Ever heard of “ABC” economics?
If you didn’t know, its A for Austerity, B for Brexit and C for Caps on immigration.
Easy as 1, 2, 3.
This handy mnemonic was created by Cabinet Secretary for Finance, Derek Mackay, to help listeners memorise the most pernicious aspects of UK Government economic policy. The context for this was the Scottish Government’s Medium Term Financial Strategy, which the Cabinet Secretary delivered to Parliament on Thursday. The Strategy, he claimed, represented an “alternative” to the UK Government’s economic policies.
The Strategy had its roots in a review group that considered how the budget process could better take account of newly devolved taxation powers and the UK Government’s parallel budget timeline. To provide certainty, the group recommended a strategy setting out the Scottish Government’s “expectations and broad financial plans/projections” over the next five years, as well as an “overview of the financial implications of existing policy”.
The closest relative to the Strategy is the UK Government’s Spring Statement, which Philip Hammond delivered in March. As the Spring Statement is based on the most recent OBR figures, the Strategy is informed by the Scottish Fiscal Commission’s (SFC) revised forecasts.
The forecasts can’t have been happy reading for the Cabinet Secretary. The SFC said the outlook was “subdued”, with growth predicted to be lower than 1% in all years forecast and predicted income tax revenue down by down by a total of £1.7bn over the period covered.
The statement itself was somewhat of a damp squib. There were no rabbits out of the hat, and Derek Mackay spent much of his time attacking the UK Government for placing him in a “fiscal straitjacket” in which powers over population and productivity, the two causes of sluggish growth, lay out of the control of the Scottish Government.
The debate revealed how the SNP has struggled to address one of its longstanding problems – the economics of independence. Opposition spokespeople and MSPs lined up to link poor economic growth with continuing “referendum chat”. The usual refrains to focus on the day job were there, but opposition parties also forced Derek Mackay to defend the SNP’s Growth Commission.
The Growth Commission was an attempt to buttress the economic argument for independence – hence the talk of “disciplined deficit reduction” and “robust fiscal governance”. This language, however, is less than palatable to many on the left. The SNP has attempted to square this circle by claiming that public spending in an independent Scotland will increase “at the same time as the deficit is reduced”.
The problem for the SNP is, as opposition parties pointed out, Scotland’s current growth rate is far below what an independent Scotland would need to avoid spending cuts. Labour described it as a “cuts forecast” to go alongside the “cuts commission”. Even Conservative Murdo Fraser, not known for a relaxed attitude to public spending, called on the Cabinet Secretary to condemn the “super-austerity of Andrew Wilson’s Growth Commission”.
Whatever the truth of this argument, it clearly worries the SNP – following criticism from within the independence movement, Nicola Sturgeon took to Twitter to argue the Growth Commission “explicitly rejects austerity”. If the SFC’s forecasts turn out to be correct, it’s a debate that won’t be going away any time soon.
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