Liz Smith is Shadow Cabinet Secretary for Finance and Local Government and Conservative MSP for Mid Scotland and Fife.
Last week, as is always the case at this time of year, the Scottish Government published its balance sheet (known as GERS). This sets total tax revenues against the total of public spending in Scotland from which we can see the fiscal balance. This year, Scotland’s fiscal deficit increased again to £22.7bn – mainly because of the very substantial fall in revenue from oil and gas.
Inevitably, there is always constitutional debate about how to interpret GERS: unionists claiming there is a substantial fiscal benefit to each household because Scotland is part of the United Kingdom, and nationalists claiming Scotland would be much better able to improve the Scottish economy if they had control over all the fiscal levers.
This year however, the constitutional aspect aside, the debate has also taken on new meaning. That’s because the GERS figures were published alongside the Scottish Government announcing that not only are there significant spending cuts in the pipeline, but also that it will follow Westminster and scrap universal winter fuel payments for pensioners.
Predictably, the blame game is raging. But the fact of the matter is that reality has kicked in – and there is now a long-overdue debate to be had about which universal payments can be maintained.
It is all well and good arguing that free prescriptions, free tuition, free winter fuel payments should be a moral obligation, but the long and short is that they need to be paid for… by government. That, in turn, means the government either has to hike taxes or cut other areas of spending, or both.
The trouble is that with current demographic trends and the high incidence of economic inactivity, plus the fact that the Scottish economy has been seriously lagging behind the British economy for more than a decade (and that has not exactly been performing that well of late), Scotland has not been creating the growth which it desperately needs to pay for an increasing dependent population.
Listen to senior figures in business and they will all tell you that Scotland is not performing nearly as well as it should be because there has been insufficient emphasis on growth. They worry too about Scotland’s increasing tax burden and the effect this is having on middle-to-high earners whom we desperately need to attract into important Scottish markets such as financial services, energy and technology, and food and drink.
Scotland definitely has the latent potential – but we need to develop it, and fast.
So, what needs to happen? Firstly, it is imperative that there is a full and frank debate about universal payments, based on evidence and upon the future needs of the economy.
For example, I have long argued that the policy of free university tuition in Scotland is no longer sustainable. It has come at the cost of capping places for domiciled Scots, making universities over-reliant on foreign students who pay high fees, and it has not delivered the same amount of bursary support which has been possible south of the border.
Nor has it delivered better educational outcomes. You only need to listen to our university principals and the student bodies to see the effects of the financial constraints they are under: courses and teaching resources being cut, and threats to what have been world-class research programmes.
Free tuition has not worked in the way the Scottish Government intended, and it is high time this was properly and honestly addressed.
But it’s not just about free tuition. The Labour Party nationally and the SNP in Scotland have taken the decision to cut winter fuel payments; recognition that for better off pensioners, universal payments can no longer be a priority. It will not be long before changes will have to be made to the free school meals policy, and probably to some aspects of the free prescription policy.
Secondly, the budget choices which are made in Scotland must reflect the priority of economic growth.
This did not happen last February when, for some inexplicable reason, the SNP Government made an 8.3 per cent real-terms cut to the economy portfolio at the same time as pursuing what many across Scotland saw as unworkable policies such as the National Care Service. Not surprisingly, the budget was met with dismay across business and industry.
Thirdly, as the Finance Committee has been highlighting for quite some time, there must be meaningful public sector reform which will make the public sector more efficient.
We are nowhere near being able to say that all our resources are well spent given the amount of waste in government spending. From the evidence the Committee has taken and from the analysis undertaken by so many economic analysts and think tanks, plus Audit Scotland, it is just not an option to go on as we are.
I can understand why any government wants to pay public sector workers more but this cannot be on the basis that there are no improvements to services in return. The public just won’t wear that, and rightly so.
Then there is the question of tax. As my colleague Murdo Fraser so rightly said in his recent Scotsman column, we should be using Holyrood’s powers to make Scotland more competitive with England, not less.
Yet the SNP’s policies in recent years to consistently hike taxes even for those on modest incomes is causing a tax differential that is creating increasing burdens on key sectors of the economy. Some businesses are even telling us that they are having to introduce what they call a “Scottish weighting”, in the form of higher salaries, to attract talented recruits who are otherwise put off by Scotland’s high-tax regime.
That just cannot be right if the priority is to be on economic growth, improving productivity and addressing the problem of economic inactivity. Scotland will never be able to meet its true potential if it remains a high-tax nation, uncompetitive with its neighbours.
So, the GERS numbers matter but for many more reasons than the constitutional debate. They matter because they tell us a lot about the general health of the Scottish economy and about the pressing problems we face when it comes to the public finances.
As the Scottish Government is finding out to its cost, some harsh realities have set in. These mean that some radical changes are desperately needed to get the economy back on its feet.
Liz Smith is Shadow Cabinet Secretary for Finance and Local Government and Conservative MSP for Mid Scotland and Fife.
Last week, as is always the case at this time of year, the Scottish Government published its balance sheet (known as GERS). This sets total tax revenues against the total of public spending in Scotland from which we can see the fiscal balance. This year, Scotland’s fiscal deficit increased again to £22.7bn – mainly because of the very substantial fall in revenue from oil and gas.
Inevitably, there is always constitutional debate about how to interpret GERS: unionists claiming there is a substantial fiscal benefit to each household because Scotland is part of the United Kingdom, and nationalists claiming Scotland would be much better able to improve the Scottish economy if they had control over all the fiscal levers.
This year however, the constitutional aspect aside, the debate has also taken on new meaning. That’s because the GERS figures were published alongside the Scottish Government announcing that not only are there significant spending cuts in the pipeline, but also that it will follow Westminster and scrap universal winter fuel payments for pensioners.
Predictably, the blame game is raging. But the fact of the matter is that reality has kicked in – and there is now a long-overdue debate to be had about which universal payments can be maintained.
It is all well and good arguing that free prescriptions, free tuition, free winter fuel payments should be a moral obligation, but the long and short is that they need to be paid for… by government. That, in turn, means the government either has to hike taxes or cut other areas of spending, or both.
The trouble is that with current demographic trends and the high incidence of economic inactivity, plus the fact that the Scottish economy has been seriously lagging behind the British economy for more than a decade (and that has not exactly been performing that well of late), Scotland has not been creating the growth which it desperately needs to pay for an increasing dependent population.
Listen to senior figures in business and they will all tell you that Scotland is not performing nearly as well as it should be because there has been insufficient emphasis on growth. They worry too about Scotland’s increasing tax burden and the effect this is having on middle-to-high earners whom we desperately need to attract into important Scottish markets such as financial services, energy and technology, and food and drink.
Scotland definitely has the latent potential – but we need to develop it, and fast.
So, what needs to happen? Firstly, it is imperative that there is a full and frank debate about universal payments, based on evidence and upon the future needs of the economy.
For example, I have long argued that the policy of free university tuition in Scotland is no longer sustainable. It has come at the cost of capping places for domiciled Scots, making universities over-reliant on foreign students who pay high fees, and it has not delivered the same amount of bursary support which has been possible south of the border.
Nor has it delivered better educational outcomes. You only need to listen to our university principals and the student bodies to see the effects of the financial constraints they are under: courses and teaching resources being cut, and threats to what have been world-class research programmes.
Free tuition has not worked in the way the Scottish Government intended, and it is high time this was properly and honestly addressed.
But it’s not just about free tuition. The Labour Party nationally and the SNP in Scotland have taken the decision to cut winter fuel payments; recognition that for better off pensioners, universal payments can no longer be a priority. It will not be long before changes will have to be made to the free school meals policy, and probably to some aspects of the free prescription policy.
Secondly, the budget choices which are made in Scotland must reflect the priority of economic growth.
This did not happen last February when, for some inexplicable reason, the SNP Government made an 8.3 per cent real-terms cut to the economy portfolio at the same time as pursuing what many across Scotland saw as unworkable policies such as the National Care Service. Not surprisingly, the budget was met with dismay across business and industry.
Thirdly, as the Finance Committee has been highlighting for quite some time, there must be meaningful public sector reform which will make the public sector more efficient.
We are nowhere near being able to say that all our resources are well spent given the amount of waste in government spending. From the evidence the Committee has taken and from the analysis undertaken by so many economic analysts and think tanks, plus Audit Scotland, it is just not an option to go on as we are.
I can understand why any government wants to pay public sector workers more but this cannot be on the basis that there are no improvements to services in return. The public just won’t wear that, and rightly so.
Then there is the question of tax. As my colleague Murdo Fraser so rightly said in his recent Scotsman column, we should be using Holyrood’s powers to make Scotland more competitive with England, not less.
Yet the SNP’s policies in recent years to consistently hike taxes even for those on modest incomes is causing a tax differential that is creating increasing burdens on key sectors of the economy. Some businesses are even telling us that they are having to introduce what they call a “Scottish weighting”, in the form of higher salaries, to attract talented recruits who are otherwise put off by Scotland’s high-tax regime.
That just cannot be right if the priority is to be on economic growth, improving productivity and addressing the problem of economic inactivity. Scotland will never be able to meet its true potential if it remains a high-tax nation, uncompetitive with its neighbours.
So, the GERS numbers matter but for many more reasons than the constitutional debate. They matter because they tell us a lot about the general health of the Scottish economy and about the pressing problems we face when it comes to the public finances.
As the Scottish Government is finding out to its cost, some harsh realities have set in. These mean that some radical changes are desperately needed to get the economy back on its feet.