John Swinney’s strategy for retaining the office of first minister after next year’s Holyrood election was fairly straight forward. All he had to do was sit back and watch a combination of the rise of Reform and Labour’s growing unpopularity split the opposition vote and the SNP would once again emerge as the biggest party in parliament. No rocking the boat with radical policy announcements – and definitely no campaigning for another referendum.
The SNP had asked for full fiscal autonomy as part of the new fiscal settlement put in place after the 2014 referendum
As Alex Salmond had done in the run-up to the 2011 Scottish election, the constitution, even though it is the raison d’être of the SNP, would be firmly side-lined until after votes had been cast. It is curious, then, why the SNP has chosen this moment to resurrect the ghost of full fiscal autonomy – where a financially independent Scotland would be responsible for all its taxation, spending and borrowing, with payments made to the UK government for certain collective services such as defence.
The SNP had asked for full fiscal autonomy as part of the new fiscal settlement put in place after the 2014 referendum. When this was rejected, it quietly dropped the idea, which has not been proposed in any subsequent SNP manifestos. In January, however, the SNP’s Scottish government finance secretary, Shona Robison, in a letter to the House of Commons Scottish Affairs committee tasked with looking at the financing of the Scottish government, described full fiscal autonomy as the Scottish government’s ‘preferred option’ within ‘the current constitutional settlement’.
This was new and appeared to go against the grain of Swinney’s election strategy. Was it a mistake on the part of Robison, or was this indeed a resurrected policy the party wished to campaign for? On 14 May, Angus Robertson, the SNP’s secretary for the constitution, was asked in parliament to clarify the government’s position. He responded:
‘Until the people of Scotland can choose a different constitutional arrangement, moving to full fiscal autonomy would create a fairer system, protecting public services and allowing investment in our economy. The Scottish Government stands ready to engage at any point with the United Kingdom Government on substantial new fiscal powers for Scotland, following which we will model the impact of potential policy choices.’
The following week, Robison was giving evidence to Holyrood’s Finance and Public Administration Committee, and was asked why the Scottish Fiscal Commission had not been asked to formally examine the implications of full fiscal autonomy if that is indeed the government’s position. She reiterated what Robertson had said, and again suggested that the right time to model the implications of fiscal autonomy would be once negotiations over a new fiscal arrangement were taking place.
This was a strange answer, particularly as the Scottish government took part in a formal review and updating of the fiscal framework just a couple of years ago and made no push for fiscal autonomy at that point.
A look at the numbers tells us why the SNP should be reluctant to push the policy. The Scottish government’s Government Expenditure and Revenue Scotland report shows a fiscally autonomous Scotland would start off with a £23 billion hole in its budget.
As pointed out by Sam Taylor, chief executive of These Islands, full fiscal autonomy fundamentally changes both the revenue and expenditure sides of Scotland’s budget. Revenues would go up because all taxes raised in Scotland would go direct to the Scottish government, but expenditure would also go up because all spending previously attributable to Scotland, including things like state pension payments, would now come out of the Scottish government’s budget. In 2023-24, that would have meant a newly fiscally autonomous Scottish government having spending commitments amounting to 10 per cent of Scotland’s GDP (that £23 billion) beyond what it raised in revenue.
To maintain public spending at those levels, a fiscally autonomous Scottish government would have had to issue £23 billion worth of sub-sovereign debt in 2023-24. Would global bond investors have coughed up? No doubt one or two investment banks would offer to place some debt in the markets, but it would mostly likely be at punitive rates and would be unlikely to fill all the budget hole. Potential investors would probably also need to see a credible plan for a very dramatic and quick cut to that deficit.
In other words, fiscal autonomy is a one-way ticket to turbo-charged austerity. That explains why the SNP was previously reluctant to campaign for it, and also suggests Robison most likely slipped-up in January with her letter. Swinney’s government is left with no choice but to defend full fiscal autonomy while deflecting from the reality of what it would mean.
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