Andrew Wilson: Deficits and 'levelling up' are symptoms of need for independence

The model is that London and the South East act as a magnet for business, investment and talent and does the growing. The regions and nations underperform with the inevitable price being paid in living standards and social pain. As a result, all of the “regions” produce far less tax revenue per head than the South East and “cost” far more in public spending.

This means there is a transfer of resource (the argument goes) from the rich part of the UK to the rest. If this model was sustainable, worked for the country and was good – we wouldn’t have to level up. We have to level up – and no politician now disagrees.

Scotland has over the course of the last quarter-century performed close to the “best of the rest” of the regions and nations and not far from the average for the UK. The country still has concentrations of poverty resonating from the de-industrialisation of many industries. That was a transition that was handled very badly by successive governments and in many cases like shipbuilding and steel did not have to happen.

READ MORE: George Kerevan: Why this year's GERS numbers are more problematic than ever

At the same time given the shape of the country some public services are more expensive to deliver. For others though democratic choice is different. The most obvious is education where tuition is free for universities in Scotland but not in the rest of the UK and therefore spending is higher. That is a choice with which most people in Scotland agree.

In democracies across the world different models work. Some of the best performing small advanced economies such as Denmark choose a larger role for government, greater percentages of taxation as part of the economy but are very significantly richer than the UK and more equal. Others like Ireland choose smaller government but are very significantly richer than the UK. It is a choice that democracies make. And so it should be.

An independent Scotland would start with an initial deficit that reflects an economic position that is an urgent imperative to change, not stay the same. It is a symptom of the need for independence not evidence that it cannot work or indeed should not be pursued.

If the UK model of notional transfers tackling the symptoms of underlying economic underperformance is the summit of any politician’s ambition for their community and country, they really ought to examine the evidence of elsewhere in the world and think again.

In fact, the deficit that is analysed in the annual Government Expenditure and Revenue (GERS) analysis always overstates the likely starting point. In a normal (non-Covid) year, the revenue raised by the Scottish public finances is enough to cover the policy responsibilities of the Scottish government plus social security and (risibly low) state pensions. The deficit comes from the many programmes run at a UK level such as defence and of course the interest paid on UK national debt.

Many of those programmes would be replicated by an independent Scotland such as university research funding. Some would not – such as nuclear weapons. Choices would be available for the democratically elected government to make. And that government would reflect the will of the people every time not just once in a while.

Much of the spending allocated to Scotland does not come to the Scottish economy but is spent elsewhere. Setting up the new institutions of government – such as a central bank – would involve up-front costs of course. But as the work of the London School of Economics demonstrates it would pay back in short order because the knock on benefits of running government from Scotland rather than London would aid the Scottish economy.

MOREOVER, and this bears repeating, an independent Scotland would be the richest country ever to declare independence. It would also begin its independence transition with virtually no formal debt as things stand. The Treasury made clear in January 2014 that UK debt would remain with the UK and that lenders should not expect a new counter-party.

The policy of the SNP is that it would enter negotiations with the UK Government offering to pay a fair contribution to service the legacy debt interest of the UK in an Annual Solidarity Payment that would diminish in importance over time. That share would reflect a fair division of both the liabilities and assets of the UK Government.

Interestingly the liabilities (debt, unfunded pensions, underfunded pensions and so on) far outweigh the UK’s assets. So therefore the negotiation would centre on the UK asking the Scottish Government to accept liabilities, not the Scottish Government pleading for a fair share of assets without any power to deliver. The power would be balanced.

As a result, the share of the debt interest is unlikely to be a full population share of UK debt interest in all fairness – but a positive negotiation will be needed. The Annual Solidarity Payment policy sets that negotiating stance up well.

It demonstrates to people in Scotland in the rest of the UK and elsewhere that Scotland will take a moral stance, behave well and stand behind its obligations.

This matters because as well as offering a good negotiating position and structure it would send a message to the Scots elsewhere in the UK and people born elsewhere in the UK living and voting in Scotland about the sort of country we would seek to be. Scotland should aim to be the opposite of the narrow nationalism of the Brexiteers – the antithesis of and antidote to, Brexit Britain. Scotland should act responsibly and in the manner it means to continue.

There is no doubt that after Covid all countries will require to get their public finances into a sustainable place so that they pay as little in debt interest as is needed and don’t throw problems onto coming generations that already face a tough inheritance from many harms that have not been addressed such as climate change.

The UK deficit at 14.2% of GDP (in the latest GERS period) is being funded at historically low rates of interest. In normal years we are asked to believe Scotland couldn’t fund its starting deficit that would be much lower than this amount. Demonstrably untrue.

HOWEVER, the priority right now is investing to recover the economy, to fund the transition to net zero, to tackle the great inequalities and to set our economy on a path to prosperity. Scotland should seek to emulate the performance and values of the best performing small advanced economies and societies. We should have the highest ambition for ourselves and the coming generations.

Making choices about the role and size of government, how it is funded and how to aid the growth of the economy sustainably is the core democratic challenge in front of us. Many other countries make those choices well. The UK chose austerity, Scotland should choose investment, growth and fair taxation.

The evidence of history is that the UK continues to struggle with those choices – hence the need to level up. The ongoing long term relative decline of the UK economy – once first in the world in GDP per head now 22nd and falling – continues apace. The inequalities are biting hard and look unlikely to relent under this or successive UK Governments. If you believe that such a model is as good as it gets and good enough, then independence is not for you.

But if you look to Denmark, Norway, Ireland, New Zealand, Finland and others and see qualities you believe your country can emulate then maybe independence is worthy of your consideration as we enter the post pandemic recovery.

Not acting, not taking responsibility for our own improvement, standing still while so many storms rage – that is the riskiest choice of all.

No-one should ever pretend that the transition and the challenge will be simple, free and easy. It will not. Mistakes can be made but lessons will be learned too. Independence will be hard work. But it will be worth it.