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12 April 2020updated 26 Jul 2021 4:07am

How the Scottish economy must be transformed for a new age of crisis

A universal basic income and a mass retraining programme could be needed to address the fallout from coronavirus. 

By Chris Deerin

After the coronavirus plague comes the coronavirus crash. It’s clear the world is heading for a torrid economic time over the coming year and probably beyond. Around 16.5 million Americans have filed for unemployment in the past three weeks, far beyond the number affected by the 2008 financial crisis. And we are only in the foothills of this mountain range.

In Scotland, the economic debate has already begun. Nicola Sturgeon has diverged from Westminster on how to spend the emergency funding announced by Chancellor Rishi Sunak. While in England businesses will receive £25,000 for every property they own, in Scotland that £25,000 will be a one-off payment to each firm, regardless of their scale.

Businesses in Scotland, as expected, are complaining intensely, but the Scottish government insists its strategy will ensure more small enterprises benefit. In this row we see the seeds of a broader debate. 

There isn’t much optimism around. A survey of 500 Scottish businesses by the Fraser of Allander think tank has found that 54 per cent believe they can survive for less than three months under current conditions. Another 32 per cent say they can survive for four to six months, while 60 per cent expect their level of employment to fall over the next six months.

Sturgeon is understandably focused on the health crisis at the moment, and her entire administration has been caught up in daily fire-fighting. However, some of her policy wonks have now been charged with thinking about what happens beyond the next few weeks.

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There is so much to play for, and perhaps a rare opportunity to make radical and fundamental change to the relationship between the economy and society. The middle classes, normally immune from the challenges facing those at lower levels of the income scale, are being taught a harsh lesson about uncertainty, in relation to their health and their jobs. “We can’t go back to the way we were” has become a common refrain.

This is true in the health service. Paul Gray, the respected former chief executive of NHS Scotland, argued recently that the NHS has been forced to make changes that had previously been resisted. “Lots of stuff that couldn’t be done has been done,” he said. “The roll-out of digital technology to reduce face to face consultation and limit travel has leapt over hurdles that were apparently insurmountable a few weeks ago… What must remain is our capacity to move at speed, to innovate, and to break down barriers to change. Our risk appetite has been altered radically by events, and while that will be recalibrated, let’s not overcorrect when this is past.”

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This is as true in other sectors as it is in health. It’s unclear what impact coronavirus will have on a globalised economy, and on freedom of movement and services – whether economic nationalism, already a trend, will be strengthened. Many businesses that have closed are unlikely to reopen. Certain types of job will, if not vanish, at least diminish heavily in number. Consumer habits have changed – what will happen to the high street? Where will the economic growth needed to rebalance the ship come from?

Some things will be held in tension, and hard choices will have to be made. There will be pressure to bail out companies that, on cold economic analysis, don’t cut it. Sturgeon will have to learn to say no.

Given the importance of the state in recent weeks, there will be a public expectation that key workers are given their due. An argument over pay rises for nurses has already started. It would take a hard heart to say they don’t deserve it.

But where does the money come from? The government is taking on enormous levels of debt to fund its bailout packages, which will need to be paid off. Welfare costs will rise, and revenues will decline. Looking after those who have cared for us during this crisis will have to be balanced against supporting troubled wealth creators in the private sector who are the only route to growth. Certain industries already prioritised by Scotland, such as renewable energy, fintech, life sciences and high-end manufacturing, will only become more important to its future economy. Deciding who gets what is about to become much more difficult.

My think tank Reform Scotland has argued for a Universal Basic Income for Scotland. This is something the SNP has been calling for recently, and that the Spanish government is introducing. We suggest a guaranteed income would benefit many who are dealing with sudden, unprecedented upheaval and that it could also offer a longer-term solution to problems with our welfare system. Our proposed level is £5,200 per year for adults and £2,600 for children, free of tax but replacing the personal allowance, tax credits and a number of benefits. All earnings would be taxed. 

There might be a need for a mass retraining programme for those who lose their jobs in declining sectors. The role of the new Scottish National Investment Bank could be crucial. Conversations about who gets taxed what, and on what, which have operated on the sidelines of politics for many years, are likely to move centre stage. Should local government now be given the financial powers that would allow them to address the distinct challenges and opportunities in their communities?

We can’t go back to the way we were, but the shape of the future is yet to be determined. We should start devising alternatives now. And we must examine what our values and principles demand of us as we emerge from this tragedy, and stick to them.