This Thursday Scotland will decide whether it wishes to ask for another referendum. A picture is being painted by the SNP, Greens and Alba of the sunlit uplands of an independent nation, free from the oppressive tentacles of Westminster. Crucially, such a vision invariably involves a more generous welfare state. Whether it be health, childcare or education, Sturgeon wishes to spend more on it, while making almost no commitment to raising taxes to finance such expenditure.
The SNP is right to think Scotland could thrive outside the UK, however such an independent nation couldn’t succeed under SNP tax-and-spend plans. While Scotland remains in the UK, her immense fiscal deficit can be subsidised and sustained by the English. As an independent nation such a deficit, and its consequences, would cripple the Scottish economy. Scottish independence needn’t be a calamity, but an independent SNP Scotland must necessarily be a disaster.
This basic truth is demonstrated by the current state of Scotland’s finance’s. In 2019 Holyroods’ budget deficit was 8.6% of GDP, over three times the UK’s overall level. This is over fourteen times worse than the Euro average, indeed even Greece in 2019 was in a better fiscal position, running a 1.5% surplus. In money terms, the Scottish government currently borrows over £6,000 for each household.
For English taxpayers it’s easy to see why such enormous borrowing is occurring. Free university, free prescriptions and free childcare are just some examples of Scottish extravagance. Indeed, public spending accounted for 46.1% of GDP in Scotland in 2019, compared to a more prudent 39.8% across the UK. And all this is without Sturgeon’s promises to double the Child Payment and increase investment in social care by 25%.
Such lavishness is only currently possible because of taxpayers’ in London, the East and South East of England coughing up for the bills, the only regions to run surpluses. If independent, Scotland’s continued profligacy simply won’t be possible. Bond markets wouldn’t tolerate a nation perpetually running such a giant deficit. Interest rates would soar, the economy enter recession, unemployment rocket and investment collapse. Holyrood would end up spending mind-boggling sums on debt interest.
To avoid such a situation Scotland would have only three options: One, significantly raise taxation, two, significantly cut public spending, or three, a mix of both. Being social democrats the SNP would most probably opt for increasing taxation, so let us consider the extent of the tax rises necessary to finance current expenditure.
According to analysis by The TaxPayers’ Alliance, the basic rate of income tax would have to rise from 20% to 46% to close the 8.6% budget deficit. Alternatively, VAT would have to increase to 49%. Importantly, these figures don’t account for the effects of higher taxation on the broader economy, which would inevitably erode the tax base.
In reality though, any move in Scotland to significantly increase taxation is doomed to fail. If there were free movement between England and Scotland, as is likely given the precedent between Ireland and Great Britain, many Scots would flee to England to avoid high taxation. Given both nations speak English, migration would remain a continual check on the progressive vision of nationalists.
Some may suggest corporate and higher rates of income tax be increased instead. But these policies would face exactly the same problem, especially given the mobility of corporations and higher earners, and a similar legal system making moving jurisdictions easy. A Scandinavian-style welfare state just isn’t possible, unless of course Sturgeon wishes for a hard border with England, an unlikely demand.
Nor would North Sea oil going entirely to Holyrood solve Scotland’s fiscal woes. All £650m of revenue, equivalent to 0.3% of Scottish GDP, would hardly dent Scotland’s budget deficit. This leaves only one option left for the Scottish people, one they’ve rejected at every election this century, namely, significant public spending cuts.
Essentially, the generous welfare state of Scotland would have to be radically trimmed. Free university, free prescriptions, free personal care would all have to be scrapped, and significant cuts to welfare benefits made. An austerity programme larger than Cameron’s Conservatives would have to be immediately embarked upon to reassure international bond markets of Scotland’s fiscal soundness.
Nonetheless, the prospect of significantly reducing the size of government shouldn’t be seen as a disaster. It is instead a golden opportunity to return to an historic Scottish tradition of personal responsibility and small government. The great thinkers of Scotland’s past, Adam Smith, David Hume, and Samuel Smiles, all of whom argued for prudence on the part of the individual and state, should be the guiding lights of an independent Scotland.
By significantly cutting the welfare state Scotland could once again become a nation of rugged individualists. Instead of relying on government to take care of every need and desire, saving and self-help would once again become the people’s great virtues. Such a shift in culture would reignite the entrepreneurial Scottish spirit that produced James Watt and Alexander Graham Bell, the true inventors of the modern world. Scotland’s economy would flourish.
An independent Scotland is more than capable of thriving. However, the spendthrift policies of the SNP would throttle such a sovereign entity at its birth. To succeed Scotland must embrace the virtues of self-help and small government, and more broadly the great tradition of Scottish liberalism. Either that, or Scotland must remain in the United Kingdom, with her spendthrift ways permanently subsidised by southern English taxpayers. There is no alternative.