Even heroes have heroes.
Those of you who read this column will know of my obsession with the great poet that is Robert Burns. Amongst the countless things said and written about him, perhaps the most perceptive is the description given to him by fellow poet and ardent fan, Lord Byron.
Byron called him “The antithetical mind”. By saying this he was recognising that Burns’s brilliance lay in his peerless ability to turn received wisdom on its head and look issues from the opposite perspective, to peer through the looking glass from the other side. From there we can find clarity in any debate.
I thought about this a few days when I saw a front page headline in the paper stating that Scotland’s finances were facing a two billion pound shortfall in this budget year. It initially felt like we’d been transported back to the financial scare stories of 2014, and of course the usual people jumped on the article as proof that Scotland’s government was incapable of running its economy, a claim immediately rebutted by the Holyrood administration.
So far, so predictable. But let’s channel our collective inner antithetical minds and try to find what’s really happening. And one way to do this is to shift the burden of proof. In 2014, to those of us who wanted – and want – a self-determining Scotland, it felt like we were always having to prove that we could afford to leave. But, when we dig down into the “black hole” story, it’s clear that the real question isn’t “can we afford to leave?”
It’s “can we afford to stay?”. And I don’t think we can.
So here’s the short version.
There’s a cost of living crisis that for all sorts of reasons is going to get worse before it gets better, partly because every candidate to replace the outgoing Boris Johnson as Prime Minister is trying to outdo each other in promising a neoliberal, low tax agenda at a time when the most vulnerable people in society desperately need money that could easily be raised through higher taxes on people who could well afford it, or through a windfall tax on energy companies.
Meanwhile, inflation is spiralling to 11%.
In terms of Scotland, our budget is around £56.5 billion, and legally we must balance the books – something that every administration of every political hue has done since the reconvening of parliament in 1999. It can be a difficult trick to pull off, not least because the income to do so is often found in reserved areas, like VAT. And this is crucial to the story of the “missing” two billion.
Because of the energy crisis and higher post-Brexit food costs that a budgeted pay rise of around 3% won’t come close to mitigating, we’re probably looking at at least 5% of costs that wouldn’t have been foreseen, as the budget was drafted in vastly different financial circumstances – so that means savings of around £2.8bn will need to be made to meet the legal requirement of balancing the spend.
Here’s the problem for Scotland. As prices go up, so does the VAT income for the UK Treasury. But VAT is a reserved area, so under the devolution settlement a share of the VAT revenue is transferred to Holyrood. However, crucially, the block grant is then adjusted downwards. If it wasn’t, we’d have the £2.8bn and there wouldn’t be a problem.
We are in uncharted waters here, and of course the devolution settlement didn’t for one second anticipate a time when inflation is spiralling, which is why the clause around the block grant was left in. And that means that all the upsides of inflation are with London and all the downsides are with Scotland. It’s the ultimate win / lose.
The obvious solution would be a short-term uplift to the block grant that reflects the unprecedented circumstances in which we find ourselves, followed by an agreement by all parties that Scotland receives a fair share of increased revenues in the future. It should also be recognised that the current shortfall isn’t the fault of the Holyrood administration but the logical result of a loaded system it’s unfairly expected to operate within. But I have serious doubts that any of this will happen.
There are two other options.
Firstly, Kate Forbes finds savings in various budget areas and is roundly condemned by the media for simply not delivering the impossible.
Or, secondly, we ensure that on the nineteenth of October next year we overwhelmingly decide to have no part of a constitutional settlement that makes us poorer and sets us up to fail. Because we cannot afford to stay a second longer than we need to. As the antithetical Burns used to say – facts are chiels that winna ding.
Keep the faith good people. I’ll meet you further on up the road.
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