Full Fiscal Autonomy is now a the Full Fiscal Anomaly as it become increasingly impossible to make any sense of the multiple SNP positions on the acronym of the moment, FFA.
The SNP manifesto for the May 2015 General Election said: ‘We will seek agreement that the Scottish Parliament should move to full financial responsibility‘ – a slide away from FFA since ‘financial’ and ‘fiscal’ are not interchangeable terms.
It goes on to admit that the SNP timeline to indy in indyref 1 was ignorant of the realities of what indy would involve, in saying: ‘As implementation of the Calman Commission proposals has demonstrated, the transition to full fiscal responsibility and agreement on the detailed full fiscal framework that would underpin it would take a number of years’.
So eighteen months from indyref to 24th March 2016 never was achievable – as so many knew and said it was not.
The published analyses by David Phillips of the Institute for Fiscal Studies of the impact on Scotland’s economy of FFA – showing that it would produce a deficit in GDP of £7.6BN this year, 2015-16, increasing to a deficit of £9.7BN in 2019-20 – and with an accumulated shortfall by then of £43Bn.
The SNP went astern at speed. FFA suddenly became an ‘aspiration’ not the imperative demand it has been in the period since indyref 1.
It is worth noting that since this series of very recent papers by David Phillips, the Office of Budget Responsibility [OBR] – a few days ago on 11th June, has drastically reduced its forecasts of North Sea Tax Revenues, saying that it now believes the UKCS oil and gas sector could only generate a total of about £2bn in tax revenues over the entire 20 year period from 2020 to 2041 – around only £100MILLION a year.
Only last year the OBR forecast £37BILLION in North Sea revenues for the same period.
Nicola Sturgeon, in the USA when the OBR forecast was published, nevertheless told the Head of the IMF there that she wanted maximum fiscal autonomy for Scotland.
Back at Westminster Group seemed to be focusing on pressing for additional powers, short of FFA, to be added to the Scotland Bill.
Finance Secretary John Swinney continues to spin on the spot, changing position on FFA with dizzying frequency. He said: ‘The Scottish Government believes we should move towards full fiscal autonomy as the best route to fulfil Scotland’s potential.
‘In the meantime, we are prioritising the transfer of additional powers to incentivise key sectors, raise productivity and attract investment’
Then at First Minister’s Questions at Holyrood where he deputised for the Leader across the water, challenged on the daftness of FFA by both Scottish Labour Deputy Leader, Kezia Dugdale and Scottish Liberal Democrat Leader; Willie Rennie [who called it 'silly'], an increasingly shrill Swinney came close to losing his temper. He got stubborn about FFA and said that it would still be better than being subject to a Conservative Chancellor at Westminster.
This was a statement of no small concern. Her was the Finance Secretary seeing it as preferable to bankrupt Scotland than to have a Conservative chancellor guiding the UK economy. Moreover, Mr Swinney was dismissing the Conservative Chancellor whose judgment was admitted to have been correct by the IMF, as the British economy pulled back from the post-2008 global financial collapse quicker than anticipated and better than any other European Country.
So do the SNP want FFA or not?
They don’t seem to have a shared stance on the matter. It has generally become much less a ‘want’ than a running complaint about not being given it.
Both the Prime Minister, David Cameron and the Scottish Secretary, David Mundell, have said to the SNP that if they want FFA they should go for it in the discussions over the Scotland Bill; that their arguments would get serious attention. They said too that there will be no negotiations outside the Scotland Bill. This is the SNP’s moment and the PM was inviting them to take that opportunity.
Then the senior Conservative MP, Sir Edward Leigh, put down an amendment to the Scotland Bill, arguing that FFA would breed responsibility and that there is a good Conservative argument to be made for it.’ Leigh is saying that the Scottish Government should be given these powers.
The case for full fiscal ‘responsibility’, as the SNP now call it – to downplay the ‘autonomy’ which is the greatest interest to their swelling infantry – has not been lent any credence by an SNP defence against the IFS paper on the deficit FFA would inflict in the Scottish economy.
In advance of yesterday’s Commons session on the Scotland Bill, Deputy Party Leader, Stewart Hosie simply dismissed all concerns arising from the IMF papers’ analyses, saying to Sky’s Dermot Murnaghan: ‘It’s true, we run a deficit but then so does the UK, their black hole is around 75 billion this year so some years our deficit is better than the UK.
‘Sometimes we’ve got a current account surplus, sometimes we do not. These are the normal things which every other economy in the world has to deal with.’
This is breathtakingly illiterate coming from so senior a member of the SNP. In saying blithely, as we italicised above: ”Sometimes we’ve got a current account surplus, sometimes we do not.’, Mr Hosie fails to understand the difference between a normally fluctuating trading balance and the structural budgetary deficit the IMF was talking about.
The IMF paper showed that the collapse of oil process, the rundown of North Sea assets and operations will produce just such a structural deficit in the Scottish economy. A structural deficit is an endemic problem that will not go away – an inbuilt permanent imbalance between income and expenditure – unless a sharp strategic adjustment is made either by raising taxes or cutting spending.
The annual structural deficit identified by David Phillips’ analyses for the independent IMF is £7.6BN for 2015-16, rising to £9.7BN in 2019-20. These are the annual amounts arising from a structural deficit with FFA and under the Finance Secretary’s current fiscal plans. It is not hard to see why these plans are undeliverable anbd will require a sharp adjustment either to taxes or to spending or to both, if Scotland;s is not not be afflicted with a running structural deficit. The IMF’s figures showed an accumulated deficit of £43BN by 2019-20; and that did not include any additional costs associated with borrowing,
Yesterday in the Commons an SNP amendment which would have seen full fiscal autonomy [FFA] implemented at a time of Holyrood’s choosing was rejected on Monday by 249 votes. And Edward Leigh;s amendment calling for FFA to be handed over in short order fwas also defeated by 298 against to 68 in favour. The shattered Labour party bought itself no confidence by speaking against FFA – but failing to vote.
Scottish Secretary David Mundell made it clear that FFA will not be granted. There are two reasons for this unequivocal position:
- within the union, FFA simply cannot be granted to Scotland. The structural imbalace between members of the union would be unsustainable;
- the risks of economic collapse by a government with a very limited depth of ability, handling full fiscal autonomy in circumstances of a serious structural deficit are too great for any responsible UK government to contemplate. The Scottish government has failed to implement without serious trouble the two modest taxes over which it currently has power [aggregates and landfill]. It has made a mess of changes to business rates and in its Land and Buildings Transaction Tax, replacing Stamp Duty.
It is in the fullest interests of Scotland itself that FFA is not awarded prematurely and without proven evidence that the Scottish government is capable of managing it without taking Scotland into an economic crisis from which the rest of the Union would have to rescue it.
It is in the interests of the union that FFA is not awarded at any stage below being a part of the final operational arrangements made upon a considered and agreed change to a federal constitution.
