Scottish independence and inequality

Thu 04 September 2014

Since I wrote my last blog post on independence back in July, I've thought about the matter more and spent more time reading about the issues involved and discussing them with other people. I'm not going to talk about the high profile debates, nor am I going to comment on the campaigning other than to say I'll be very glad when it's over. This post is going to concentrate on the issue of inequality and how that relates to Scottish independence and the UK. This, as I highlighted in my last post, is important, because although the majority of folk voting for independence are nationalist, there is a significant minority that are more interested in socially progressive change.

Scotland, it is often stated, is a prosperous country with a bounty of natural resources, both renewable and non-renewable. No argument there. But those arguing for independence go further, it could be more prosperous and keep more of its wealth if it left the UK. The Better Together campaign make the same claim in the opposite direction - Scotland would be better off remaining in the Union.

There's no way to be sure which of these claims is true, because no one can predict the future. But let's take another claim made by supporters of independence, that, under current arrangements, Scotland is shortchanged by the way that UK public money is shared with Scotland by the Barnett formula. This leads to the question: is Scotland already more prosperous, but not benefiting as it should because it's being shared with the rest of the UK? Even though that does not involve predicting the future, it's still hard to decide objectively because it relies on agreeing on a fair allocation of resources and wealth. I have not looked at all the details of the Barnett formula, but I have looked into health spending and it's clear that at present more money is spent per head on the NHS in Scotland than in England, and the hospitals seem better resourced in Scotland too. I saw this firsthand earlier this year when I spent time in similar departments of Scottish and English hospitals. The NHS in Scotland is completely devolved already, so the only way the Barnett formula could threaten spending on it in Scotland is if public health spending in the whole UK fell, which has never happened. Such a cut would be a sure-fire election loser for any political party. This BBC article by Eleanor Bradford accords very closely with what I've come to understand.

But, let's put such details aside and suppose, for the sake of argument, that Scotland is intrinsically more wealthy and that it has historically shared its greater wealth to benefit the rest of the UK. Let's further suppose that its relative wealth will be boosted if it becomes independent or receives further devolved powers. Unless stated otherwise, I'm using 'wealth' to refer to a measure of wealth per individual. This is of course a poor metric, as more wealth does not necessarily equate to better quality of life, but it'll do for this argument.

It follows then that if Scotland gains independence, with all else being equal, the rest of the UK will be deprived of the wealth benefit of having Scotland. When making this point to a friend, he immediately responded "I'll be in an independent Scotland and it's not my business how the rest of the UK fares." I could've pointed out that Scotland exports £47.6 billion to the rest of the UK but only £26.0 billion to the rest of the world. These are Scottish Government 2012 figures both excluding oil and gas. If our biggest customer is made poorer, it must have some effect on Scotland. This is not the argument that's most important to me though, there's another ethical one which I'll explain by way of something I experienced myself.

Eleven years ago I moved from rural Cambridgeshire to a working class (or lower middle class, if you prefer) area of Glasgow. I was rather shocked to discover that my council tax bill had doubled despite my new house being of similar size and value. Why was this? The explanation was that Cambridgeshire has a much more affluent population than Glasgow, partly because of Glasgow's post-industrial past, but also because the better-off folk who work in Glasgow reside just outside the city in the suburbs. The result is that a much greater proportion of the population of the City of Glasgow pays little or no council tax (whether legally exempt or otherwise) as compared to Cambridgeshire. And I saw the same phenomenon again when I recently moved a very short distance out of Glasgow into one of those wealthier suburbs. My house is about twice the size, and valued at much more than the previous house in Glasgow, but the council tax I pay remains much the same. Same explanation - I now live in a more affluent area where a greater proportion of households pay council tax.

What's that got to do with independence? Well, once I realised why I was paying more tax in Glasgow, it seemed fair to me. The extra money I was paying in tax - which I could afford - was going to subsidise the less wealth off, of which there are too many in Glasgow. And this is the ethical point I'm making. If I earn more than others, I think it is fair that I also contribute more in tax towards public services: roads, schooling, cleansing, public swimming pools etc. Almost all of us in the UK agree with that principle, so much so it's enshrined in law that we pay various taxes.

So my point is that, on this ethical principle, I think that it is fair that Scotland shares its extra wealth with the rest of the UK. I can emphasise the point by applying the same principle to a different situation. If a wealthy section of Glasgow - say its West End - said "We're fed up subsidising the poorer parts of Glasgow by paying all this extra council tax" and took a community vote to split with the City of Glasgow council, I couldn't disagree with the democratic outcome, but I, like many Glaswegians, would see them as extraordinarily selfish. The wealthy people of the West End would be wealthier and the poor of Glasgow would be poorer. In fact, you may have already have noticed that this is not a hypothetical situation - it happened when Glasgow's wealthier population moved out into the suburbs. The wealthy pay less council tax due to historical and geographical boundaries.

I therefore reject any argument that Scotland should be independent simply because it is, or could be more wealthy than the rest of the UK. And conversely, if Scotland needed financial assistance from the UK, I'd welcome it, as happened when the Royal Bank of Scotland needed bailed out in recent years. The difference in wealth between England and Scotland is certainly not as dramatic as that between rich and poor areas around Glasgow, but that's not the point, my objection is ethical, not economic.

Intimately related to wealth, or the lack of it, is the issue of job creation. Let's consider a scenario that has plenty of precedent in reality. A politician in a deprived area of Glasgow is keen to get a big multi-national company to move into their area and set up a big factory (or call centre, or some such large workplace). It will create jobs and the local population, having endured years of deprivation and high unemployment, are right behind her. The company agrees to move in, but only if given a generous tax break, and the politician, keen to serve the interests of her community, manages to get government agreement on that. At face value, it seems like a good deal. But you have to look at the bigger picture.

If the company is expanding then this job creation is real. However, it's often the case that a company is not expanding but just relocating production, and in so doing closing down a factory in another hard-up community elsewhere, blighting that community with sudden unemployment. If this other community were in Glasgow, I'm pretty sure there would be sufficient outrage to flag the whole deal as a scandal. But, it might well go through if the other community were in a distant town, and it will almost certainly be overlooked if the hard-up town was in another country. Why? Because the local population and the politicians have their own problems and have no interest, or perhaps no knowledge, of what's happening in that other country. Overall, no jobs are created and some may have been lost. There's also a precedent set for tax breaks that could drain the public purse in the future. The only certainty is that the big company has driven down costs to enlarge profits and, in all probability, it will be the already-wealthy shareholders that benefit most. This kind of scenario is one reason why inequality has risen in the Western world since the 1970s.

So if a country tries to create jobs with a simple tax cut for business, which is what the Scottish National Party (SNP) are currently proposing for an independent Scotland, then this is effectively a subsidy from public money or, in other words, a gift from the shared money of the populous. Not only can jobs be lost elsewhere, but a drive to cut costs might also mean the move is motivated because the new workers are willing to accept less pay than the existing workers. Politicians and the public will agree to it because there is the illusion of progress in reducing local unemployment, but overall this exacerbates global inequality.

If you do not find my argument convincing, or feel that I'm not qualified to comment, then listen to Nobel laureate in economics Prof. Joseph Stiglitz - a member of the SNP government's Fiscal Commission working group - who describes it as “just a gift to the corporations increasing inequality in our society.”. A tax cut is more typical of a right wing party, but even the Tories in Westminster realise that a tax cut to big business is a bad idea (and I don't agree with the Tory policy either).

There is increasing recognition that growing inequality is a serious problem. The cause is that governments are not able to deal with big international businesses. The policies of the UK and those proposed for an independent Scotland are misguided and are likely to increase inequality and, as I have argued, they also have a dubious ethical basis. Solutions do exist to the problem, and the fact that inequality fell throughout the middle of the 20th century shows that, somewhat incredibly, we found solutions, but then forgot them! One example is FDR's New Deal in the 1930s that created real jobs in the USA without borrowing. Another quite different solution came from John Maynard Keynes's negotiation of a huge loan in 1946 from the USA to the UK. As a consequence of that loan, which was just paid off in 2006, the UK not only escaped post-war bankruptcy but its employment and wealth rose, and inequality fell. Massive public spending by the UK government, with control of its own currency, created the world's best public health care system - the NHS.

I'm not saying we simply repeat these brave and innovative schemes, nor that the UK must remain as it was then, but we should be inspired and learn from these examples. If proposals like those were being made for an independent Scotland, I'd back it enthusiastically. But as it is I'm getting angry with politicians, and some others, for making promises on social progress that they clearly will not be able to keep because they are based on vague, vote-winning initiatives or poorly thought through policies, such as corporation tax cuts. The people they have misled, and will likely let down, are already the ones that society has shortchanged. I say that we can deliver on those promises if we plan properly and recognise that inequality is a global problem that needs global solutions. We can create a fairer society for Scotland, a country of about 5 million people, but would it not be better if we did it for a country of 60 million, or 300 million, or more? We've done it before.