they were trying to portray right up to the election”​

“I thought that he acknowledged the fact that they didn’t say sorry during the time of the election, and how can you expect people to vote for you when you’re not actually acknowledging that you were part of the problem”​

“Strongish leader, and at least he’s acknowledging and saying let’s move on from here as opposed to wishy washy”

“I was surprised how long he’d been in politics if he was talking about Tony Blair years – he doesn’t look old enough”

On Jeremy Corbyn:

"“He’s the older guy with the grey hair who’s got all the policies straight out of the sixties and is a bit of a hippy as well is what he comes across as” 

“I agree with most of what he said, I must admit, but I don’t think as a country we can afford his principles”

“He was just going to be the opposite of Conservatives, but there might be policies on the Conservative side that, y’know, might be good policies”

“I’ve heard in the paper he’s the favourite to win the Labour leadership. Well, if that was him, then I won’t be voting for Labour, put it that way”

“I think he’s a very good politician but he’s unelectable as a Prime Minister”

On Yvette Cooper

“She sounds quite positive doesn’t she – for families and their everyday issues”

“Bedroom tax, working tax credits, mainly mum things as well”

“We had Margaret Thatcher obviously years ago, and then I’ve always thought about it being a man, I wanted a man, thinking they were stronger…  she was very strong and decisive as well”

“She was very clear – more so than the other guy [Burnham]”

“I think she’s trying to play down her economics background to sort of distance herself from her husband… I think she’s dumbing herself down”

On Liz Kendall

“None of it came from the heart”

“She just sounds like someone’s told her to say something, it’s not coming from the heart, she needs passion”

“Rather than saying what she’s going to do, she’s attacking”

“She reminded me of a headteacher when she was standing there, and she was quite boring. She just didn’t seem to have any sort of personality, and you can’t imagine her being a leader of a party”

“With Liz Kendall and Andy Burnham there’s a lot of rhetoric but there doesn’t seem to be a lot of direction behind what they’re saying. There seems to be a lot of words but no action.”

And, finally, a piece of advice for all four candidates, should they win the leadership election:

“Get down on your hands and knees and start praying”

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.