Scotland will soon be issuing its own government “bonds” in a rather scary voyage into international financial waters.
We’re inviting the world to invest in Scotland’s economic future. It’s also a signal from the SNP government that an independent Scotland would have access to global money markets and take its place on the world stage. “It’s a proud day for Scotland”, is how the First Minister John Swinney described the proposed bond issue, to be called “kilts”, rather than the UK’s “gilts”.
In a happy coincidence, two of the leading debt-rating firms, Moody’s and Standard and Poor’s, have just given the Scottish economy top marks as a safe place to invest. And it’s hoped the new bonds will raise £1.5bn over the next five years, giving the government extra money to spend on “infrastructure projects”, hopefully to promote greener and better growth.
But lest we get carried away, the opposition parties have pointed out that £1.5 billion over five years is not a lot compared to the Scottish government’s annual capital budget of £6.2 billion. There is also a cap on Scottish Government borrowing imposed by the UK Government. And the confidence shown by the rating agencies is a reflection of the overall performance of the British economy and the Westminster government’s handling of it, rather than the good book-keeping of Mr Swinney.
Nevertheless, the bond issue is a sign that the Swinney government is keen to get some sort of economic growth going after years of flat-lining. The Starmer government also sees “growth” as the answer to all its spending problems. The trouble with this “dash for growth theory” is that it doesn’t address the issues of sustainability or equality. Growth is not a good thing if it trashes the environment or allows the rich to get richer and the poor to get poorer. It also begs the question – why not redistribute the wealth we already have ?
This week the Scottish Labour Party published a report on growth which it commissioned from the economist and principal of Glasgow University Sir Anton Muscatelli. In it he argues for a regional or “place-based” approach to growth, with more freedom for local authorities to get on with developing local transport, skills training, simpler planning and regulation and financial support for local enterprises. This will be a theme for the Labour campaign for the Scottish elections next year, “the crusade for devolution” they are calling it.
In media comments later Professor Muscatelli went on to warn any future Scottish government against increasing income tax too much beyond the rates in England and Wales because “you could be less competitive.” I’m sure he didn’t mean this, because income tax is a personal tax and has little to do with investment or productivity which are industrial matters. It also plays into the popular view that taxes are a bad thing. They are not. In fact raising tax, and therefore government spending, is the only way we are going to get a growing economy. Virtually all of Professor Muscatelli’s recommendations for improving growth require public money.
The chancellor Rachel Reeves has clearly accepted this and has been hinting at tax rises in her budget later this month. The Scottish finance secretary Shona Robison is worried that this will leave Scotland with £1bn less in its annual grant, because of the complicated formula on devolved funding. To plug the gap, she in turn may be forced to raise income tax in Scotland even further.
The top rate of tax on incomes over £125,000 is 48 per cent in Scotland, compared with 45 per cent in England and Wales, though the Scottish government likes to point out that high earners in Scotland enjoy free university education for their children, free medical prescriptions, free personal care when they are old and frail and they pay less in local council tax.
We all have dreams of Scotland returning to the good old days when we built ships and steam-engines for the world, when the economy was booming and every town had its shopkeeper entrepreneurs. We are trying now to re-create this in a modern form, with renewable energy, bio-science, hi-tech engineering, finance and service industries. But more sustainable, higher quality growth will come from supporting labour-intensive industries, such as education, health, the arts and sport.
Let’s hope the new “bond money” will be ploughed into these industries of the future.
