Give Scotland full fiscal autonomy and call Nicola Sturgeon’s bluff

BY Richard Bath   /  28 July 2020

If you’ve been living in a cave since 2014 or have never heard a word uttered by Nicola Sturgeon, you may not be familiar with the phrase “the levers of power”. Control of these fabled economic instruments would, the SNP assure Scottish voters, magically transform this increasingly fractious corner of the Union into a powerhouse to rival small, dynamic economies such as those of Switzerland and Norway.

The contention that a lack of economic autonomy is holding back Scotland is central to the SNP’s independence narrative. It is a powerful rallying cry precisely because it is impossible to prove or disprove, especially when unpalatable facts are simply dismissed by advocates of independence. So, far from accepting the Scottish Government’s own figures, which show that the Barnett formula provides a subsidy of almost £2,000 per Scot, many Nationalists sincerely believe SNP grandee Mike Russell’s assertion that it is Scotland which is subsidising Westminster. Otherwise, they ask, why else would England want to remain in a Union with Scotland?

There is, however, a brutally simple way to call the increasingly antagonistic SNP’s bluff. But to do so, the UK government would have, for once, to be on the front foot.

Instead of ceding a referendum if the Nationalists dominate next year’s elections, the granting of full fiscal autonomy would instantly transform the terms of the debate.

This federal system would see the Scottish government only spending what it raises in taxes, including from oil, VAT and whisky. Instead of sending taxes to Westminster and in return getting a block grant, Scotland’s only financial contribution to the UK would be a pro rata share of the defence budget and interest payments on the existing national debt.

Although the SNP would see full fiscal autonomy (aka devo-max and fiscal federalism) as a bear trap and would inevitably present it as an economic punishment beating, how could First Minister Nicola Sturgeon present a coherent case for opposing what is, in effect, independence-lite? It is a move that would radically empower Holyrood and ensure that Westminster could no longer be framed as the villain of the piece. The electorate’s focus would shift to the SNP’s competence, where its record on health, education and the economy is woeful.

For Unionists battling the debilitating and increasingly toxic trio of Brexit, Boris and Covid, full fiscal autonomy, which is unarguably a huge step along the road to independence, is the nuclear option. But what is the alternative? Bit by bit, with the SNP’s powers of patronage ensuring the party increasingly dominates Scotland’s civic institutions and media, the country is lurching towards separation. Although every election so far has shown that Unionists remain the majority north of the border, they are being worn down by demographics and the relentless constitutional debate. The assumption that independence is inevitable is being allowed to settle.

For those middle-class Scots who already live in the most heavily-taxed region of the UK, radically extending Holyrood’s financial powers while simultaneously removing the comfort blanket of Barnett is a nightmarish prospect. Yet swingeing welfare cuts and/or tax hikes will be inevitable if Scotland leaves the Union and can no longer run a 7% deficit courtesy of being part of the UK. Full fiscal autonomy would give a taste of the trade-offs which would happen under independence when, for instance, much of Scotland’s huge financial sector would have little choice but to migrate to a regulatory regime capable of financially underwriting it. Full fiscal autonomy might finally persuade the SNP to focus on wealth creation rather than constitutional campaigning.

There are also compelling arguments to go even further. Only last month Sturgeon and her finance secretary Kate Forbes demanded borrowing powers; granting them would remove one of the Scottish Government’s last remaining fig leaves of victimhood. However, Holyrood would not be borrowing from Westminster, but on the international debt markets. These debts – if it proved possible for the Scottish Government to raise funds at a sensible rate of interest – would not be underwritten by the UK and would be on Scotland’s ledger (in addition potentially to a pro rata slice of the national debt at the time of federation) if the country subsequently became independent. Responsibility would be firmly devolved to Edinburgh.

Full fiscal autonomy could also see the Scottish Government assume responsibility for funding the pensions of Scotland’s ageing population (as happens in Quebec under Canada’s system of asymmetric federalism), as well as all the welfare payments that were devolved in 2016. The SNP were so fearful of making a mess of distributing these benefits that they persuaded Westminster to continue administering the trickiest payments, which is understandable given the chaos when they took over the relatively simple task of distributing single farm payments from the EU, with some farmers waiting a year to be paid. If the SNP say they could transition to being a fully independent state in 18 months, surely six months’ notice is all they need to take on such a trifling task.

This is a package of measures which, at a stroke, would give Scotland’s electorate a glimpse into the painful trade-offs that independence would entail. It might even make the SNP’s more impoverished supporters question their blithe assumption that things can only get better.

Full fiscal autonomy would also reveal Scotland’s true nature. The SNP, obsessed with Scottish exceptionalism and virtue signalling, have peddled the fantasy that a nation with the largest public sector in the developed world is a corporatist, left-of-centre society. The evidence suggests otherwise: the annual Survey of British Social Attitudes, for instance, consistently shows Scottish attitudes to be economically and socially to the right of every region in England. Instead of being on the same page as the collegiate Scandinavians, the Scots remain at heart the rugged individualists and entrepreneurs whose economic genius – embodied in Adam Smith – underpins modern capitalism.

It is worth remembering that at the beginning of the campaign for the 2014 independence referendum, a poll revealed that Scottish attitudes towards independence were based largely on financial considerations. A remarkable 80% of Scots questioned said that they would vote for independence if it could be guaranteed to make them £1,000 better off; conversely 80% said they would vote against it if could be proven to make them £1,000 worse off.

Sturgeon, Forbes and leading SNP thinkers such as Andrew Wilson know that independence is – certainly in the short to medium term – the opposite of the economic panacea they pretend it to be. Yet their obsession with independence dictates that the ends justify the means. Unionists are increasingly finding that reasoned argument is getting them nowhere. Unless something radical is done, the emotional appeal of the separatists will eventually prevail.

Nicola Sturgeon is said to be working on the basis that showing is always better than telling, so perhaps it is time for Westminster to take a leaf out of her book and give Scots a real glimpse of what life in an independent Scotland would look like. Full fiscal autonomy is an idea whose time has come.


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