An unidentified source in the Scottish National Party (SNP) has raised the prospect of the party calling an informal referendum on independence if the Conservative government blocks a second official one, The Guardian reports.
But there’s absolutely no way the party’s leadership really wants to do that. This should be the ace up Prime Minister David Cameron’s sleeve as he travels to Scotland on Friday to meet SNP leader Nicola Sturgeon to negotiate over devolving further powers to Holyrood.
Here’s why: For Scotland to start the journey towards independence now, it would require full fiscal autonomy from the UK. In that situation, Scotland would be forced to run a much higher budget deficit than the rest of the UK and could be forced to make deep spending cuts, despite running as an anti-austerity party.
Making the country’s finances sustainable “would likely entail substantial spending cuts or tax rises in Scotland,” according to a report published in April by David Phillips of the independent Institute for Fiscal Studies.
These figures only represent a forecast and are subject to change if an independent Scotland succeeded in growing substantially faster than the rest of the UK. However, it relies on a number of heroic assumptions, including revenue per head growing twice as fast in Scotland than anywhere else.
Failing that, independence would imply harsher spending cuts than anything we have yet seen in the UK. This is not what Nicola Sturgeon promised when she told the Scottish people of the SNP’s determination to “put an end to austerity” during the General Election campaign.
Sturgeon knows this.
If there is one thing that 55% of Scottish people roundly rejected in last year’s independence referendum, it was the trade-off of becoming poorer in exchange for breaking away from rest of the UK. Any suggestion that this is being put back on the table could result in the SNP’s stunning electoral victory on May 7 being the party’s last.
Instead, what the SNP is asking for is the devolution proposed by the Smith Commission of more say over income tax rates and bands on non-savings income, air passenger duty, and the assignment of half of VAT revenues — plus a little bit more. But still well short of full autonomy.
Sturgeon told the Scottish parliament: “We want to see devolution of powers over employment policy, including the minimum wage, welfare, business taxes, national insurance and equality policy.”
What she didn’t say (but is implied) is that the Barnett formula, under which funding from Westminster is allocated according to the population size of each nation and which powers are devolved to them, would continue to operate alongside greater devolution. Under it, public spending per head has been 20% higher in Scotland than in England.
In exchange for such a deal, Cameron is likely to demand that Scottish MPs in Westminster will not be allowed to vote on legislation that only applies to other parts of the union — the much ballyhooed English votes for English laws.
If he wanted to, however, the Prime Minister could go even further and make devolving further power conditional on setting up a timetable for full fiscal independence in Scotland. That way the free lunch being demanded by Sturgeon would have its sell-by date printed on the package.
And it’s also an important economic problem. The further you go down the road of separating tax and spending policies between parts of a monetary union, the greater the risk you are playing with the economy of the whole.
If Scotland kept the pound under full autonomy it would still have to put its own finances in order, or else risk the stability of the currency. Moreover, if the economy of the rest of the UK started growing faster than that of Scotland the pound could become a burden on Scots as it would prevent foreign exchange markets providing an pressure valve.
We’ve already rehearsed the implications of an incomplete monetary union in the eurozone — and the costs are long periods of high unemployment and bruising economic adjustment in order to achieve through “internal devaluation” what should be done much less painfully through a weaker currency.
That alone should prevent the Prime Minister from seeking to cede too many new powers to Sturgeon without first asking for a commitment to either get Scotland’s fiscal house in order or agree that full fiscal autonomy — a necessary first step to independence — is a hollow promise for the foreseeable future.
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