Sterling zone implications

In my contribution to People Power on the fiscal implications of constitutional change I argued that a vision of independence within a Sterling zone, that doesn’t even exist, has major limitations.

“Handing over monetary policy to rUK also limits the scope of fiscal policy. We only have to look at the Eurozone crisis debate to see the link between monetary and fiscal policy. If the key economic levers are controlled by another country, then there is less influence on monetary, and fiscal, policy than under devolution.”

Professor Brian Ashcroft in his Scottish Economy Watch blog has developed this point further. Referring to Alex Salmond’s “flip flop” on whether Scotland would have to sign up to a fiscal stability pact if an independent Scotland adopted sterling, he says:

“There is no doubt in my mind that if an independent Scotland adopts sterling then it should enter into a formal monetary union arrangement with the rest of UK government and agree/accept a fiscal stability pact.”

He sets out the reasons for this in some detail in the blog. The Scottish Green Party might also like to consider these points given their plan for a separate currency.

However, even if the rUK was prepared to agree such a fiscal stability pact, it comes at a price. As Brian Ashcroft points out, there will still be a risk premium on borrowing costs, because small countries have more volatile finances, particular Scotland with its dependency on oil revenues. I would add that it is inconceivable that the Bank of England would not put other fiscal and monetary conditions in such a pact. It all adds up to something far short of real independence.

Devolving health and safety

Stirling University’s Andrew Watterson  and Rory O’Neill have published  ‘Regulating Scotland:  What works and what does not in occupational and environmental health and what the future may hold.’

This is a useful commentary, not only on the shocking state of safety enforcement in Scotland, but also on the constitutional debate. Two recommendations are particularly relevant:

  • Serious consideration should be  given to the creation of a Scottish Occupational Health and Safety Agency, controlled from Scotland and freed from Westminster’s financial and political control.

 

  • Scotland should establish itself as a vocal defender of the environment and workplace standards and of the rights and health of its population, not an apologist for Westminster’s deregulatory obsession or an evidence-blind advocate of the skewed ‘business burdens’ argument that transfers risks and costs to the public and the public purse.

A number of trade unions, including UNISON, argued in their evidence to the Calman Commission that health and safety should be devolved. Sucessive Scottish administrations have shown a willingness to get involved in health and safety, but the engagement has been limited.

This report makes a convincing case for change.

 

Improving social outcomes

Jeremy Purvis from the Devo-Plus group has published their second report, Improving Social Outcomes in Scotland.

Like most on the left, I am wary of Devo-Plus as it is backed by the right-wing think tank, Reform Scotland. However, this paper is a reasonably objective analysis of social outcomes and how they might be addressed under extended devolution. The usual Reform ideology is largely, but not entirely absent.

The key findings are:

1. There is no common approach to the delivery of welfare systems and programmes across unitary or federal countries

2. Scotland is performing relatively poorly compared with other developed nations on key social indicators

3. Within sixteen key social justice outcomes covering children, families, offending, health and housing performance has improved in Scotland since devolution in six areas, but got worse in eight and saw no marked difference in two

4. Scotland’s income tax distribution affecting low earners is worse than the UK as whole

5. Income tax and national insurance levels in the UK are towards the lower levels within the OECD

6. Scotland’s prosperity and economic performance has improved in absolute terms, but more in relative terms with the rest of the UK since devolution

7. Devo Plus provides for wider policy options on income taxation, impacts on disposable income and social policy objectives.

They make a number of recommendations:

1. A more integrated tax and benefits approach is required to secure better early intervention and policy outcomes in Scotland

2. There should be more flexibility in fiscal levers in Scotland to assist in securing better social outcomes and Devo Plus tax proposals could be implemented to aid tax fairness and redistribution should choices be made to do so

3. Core elements of the UK benefits system should remain at the UK level including the state pension, employment, maternity and citizenship rights and entitlements

4. Further devolution of benefits and work programmes should take place to enable more efficient programme delivery covering care, winter fuel payments and work  programmes

5. Benefits and tax should be integrated at each level of government as much as possible to provide a combined package of incentivise and Social Protection, and tax should be devolved to each level of government as set out in the Devo Plus fiscal proposals

6. A clearer social contract should be provided for the delivery of social welfare and benefit entitlements for citizens and recipients with the classification of benefits at each level of government responsible.

One of the weaknesses of Devo-Plus is the obsession with the ‘moral hazard’ of levels of government spending without having the responsibility of raising the revenue. This of course ties in with the Reform ideology. They hope by linking the two, voters will support their small state goal. The proposals in this report to link spending and revenue at the UK, Scottish and local level is unnecessarily contrived to fit in with this approach.

The report is on stronger ground in proposing more flexibility over fiscal levers, although leaving National Insurance at the UK level would unnecessarily constrain a progressive tax policy.   Leaving the main welfare benefits at UK level is probably right, as is the devolution of work programmes as recommended by the Christie Commission.

Overall, while I may not agree with all the conclusions, there is a great deal of solid analysis in this paper. A worthwhile contribution to the constitutional debate.