Not only should Scotland not mirror Truss’s tax-cutting budget, but it is, in fact, unable to do so unless a massive bout of austerity is to follow.
The only thing more shameless than the Troy party is the chunk of mainstream media that so poorly serves Scotland. In a matter of hours after Friday’s fiscal announcement, certain newspapers suggested the Scottish government should copy the insane and unjustifiable tax cuts contained in Kwasi Kwarteng’s Kamikaze document.
There is no hyperbole in saying that the first budget under Truss’s direction is the most unpopular budget of this millennium. It is so universally unpopular that it has done the unthinkable: united economists across the academic and political spectrum.
The impact of the budget has been laid bare. In summary, a vast £45 billion tax cut (1) turns the tide on almost a hundred years of progressive tax policies.
After more than a decade of Tory governments, the UK is again the sick man of Europe. All thanks to Thatcher and her followers who by now can no longer hind behind think tanks and neoclassical economists. Trickle-down economics only benefits the wealthy.
An LSE paper from 2020 has been widely reported in the press and within it contains a summary of supply-driven neoliberal policies:
“Our results show that…major tax cuts for the rich increase the top 1% share of pre-tax national income in the years following the reform. The magnitude of the effect is sizeable; on average, each major reform leads to a rise in top 1% share of pre-tax national income of 0.8 percentage points. The results also show that economic performance, as measured by real GDP per capita and the unemployment rate, is not significantly affected by major tax cuts for the rich. The estimated effects for these variables are statistically indistinguishable from zero.” (2)
Tax cuts simply move money around the economy. Tax cuts tend to be for the wealthy. Money moves from the poor to the rich. And the economy grows no larger.
This budget doubles the dose of neoliberal supply-side economic policies in the futile hope (if the government cares) that growth will increase in the moribund UK economy.
Let’s, for the moment, set aside the significant issue of the UK government blindly pursuing growth in an era of climate overheating caused by governments blindly pursuing growth and break down the budget in simple terms.
£45 billion will remain in the pockets of the wealthiest in society while the UK faces an economic, environmental, and societal crisis that is incomparable to any time in our history. A beast of a bind that will disproportionately affect those least able to cope.
The fiscal deficit (the difference between the amount of tax collected and the amount spent by the government) will be filled by paying people to invest their money in government savings, commonly known as borrowing (3). Of course, only the wealthiest parts of society can afford to save with the government, so they win on both ends.
Perhaps the best demolition of the budget comes from Martin Wolf at the FT:
“If the supply side promises are a fantasy, the fiscal and economic risks are not”
and
“In sum, this mini-Budget will do nigh on nothing to raise medium-term growth, but risks serious macroeconomic instability”
Economist and Writer Duncan Waldon Tweeted his comments from his SCOTONOMICS interview:
Josh Ryan-Collins, Associate Professor in Economics & Finance at UCL said:
“When you have high inflation, it’s sensible to raise taxes on those who can most afford it to cool the economy.”
before posting a link to the huge savings for the wealthiest in society.
Mark Hooper sums it up perfectly and succinctly:
If you take to Twitter, search for economic commentary online, or pick up the majority of serious newspapers, you will see a consensus about the damage this budget will do to the UK economy. It will, without question, supercharge inequality in the UK. Because this is what it is actually designed to do.
It will likely turn the UK economy into an ’emerging market economy’.
The budget is shameless in rewarding those least in need.
But shamelessness doesn’t end at the border, and you would, of course, expect Scottish Tories to toe the party line:
So, in summary, we have the least progressive budget in almost 50 years. A budget that has not appeared alongside any OBR calculations on the impact on the economy. A vision that is widely and roundly expected not to increase growth. So what is the advice from some of our mainstream media?
Shockingly it is not to strive for something better, to offer a glimmer of hope of a progressive land somewhere in the UK, but to follow the madmen (and mad lady) into the madhouse.
The focus over the coming months will be on the Scottish government’s refusal to “pass on tax cuts” and more evidence of the “high taxes” in “Sturgeon’s socialist state”. It has begun.
In a non-monetary sovereign country like Scotland, taxes pay for services – cut one, and you lose the other
So how does the Scottish government respond to these calls, and how should independence supporters engage with people who want to see tax cuts?
The first thing to say is to call out the cuts and make it clear that they guarantee an increase in inequality in the UK.
- How can the Scottish government replicate those policies when inequality is already so high and damaging in the UK?
Then point to the impact on Scots this winter and beyond:
- The budget will make wealthy people better off when millions of Scots face the most brutal winter for generations. How can the Scottish government replicate those policies?
And thirdly, point out the difference between the powers available to the UK and Scottish governments:
- The UK government can fund the difference between what it earns and what it spends by paying people to invest in a guaranteed return from the government (commonly known as borrowing). The Scottish government has to either increase taxes elsewhere or reduce spending.
- The UK government is not comparable to the Scottish government. So what taxes do people want to increase in Scotland to generate around £4 billion? Or what services should be reduced?
The third point is perhaps the most important one.
The UK government can cover a fiscal deficit in a way not currently available to the Scottish government. In suggesting that the Scottish government replicates these tax cuts, the Scottish government either has to tax something/someone or spend less on public services.
The fundamental difference is the UK government’s position as the issuer of the pound and the Scottish government’s position as a user of the pound. Duncan Weldon explained it very simply during his budget takedown:
So the response has to be that devolution allows, but doesn’t fully enable Scotland, to take a different path from the rest of the UK.
But despite the lack of powers, Scotland will stand proudly against this heartless Tory government’s disruptive policies that endanger the environment, society and the economy. Scotland will not mirror England, and it will continue on its own path, leading to the Scottish government possessing the same powers as Westminster.
The power of money
The pandemic demonstrated to many people the power of being the currency issuer. It was only the UK government through the Bank of England and its private sector banking agents that was able to release new money into an economy: no other level of government could do this. It proved that being the issuer proffers the ultimate power.
But this budget has an equally important message.
Under the current devolved settlement, Scots are left to fund public services from taxes, while England can take a different – less painful approach. The UK government can fund a fiscal deficit by either creating money and injecting it into the economy or promising to pay interest to investors in exchange for their cash.
The only way that Scotland could choose to mirror the Kwasi Kwarteng budget would be as an independent nation. So shouldn’t that be what media commentators focus on?
REFERENCES:
- IFS, 2022. Available here: https://ifs.org.uk/articles/mini-budget-response
- LSE, 2020. Available here: https://www.lse.ac.uk/News/Latest-news-from-LSE/2020/L-December/Tax-cuts-for-the-rich
- Bell, S. 2000. Do Taxes and Bonds Finance Government Spending? Journal of Economic Issues, 34:3, 603-620.
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