Independence and full fiscal autonomy

Keep Calm And Look Through Your Rose-Coloured SpecsTo me it seems obvious: an independent nation has full fiscal autonomy.

A devolved country within a nation does not.

In my view, and the main reason why I voted No in September 2014, the SNP plan for “independent” Scotland – to be a country without its own central bank – was not independence at all: the only way I think our situation could now be worse would be if Yes had got the majority and we were now facing a situation where both monetary and ultimately fiscal policy would be set by George Osborne from rUK to iScotland.

If you have rose-coloured spectacles you may suppose that Osborne would naturally make decisions that would benefit and profit iScotland.

If you don’t, you may suppose that Osborne’s goal would have been for the City of London to profit hugely at iScotland’s expense.

But No got the majority, the independence campaigners now have years ahead to figure out a better scheme for independent Scotland, and the SNP are trying to get full fiscal autonomy anyway.

As Patrick Harvie noted on Twitter, Greece has full fiscal autonomy and no monetary autonomy. They can perceive solutions to their crisis, but have no power to execute those decisions. That is the position the SNP wanted – and still want – Scotland to be in.

And at more length in the Common Space and on his own website, noting that the Scottish Greens had quietly opposed currency union and supported independence “to give Scotland a chance to change economic direction”

“But neither a currency union, which we opposed during the referendum, nor a headlong rush toward a poorly designed scheme labelled ‘full fiscal autonomy’ will achieve that.

“Instead, without control of macroeconomic policy, we would remain locked in to decisions made by the UK Government. Either proposal looks superficially like handing Scotland more power, but in reality would mean tying our hands behind our backs.

“Fiscal autonomy must come with the ability to run a radically different economy policy. We’d also need to be able to build up reserves, and determine borrowing without reference to the UK government. We have yet to see such a scheme proposed. Even if it was, there would still be severe limits to fiscal policy if we have no control of monetary policy.”

As I wrote in May 2014:

I’m not refusing independence. This is not independence: it’s devomax. And the notion that the Scottish economy is “just one point” is – well, shortsighted to say the least. All the best and finest aspirations for an independent Scotland depend on our getting away from the London/Westminster control of our economy.

I like devolution: our Scottish Parliament was worked out carefully by a broad range of Scots over several years, then implemented at Westminster by broadly-sympathetic MPs.

I’m in principle able to be convinced that independence could work for Scotland.

But as for the mixter-maxter that the SNP keep coming up with, whether it’s devomax or currency union or full fiscal autonomy, I can’t agree, for reasons I outlined in July 2012, three years ago, and still stand by:

A nation’s finances are the product of a national economy. What the devo-max people appear to be proposing is something akin to the US states, which have internal taxation and spending systems but are still part of the federal government, which taxes and provides revenues across the US.

In essence, what appears to be being proposed for Scotland by devo-max is that the Scottish government shall have all of the fundraising powers of a national government – while still being part of the UK. If Scottish devolved finances failed, the UK government would still have to bail Scotland out.

I know this sounds like The Economist making jokes about Scotland the Broke. But the basic check of financial regulation is to ensure that the risks of a decision will be borne by the decision-maker. The idea behind devo-plus/devo-max is to give the power to make financial decisions to the Scottish government, while still leaving the UK government final responsibility for the risks.

Be as optimistic as you like about the good sense and financial probity of Holyrood as compared with Westminister, this isn’t a good idea.


Filed under Economics

7 responses to “Independence and full fiscal autonomy

  1. Ken

    Yeah, sounds about right to me. Holyrood is working well and I will reserve judgement on the next step until we see how the new Scotland bill works out.

    I voted Yes last year, but I was not impressed with the SNP’s line about a currency union. I just figured that using sterling made a sort of sense in the very short term and once independence was out of the way, that would be the time to argue about the new currency. Never mind.

    By the way, given that we both seem to live in Leith – and are both bloggers, although mine is having a rest at the moment – what do you reckon to next year’s elections? I am sort of leaning SNP for constituency and Labour for the list.

    • I’m planning to vote Scottish Green for the list, and if the Greens stand a constituency candidate in Leith, to use my constituency vote to vote Green as well.

  2. keaton

    If you have rose-coloured spectacles you may suppose that Osborne would naturally make decisions that would benefit and profit iScotland.

    If you don’t, you may suppose that Osborne’s goal would have been for the City of London to profit hugely at iScotland’s expense.

    “Would have been”? The Sterling zone proposal was indeed a daft one for various reasons. But are you saying that, because Scotland has remained in the UK, Osborne’s goal is not as you describe?

    • Right now, George Osborne’s goal is for the City of London to profit hugely at the expense of everyone else in the UK.

      As Scotland is part of the UK, we can hope and plan (and vote) for this to change when the government changes.

      If we were iScotland, with, as the SNP planned, our entire economy subject to non-democratic control via the Bank of England, we would be looking at Osborne setting up structures to make this permanent, without any input from iScotland to ensure the structures were fair and beneficial. Without any input from iScotland ever: the Bank of England would be Scotland’s central bank, and the Bank of England’s ultimate government control is the Chancellor of the Exchequer and beyond him the UK Parliament.

      Hence, my belief that instead of trying to put Scotland into that position again, supporters of independence should be working on a better plan.

  3. I never understood why the SNP would want whatever minimal representation might be accorded to a nominally independent Scotland in the Bank of England’s deliberations, rather than the opportunity to elect nearly 60 MPs to Westminster. And now that most of them are from the SNP, it seems even less plausible that they would want to give that up.

    • I could understand why the SNP would want independence rather than 59 MPs at Westminster.

      I could not understand why the SNP would want “whatever minimal representation might be accorded to a nominally independent Scotland in the Bank of England’s deliberations” rather than independence.

  4. Pingback: What is Independence? | Questions and Reflections

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