IT is a grim scene. An economy in recession. Rapidly rising inflation at 9.9 per cent. A risk of food shortages. Families unable to pay fuel bills. A currency plunging to multi-decade lows. Borrowing prices skyrocketing as the Government proposes unfunded massive tax cuts for the rich. Emergency central bank intervention. A trickle-down redux that fails to convince investors. Economic disorder looms. This no banana republic. It is the UK in 2022. This catastrophic economic debacle overseen by Prime Minister Liz Truss and Chancellor Kwasi Kwarteng, calls for a contrasting continued measured response by First Minister Nicola Sturgeon.
Now is the time to juxtapose chaos, failures, and confusion, with Scots pragmatism, clarity, prudence, and stability. Scotland has an opportunity to demonstrate resolve, a firm hand, and a sound Government. The First Minster, the Scottish Government, and Parliament can all act and demonstrate why steady government delivers, both now and in achieving future goals.
The First Minster’s refusal to support and apply "fiscally reckless" tax cuts at a time when the rich do not need a break is the right course. Economic history shows that trickle-down economics does not work. It was "voodoo economics" in the 1980s, when George HW Bush coined the term, and it remains so. Scotland should not go back to the future with Prime Minister Truss. Instead, a prudent Scots Government with a steady fiscal hand, that supports those in need, but recognises the real fiscal constraints Scotland faces in the short-term, is what is required.
The Scottish Government has taken a clear stance at odds with London. What it does in the months ahead can potentially reinforce the Government’s credibility with markets, investors, and calm among its citizens.
Scottish tax differences from England can be a strength, not a liability. A modest Scottish divergence in tax rates, and other policies is precisely what devolution permits, and will not result in an "exodus". First Minister Sturgeon is not "exposed" by the split with London. This is just scaremongering. An alternate Scottish social contract, on taxes, education, social care and other policies, is supported by a majority of Scots voters. Ms Sturgeon is reflecting a broader inclusive Scots path; a better route than the rocky road the English have chosen.
America too exhibits difference between states, with higher taxes in California, DC, and Maryland, for instance, which help support better services, education, and health outcomes. Many "Bible-belt" low tax southern states face slower growth, threadbare social safety nets, higher poverty rates, and severe social strains. Each American locale makes its policy choices, as do Scotland and England.
Looking ahead, the shock of the crises in the UK, and the Scottish response, can be a testing ground for support for further steps toward independence. Sound, prudent, measured policies, credible government in Edinburgh, can contrast strikingly and positively with London’s disarray and disorder. The careful roll-out of the First Minister’s currency plans can also be a demonstration of steady and carefully laid out plans.
Foreign investors, banks, asset managers, and central bankers understand that stable effective government requires a reserve of market credibility; a sense that when crises hit that calm will be restored; a reasonable expectation that a government itself will not itself design, trigger, and spur economic downturns. The UK Government is fast losing its credibility. This has led to rare criticism from the IMF, from leaders in the US Federal Reserve, and a former US Treasury Secretary. Credibility once lost is hard to regain. U-turns in London are to be welcomed, but they will not swiftly repair shattered credibility.
Scotland’s leaders have an opportunity to show they provide an alternative model and route to sustainable, greener, more inclusive, economic growth. Investors are looking for stability, for credible government, for a clear and careful approach. If the First Minister is strategic, Scotland can underscore its appeal, attract inward investment, talented workers, and in so doing the case for independence could gain strength and momentum.
Stuart PM Mackintosh is Executive Director of the Group of Thirty; with input from William R Rhodes
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