Why Brown’s ‘new powers for Scotland’ are a dice roll

This is not the last throw of the dice. The last throw of the dice happens when we see Her Majesty The Queen pop up in full tartan regalia and plead with Scots to vote no.

But first we have the second to last throw: the “new powers for Scotland”. Announced by a man who has yet to explain why he lost the 2010 election, or what his party did wrong in government, or make any self-criticism for his stewardship of the UK banking system, which led to catastrophe.

The deal promised by Gordon Brown last night involves… what? All he spelled out last night was a Labour proposal on more economic powers for Holyrood, together with a cross-party agreed timetable for their implementation, leading to the publication of a bill in January and its passage by April 2015.

This is not the same as a cross-party agreement on the powers themselves – which is, of course, impossible, since the measures must go through the Westminster parliament.

It is being briefed that the no gambit gives Scotland:

• – more powers to raise tax, and to vary pan-UK tax rates
• – more power over its own welfare system
• – the Lib Dem version of the plan proposes new borrowing powers as well

But until Scottish people see the details, it will be very difficult to take this as anything more than what it is, a dice roll.

Here is why. The no campaign has focused laser-like on the fiscal risks to Scotland. Heavily indebted banks but no central bank to bail them out, keeping the pound but with no control over interest rates, and the risk that the oil money cannot pay for the level of public spending the SNP wants to add over and above what the rest of Britain gets.

Tax-raising powers

Now, consider the UK Treasury and sterling in a world where Scotland alone gets tax-raising powers, the power to spend more on public services, and the power to borrow separately.

Right now the global markets are waking up to the possibility of a yes vote.

In fact, there is a clear answer to most of their concerns: in the event of a yes, Scotland’s debts are assumed by the rest of the UK and Scotland owes the rest of us. The bank deposits are guaranteed in London.

(By the way, when you read “panic” headlines in the newspapers it is always best to turn to the last available editorial they’ve run. In the case of the Times, the FT, the Mail, the Express and even the Guardian, they’re all in the no camp.)

In any case, the panic headlines could quite easily be stemmed by the prime minister or the chancellor getting up and saying: “The risks associated with independence are understood by us and we have a plan to mitigate them.”

Fiscal autonomy

In the absence of such statements, let’s suppose there is a no vote and Gordon Brown et al make good on the maximum programme outlined above.

Scotland will effectively have part fiscal autonomy. There will be a part of the British state that can borrow independently of the Treasury, and spend, and spend to different priorities, but it will have little power to shape the economy in which those taxes are collected and spent.

The risk is that this impairs the UK’s credit rating and impacts on sterling. Britain’s debt and deficit look less under control, and in the long term its future as a unitary state is in doubt.

Remember, here we are talking about a UK government that has to seriously consider de-ringfencing NHS and education spending after 2015, such is the scale of deficit reduction needed.

So to avoid paying a higher interest rate on government debt Westminster would probably have to cut the whole UK’s deficit faster and set a lower safe limit for the deficit going forward.

That is: fiscal autonomy for Scotland may not only be seen as unfair south of the border, it has real costs to taxpayers in the rest of the UK.

Democratic deficit

The gambit may work, in that it halts the yes surge – but at the price of creating what looks like a democratic deficit with the rest of the UK.

Why should taxpayers’ money in, say Clacton, England, go to paying higher interest on government debt when all the upside goes to people in Scotland? And why should Scotland’s MPs go on having an equal say at Westminster over the NHS, education and welfare? These questions were not answered in Gordon Brown’s speech. They will be asked persistently today.

Meanwhile for Scotland, here’s what is still at stake. The point of independence – as opposed to autonomy – is that you cannot only set your own tax rate, and borrow on the open markets, but you can use your entire economic policy to “grow the pie”.

You could slash corporation tax, as Ireland has done, or incentivise short-term boosts to oil revenue. You could even – though the green yes lobby will revolt – frack the North Sea.

The problem with part-fiscal autonomy is that it turns Scotland into a high-tax, high spending state without the possibility of it competing with its near rivals – Britain, the Netherlands and the Irish Republic – for inward investment and a changed trade relationship. The danger is that Scotland would turn into a sclerotic welfare state, with every extra penny of tax raised and spent sucking life out of the private sector, rather than pump-priming its expansion.

One final thought. The promise of the no camp extends, effectively, into the next parliament – for the 2015 government in Westminster would have to honour the budget pledges set in the new Scotland Act. Yet by 2017 Britain is set to vote in an in/out referendum on Europe.

I am just wondering whether the real final throw of the dice could be a promise to let Scotland vote separately, and stay inside Europe if England and Wales vote to leave?

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