Back in the Old Days, when ‘manners were the measure of the (wo)man’, a very pungent letter with rational and detailed criticism sent to the local paper might have had some effect. Nowadays, in the over-information age, strident, reasoned letters are as easily dismissed as are acidic and abusive comments. Letters from Minister to Minister being no exception to disregarded communications, no matter how rational and polite.
For instance, Scotland’s Finance Minister Kate Forbes has already written to Chancellor Rishi Sunak requesting Scotland’s budget management tools be approached more flexibly. Given the immediate situation, it’s a reasonable appeal…but it’s a submission, subject to approval by a different institution with a different set of priorities and a different concept of funding. Ultimately, if the letter approach does not work then that is it. Scotland will get the spending it gets.
According to the latest budget report from the Fraser of Allander Institute, the Scottish Government’s Covid relief funding from Westminster will be £1.2 billion. This is a reduction from £8 billion, according to the same report. The Institute admits that this sum is merely a projection, probably at the ‘lower band’, and that if lockdowns increase in number so too will funding.
Nonetheless, the Scottish Government will soon likely have to decide which parts of the economy it thinks can survive on its own, which parts may either need continued or increased funding, and which parts should be allowed to go to the wall.
The issue here is not the amount of money that is being given by Westminster: it is the fact that Scottish funding will follow a formula that does not fit with its needs. Although Scotland will receive an amount of money proportionally in step with England, Wales and Northern Ireland, it being a geographically larger area than the latter two, and significantly less populated than England, resources are a further distance from more people, and costs are therefore higher.
Using a very basic example with some rudimentary logic, if population size is the key to the proportion of funding, then it fails to capture the true cost of administering services to people scattered across a wide landscape with smaller urban areas and smaller hospitals to provide a more limited service, combined with a more challenging road system; and this is before we involve the weather!
Yet these greater needs and their tendency to vary, particularly at this moment, will not be addressed with extra finance by the Scottish government since Scotland must always produce a balanced budget; the Scottish ministers will only be able to spend the money they have been given under the terms dictated by Westminster. Events in other countries, and the decisions made at the Treasury, will determine the expenditure in Scotland for the next year (albeit revisions are possible), not the demand of Scottish requirements. The cloth will need to be cut to fit.
Putting to one side the arguments for a Scottish currency, which are credible and overwhelming in my opinion, a state’s possession of its own currency allows it the power and flexibility required to solve a multitude of these financial challenges. With it, a government is empowered to vary the amount of money spent month by month as needs arise. The UK Treasury can increase its borrowing by selling bonds when there is a shortfall in its revenues compared with its expenditures every month. Departments spend the needed amount; if it is above the budget, it simply then passes on the bill.
This system is hugely beneficial to the Westminster government – vitally important, strategic spending is just done. The cost is added to the national debt. Perhaps not quite no questions asked; there may be future cuts, however, in times of crisis, the cash is available to avert disaster, or unpleasantness, or discomfort. (Cuts can then be done in the good times, when no one notices, and can often take the form of just spending less. Painless.)
Scotland cannot do this. Subsequently, Scotland will have to wait on Westminster policy taking shape before it will be able to give the nod to endow ministerial portfolios with cash, whether urgently required or not. The Scottish government could draw down on its Reserve Fund. Although, only £250 million is allowed on an annual basis – if there is money already there – and once it has been spent, that’s it. Unlike a Treasury funded by a central bank which could theoretically fund spending till…who knows? Japan’s debt is at over 300% of GDP and it is still investing, asking no one’s permission.
Flexibility around this issue of debt smooths the tarmacadamed highway of governing. In a period of crisis, it does not stop the wheels coming off the car, rather the car coming off the road! Scotland is facing both a health crisis – less COVID-19, more the looming catastrophe of undiagnosed cancers, worsening health indicators across the board and a tidal wave of mental health problems – and an economic crisis of an unknown magnitude.
We could mitigate both with flexible borrowing institutions and strategic spending. US president, FDR, rebuilt American infrastructure across a continent, financed a two-front world war, and developed the most advanced technology the world had seen to that point. With a little imagination and its own functional currency, Scotland could stop a temporary crisis becoming a generational catastrophe and fund infrastructure projects for tomorrow’s prosperity.