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Scandinavian spending on defence would save the UK £21.7bn

Oct 17

Posted by Jeff in Economy | 4 Comments

The UK spent 2.5% of its GDP on Defence in the last budget year. This amounted to £46.1bn but we already know that, thanks to Liam Fox’s foot-stamping, the MoD’s budget will decrease by only 7.8%, down to £42.5bn, for 2011/12.

Now I personally believe that, given all the stomach-churning belt-tightening and belly-garroting that’s going on in other budgets, that this 7.8% is too small. We shouldn’t be expensively gallivanting around the world as the self-appointed world’s policeman more than other countries do, especially while we charge students tens of thousands for degrees, hold back investment on Renewables and make hundreds of thousands unemployed. Furthermore, we meddling Imperialists shouldn’t be building £34bn nuclear weapons just so that we can cling onto our grossly undeserved permanent seat on the UN Security Council.

I know that the above doesn’t have to happen because there are other countries out there who have quite happily eschewed onerous defence spending and unnecessary nuclear weapons, four of them in Scandinavia.

Per the latest information that I could find, Sweden spent 1.3% of its GDP on Defence, Norway 1.3%, Denmark 1.4% and Finland 1.3%. It’s almost not worth taking an average given how consistently peaceable the Scandinavians have been but let’s go with 1.325% anyway.

Were the UK to adopt the same approach and drop spending to a Scandinavian ratio of GDP at this Wednesday’s Comprehensive Spending Review, we would be saving £21.7bn per year. 21,700,000,000 of extra cash every single year. That’s over £80bn for the rest of this parliamentary term.

That’s a lot of tuition fees, a lot of wind turbines, a lot of new schools, a lot of welfare cheques and a massive head start on high speed rail.

While delivering once in a generation cuts is the perfect time to shake off the old British mentality of needing the biggest stick in the playground. I know it won’t happen but I thought it was well worth pointing out just how much money is available to be painlessly saved.

Tartan Penny – We’re gonna Parly like it’s 1999

Oct 15

Posted by Jeff in Economy, Elections, Holyrood, Parties | 12 Comments

With October 20th and the detail of George Osborne’s Spending Review now less than one week away, the pressure on Finance Secretary John Swinney to point out where the requisite savings in Scotland’s budget will be made is building. Education Secretary Mike Russell has tried to take the sting out of the growing media focus on the spending problems facing Scotland by delaying a decision on university funding until after the election. However, procrastination of the big decisions will not work forever, particularly as the SNP has stated a big generous giveaway for the next parliamentary term in the shape of a continued Council tax freeze, a decision that has led to much of the press, unfairly I reckon, to attack the SNP’s supposed ‘lack of wisdom’.

It is difficult to predict where in Scotland’s budget a largely left wing public would accept significant slicing, particularly when the cost of policies is difficult to pin down (does abolition of student fees cost £15m or £1.5bn?). Consequently, if savings simply politically can’t be made, the growing pressure will result in having to let off some steam through tax rises.

Is it for financially squeezed moments like these that Scots decided to give the Scottish Parliament tax-varying powers for? Should political parties start looking at raising tax by 1p or 2p in the pound north of the border? It would be an enormously difficult decision.

Again, the numbers are hazy, but an undated Scottish Office document states that raising income tax by 1p in the pound would raise around £150m a year. I am, of course, happy to be corrected on that but if it is pensioners, students and the unemployed who deserve the most protection from cuts, then surely the employed are fair game. The question is, who is most likely to adopt this high-risk strategy in the election campaign.

For me, the SNP would be the most likely of the main five parties to resurrect their ‘tartan penny’ tactic from the 1999 election campaign. Alex Salmond has the most to lose from reversing policies that he presided over in the past four years and, over and above potential reversals, the FM will struggle to avoid committing to policies such as tuition fees, free care for the elderly and the latest Forth Bridge before May 5th. Increasing tax may well be the least worst option as the SNP seek to find that coveted fine line between financial credibility and public popularity.

The Lib Dems may join the SNP in pushing for an increase in tax rates, rekindling the party’s ‘Penny for Scotland’ campaign of 1999. Tavish Scott needs something as he must be keen to mark his party out in this election campaign for fear of anonymity or, worse, being seen only as Cameron’s little helpers down south. Mimicking an SNP penny in the pound would mark them out as frontrunners for coalition partners.

The Green Party may also consider campaigning on this extra tax. It’s not my position to say but investment in a renewable industry, keeping tuition fees abolished and bringing housing stock up to a higher standard of insulation appear to be top priorities, and expensive ones too.

The Conservatives, needless to say, will not be in favour of a tax rise in Scotland. The UK Tories preferred an austere 80/20 blend of cuts/tax rises to combat the deficit and will no doubt continue to ‘trust hard working families to spend their own money rather than the state’. Pah, the Scottish Government Finance Secretary can spend our hard-earned money better than any of us, everyone knows that… (I jest, sort of)

Labour, I would expect, will be staunchly against any use of the tax varying powers which would throw up an interesting dividing line for the voters if they had the choice of the SNP (higher income rates and frozen Council tax) or Labour (consistent income rates and increased Council Tax). Iain Gray would doubtless try to attack the SNP as both ‘cutters’ and ‘tax raisers’ which, while incongruous to me, may well go down well with certain parts of the electorate.

In short, will the 2011 election be 1999 all over again?

I personally hope so but with a different result. Scotland can be bold, brave and follow Finland and Sweden down the path of high tax, wide provision services, all the while climbing the regular ‘happiness indices’ that Scandinavian countries find themselves near the top of as a direct result of their relatively higher taxation levels.

(Update – It seems the SNP has already categorically denied raising income tax rates in the Parliament chamber, in response to a direct question from Lord George Foulkes. Courtesy of NewsnetScotland. I still have the Nats favourite to increase the income tax though. It is, after all, the right thing to do….)

What if Scotland just isn’t ready for cuts? (Or Spain)

Oct 12

Posted by Jeff in Economy, Sport | 33 Comments

Scotland play the Spanish wonder-kids tonight at Hampden and even though Craig Levein will try to arrange his team (and the Tartan Army sing their hearts out) in order to prevent a one-way thrashing, there is probably no stopping such an onslaught.

That’s fine though, that’s only 90 minutes of embarrassment and more bruises for the Scottish footballing ego. It’s nothing that a dark room and a couple of cans of Tennents Super Strength Lager won’t fix. OK, maybe three cans.

However, there may be a bigger ‘hiding to nothing’ coming Scotland’s way, and I don’t mean in football. What if we set up our nation’s structures to defend ourselves from cuts and those defences give way? What if coalition cuts start to run rings around our nation’s formation? What if we are not equipped to combat the destructive force that will be in front of us over the next half a decade? In short, is Scotland ready for the financial pain that is on its way and, if not, what will happen then?

There is currently a debate being held across the UK assessing whether increasing tuition fees in England & Wales is the correct future for further education. Such a debate would struggle to get off the ground in Scotland where support for universal and free access to university is fairly widespread.

However, how can a Scottish Government, with the best will in the world, deliver a policy of free access for students when its spending allowance does not take this option into account? And how can a Scottish Opposition realistically resist the temptation to exacerbate that difficulty for its own ends?

The obvious solution is a higher tax rate in Scotland to pay for universities centrally rather than through tuition fees but the current constitutional arrangement does not allow for this. There is a similar ideological divergence causing spending problems in benefits, the NHS and defence with no immediate solution to break the logjam.

Further evidence of Scotland not being ready to handle these cuts is the deficit that it holds. I don’t mean a Scottish Government deficit (none such exists as it can neither save nor borrow) and nor do I mean even the considerable Scottish slice of the UK deficit. I mean the £9bn that councils owe and are no doubt attracting onerous interest charges on.

I don’t mean this with disrespect but if the beancounters at HBOS, RBS and the Treasury can get their sums wrong and leave the UK vulnerable and exposed then the same can happen at any of the 32 councils across Scotland. £9bn is a lot of money for a small country of 5million to owe, it is £1,800 per person and it won’t be getting paid anytime soon while councillors focus on bins getting emptied and stocking dilapidated schools with jotters and textbooks.

Another aspect in which Scotland might not be ready for these cuts is just the simple presence of Conservatives back in Government. There is little doubt that the Tory brand remains toxic north of the border so although we should have had years to prepare ourselves for a Prime Minister Cameron, we may collectively be a little startled by it all and still unable to work grudgingly but constructively with the settled will of the Midlands and South of England. The temptation to lash out at anything forthcoming from George Osborne (a temptation albeit mitigated by a fuzzy Lib Dem presence) may count against us rather than for us when the final realisation that protests are not enough to save shrinking budgets. But even still, how do you adapt to spending less when you do not share in the philosophy that has caused that situation?

Scotland’s constitutional arrangement is regrettably similar to Craig Levein’s 4-6-0 and our politician’s approach to attack has been no more imaginative than throwing it up the line to try to win a throw-in. There needs to be a drastic rework of our political game so that, as a nation, our politicians can metaphorically run out onto the turf full of optimism, safe in the knowledge that we have the structures, the defences and the strategies to cope, adapt and succeed in the face of any challenge that comes our way.

These cuts, much like football, aren’t a matter of life and death.

It’s more important than that.

Anyway, first things first, bring it on Spain.

Fairy tales on the economy

Oct 7

Posted by James in Economy, Westminster | 11 Comments

The tooth fairy of the cutsThe Tories are making progress with their arguments over the economy. The message has trickled down even to primary school children. Yesterday, six year old Niamh Riley offered David Cameron her tooth fairy money after hearing about the country’s economic situation.

“I heard about it and I wanted to write a letter. I wanted him to get the letter with the pound to make the country better and pay for jobs.”

Is there a better way to sum up Tory economics than this? David Cameron, the personification of the vested interests of the rich, telling us the cuts must come first and taking money directly from children.

Actually, he rejected the pound, but that seems pretty inconsistent given this week’s assault on child benefit.

Jeff’s made the case here that their move is a good idea, despite the widely shared concerns about the fairness of the specific proposal. Don Paskini, one of Labour’s brightest bloggers, has argued that the winning tactics for Ed Miliband would be to tackle the specifics and accept the principle. Tactically, perhaps, but on the principle I disagree with both, however progressive it may appear to being taking money away from the well off.

I’ve got four reasons for this position, even assuming the specifics are sorted out. First, means testing is inherently expensive. The savings will be partially offset by the cost of paying civil servants to work out who shouldn’t get child benefit. Second, child benefit gives a massive swathe of society a buy-in to benefits. It’s an incredibly powerful message, that benefits aren’t simply for the “others”, the people they read about in the Mail with their massive taxpayer-funded houses.

Next, although some have used child benefit for fine dining or other decadence, many find their partner gambling or drinking away money that they need for childcare, and that’s not just driven by class or income level. Some parents with partners on bigger incomes are in exactly the same position, and child benefit gets a little way past that problem.

Finally, it doesn’t look like the result of any considered and comprehensive policy on the public finances. A responsible government would look at the debt, current spending and current revenues, and start to prioritise. What are the most vital or cost-effective parts of our public services? What are the most progressive ways to raise funds? What will the economic impact be of cutting staff numbers at a particular rate, or of raising additional funds in a certain way?

They should be identifying the most obvious waste – like vast defence boondoggles and the damaging Afghan war – and cutting them first. Child benefit for anyone simply isn’t anywhere near the cut-off on that list, , even those on the civil list (who perhaps for equity should also also have a £26k limit on their income). Next, they should be looking at the most progressive ways to raise more money without damaging the economy, starting with taxing banks and bankers’ bonuses, or looking at (bear with me) Land Value Tax. Again, increasing VAT shouldn’t have featured there. As the Lib Dems told us before the election, it’s one of the most regressive taxes going.

That information should then have been plugged into projections about the deficit to estimate the optimum approach for tackling it. One thing the Tories are right about is this: paying ever-increasing interest on the national debt isn’t a good long-term use of taxpayers’ money. At the end of a long bubble like Labour’s property/cheap oil boom the national finances ought to have been in credit, which would have made it easier to invest in the lean years as Keynes knew. Leaving those regrets aside, though, can the cost-cutting and revenue options there allow deficit reduction now? Probably not without incurring other social costs too high to bear. More likely in a year or two, probably, but it’s hard to say without all this information being provided.

We should have been shown a review of this sort, a Domesday book of the British public finances. It’s a big job, sure, but if that’s not what the Treasury is for, then what really is its purpose? Telling tall tales to children?

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Setting rates in everyone’s interest

Oct 6

Posted by Jeff in Constitution, Economy | 5 Comments

As we all know, thanks to our being safely outside of the Eurozone, the majority of members in the European Union have one set of interest rates and one currency. This economic shackling together of many nations has created a 16-member, 17-legged race that is causing all sorts of skints and bruises for those involved.

Greece, Spain and Ireland are unable to see their currencies devalued which would boost exports and neither can they drop interest rates to boost their struggling economies more generally. Germany on the other hand is motoring ahead with phenomenal growth of 2.2% in a single quarter this year and a rate rise should be taking place there to ensure money isn’t too cheap and new problems do not arise.

This balancing of economic requirements across the Eurozone may well be the European Union’s greatest challenge in the near future so can the UK watch on in splendid isolation safely enjoying its own arrangement with Sterling and the Bank of England?

To an extent, yes, but the UK also has a varied economy and different regions have different needs. Interest rates in this country may not be the one size fits all solution that we would like to hope that it is.

Scotland went into the recession in comparatively better condition than the rest of the UK but has now fallen some way behind. Were this trajectory to continue, which is regrettably easy to envisage with the bloated public sector, political wrangling and banking problems north of the border well known, then perhaps an unavoidable increase in interest rates at a UK level will serve London and the South but harm business north of the border if Scotland just needs a little bit more time to boost itself back to stability.

When the Monetary Policy Committee at the Bank of England does increase interest rates, probably near the end of this year or at the start of next year, there will be an almighty political fall out, particularly in light of the cuts that will be in the process of biting. The ‘Left’ will be against and the ‘Right’ will be broadly in favour and it is not difficult to see how this ideological split could quickly develop into a cross-border argument.

No-one wants to see unemployment rise and an economy falter but, were that to happen specifically in Scotland, may there be a case for devolving interest rate setting from the Bank of England to Edinburgh?