In the coming week, John Swinney, Cabinet Secretary for Finance, Employment and Sustainable Growth, has set himself the job of demonstrating why Chancellor George Osborne’s austerity approach is harming, not helping, the economy.
On Thursday 2nd February, in a major speech on The State of Scotland’s Economy to the David Hume Institute in Edinburgh, Mr Swinney will argue Mr Osborne’s strategy has placed too much emphasis on austerity, and not enough on promoting growth.
His argument is that we cannot lay all the blame for last week’s concerning GDP figures at the door of the eurozone crisis.
Of course we cannot lay all the blame on the weak strategic leadership of the eurozone but his argument ignores the fact that every one of the eurozone countries has had its credit rating lowered. This makes borrowing more expensive for all of them, a direct growth inhibitor, where the UK has maintained its Triple A rating because it is perceived to be taking the hit in a responsible attempt to pay down its debt level.
None of this is straightforward but it is certain that higher and high borrowing rates for the UK would make things very much more difficult.
Mr Swinney says: ‘I have argued on a number of occasions that while I recognise the clear need to address the legacy of debt inherited from the previous UK Government, this can only be achieved if there is sufficient growth in the economy.
‘This is not what we are seeing’.
The latest figures, showing a stall in the UK’s growth performance certainly support that.
Mr Swinney points out that: ‘Continuing uncertainty in the Eurozone is playing its part in the disappointing growth figures. However, not all the blame can be laid at the door of the Eurozone. Indeed the OECD expects Austria, Germany and Finland to all grow faster than the UK this year.
‘Much of the responsibility for the lack of economic growth must therefore be laid at the door of 11 Downing Street.’
This is a bit of a leap in logic and ignores the big question of the slenderness of the UK’s ‘sales’ portfolio. What have we got to grow? The arms industry?
Mr Swinney repeats the mantra: ‘In particular, the balance of the Chancellor’s plans placed too much emphasis on austerity – and not enough on promoting growth.
‘Coupled with a lack of an overall coherent economic plan, the decision to profile the spending cuts such that they were front-loaded to the very point when the recovery was most fragile was a fundamental error.
‘This was compounded by the decision to shift the burden of adjustment to capital investment – with a cut of a third over four years to this critical budget which funds investment in roads, schools and hospitals.’
Certainly a recession is the time for major infrastructural projects and Mfr Swinney has markedly balanced commitment and, dare we say, ‘prudence’ in the way he has managed Scotland’s economy in this way.
But we too have a slender ‘sales portfolio’ and we are burdened with a very heavy dependence on pubic sector employment. It is not easy t see how this can be paid for in an independent Scotland, unless by higher taxes – and no one is directly addressing this issue.
Certainly too, the Bank of England;s repeated bursts of printing money -with more to come shortly – has done nothing to stimulate growth and has, in fact, done little but fatten the capital assets of the banks who, on the evidence, have cannily held on to much of it.
Mr Swinney does not accept Mr Osborne’s claim that his actions have put ‘fuel into the tank of the British economy’., saying: ‘The reality, however, has been very different.
‘As many economists, such as Professors Paul Krugman and Joseph Stiglitz have argued, removing public sector demand so rapidly, and before private sector demand was sufficiently strong to step in, has not put fuel into the tank of the British economy – but has instead forced it to run on empty.
‘As a result it is all the more tragic as ultimately the Chancellor’s actions have proven to be self-defeating. It is one thing to cut public expenditure to rebalance the economy but quite another when your cuts are so deep that they threaten growth and hamper the rebalancing of the economy and public finances.
‘Because of the failure to secure growth, the OBR now forecast that the UK Government will borrow 158 billion pounds more over the next five years than initially planned in June 2010, with further public spending cuts now pencilled in for both 2015/16 and 2016/17.
‘If this comes to pass, it means Scotland would face public spending cuts for seven consecutive years.
“There is an alternative. We have long argued for a distinct approach, one that is focussed upon three key initiatives: boosting public sector capital investment; improving access to finance and encouraging new private investment; and enhancing economic security to support confidence across the Scottish economy.
‘This approach has meant the recession in Scotland was shorter and shallower than in the rest of the UK.
‘We have done this using our existing powers –we could achieve so much more with independence.’
We could – perhaps – with the proviso that we need to know very much more about the weight of dependancy on the Scottish economy. Also, to be fair, also ‘achieve so much more; if the Scottish Government had the borrowing powers available to every two-bit local authority.
Mfr Swinney says: ‘Independence is the means, not just an end – the means by which the Scottish economy can grow more strongly and sustainably, by which the people of Scotland can best fulfil their potential and by which Scotland can take its rightful place as a responsible member of the world community.’
The perspective that independence is the means and not the end is the first moving on of the debate, the start to an examination of what en would enable that are more powerful levers and incentives than are currently the case.
A responsible vote of either choice in the 2014 independence referendum has to be just this, a vote for the best possible means to a better and sustainable future.
We need the facts from both sides far more than we need the rhetoric. We can produce the rhetoric ourselves in any discussion between interested parties but we need to be given the ‘facts’ for independence and for staying in a form of union, so that they can be fully and robustly interrogated.
It will be interesting to see what emerges during Mr Swinney’s week of exposition.