Tagged: the UK constitution

The power to borrow

I’ve emphasised the importance of the power to borrow, and I’m going to take the opportunity here to explain that further now.    One of the immediate reactions I’ve heard when I make the argument is that the last Scotland Act (2012) increases borrowing powers.  Not quite.  According to the government website,

Under the powers enabled by the Scotland Act 2012, from 2015-16 the Scottish Government will be able to borrow up to an overall limit of £2.2 billion for capital spending by way of loan from either the National Loans Fund (part of the UK Government) or from commercial banks. By borrowing through the National Loans Fund, Scottish Ministers will have access to what is likely to be the most competitive form of finance available, benefitting from the UK’s low borrowing costs.

That says two things.  First, the borrowing is allowed only on terms that mean the Scottish Government really must  borrow it from the Treasury.  Second, it’s capped, and capped tightly.  £2.2 billion may sound a lot, but  the estimated cost of upgrading the A9 from Perth to Inverness is £3bn. This is not, then sanction  to undertake the kind of major works that Scotland needs, for example in transport, energy, housing and urban development.

Long ago, local authorities in the UK raised money by issuing bonds, which were sold to a variety of purchasers at a fixed rate of interest.   This is how they built roads, housing, water supplies, energy companies and much else .  Central government gradually restricted that power, requiring ‘loan sanction’, then imposing caps on total expenditure, and finally stopping it happening almost completely.  The reason for imposing those controls was initially a desire to control borrowing in the economy overall, then a desire to limit the “Public Sector Borrowing Requirement” (a term which wasn’t in use when I started studying economics), and at the end a desire to limit total public expenditure.  This progression makes no sense.  If the aim is to limit overall borrowing in an economy, it’s essential to limit private sector borrowing (as we used to).  Once you can’t do that, limiting nothing but public sector borrowing – and even permitting activity as long as it’s kept off the public sector books – stops being about economics.  It’s about politics – rolling back the frontiers of the state – and there is no good justification for it.

There are two main arguments for local borrowing.  One is that, so long as it is used for capital  projects rather than to support current spending,  it stimulates local economies, directly and immediately.  Second, it makes it possible to spread the cost so that people who get future benefits meet a proportion of the costs as they arise.  Allowing public authorities to issue bonds is the standard way of raising cash on these terms, and that is what should be permitted.

Update, 3rd February 2015:  According to the Financial Times, 48 local authorities in England have now formed  a municipal debt agency to issue bonds, expected to raise £2bn-£3bn every year.  It’s not clear from the report whether or to what extent the Treasury has subjected this to limits.

55% No, 45% Yes

The result was closer than the Westminster parties would have liked, but farther apart than I hoped.    It was, and is, important for them to feel the heat.  I’ve been arguing for a review of the distribution of powers in the United Kingdom.  Nothing like the independence referendum is going to be happen again in the near future, and the temptation will be for Westminster – and the Treasury in particular – to retain all the powers they can.  That needs to be resisted, because it’s the wrong way to go about it.  What the UK needs is a root-and-branch examination of the constitution.  Some services are clearly national – the defence forces and the Foreign Office.  There are good reasons for common financial regulation, national rates of the major benefits, a national minimum wage.  There are arguments for integrating some issues that are currently partly devolved – transport, communications and energy.    And there are other policies that ought to be devolved:  examples are economic development, employment provision (which needs to be uncoupled from benefits) and housing.  I’ll be developing arguments about benefits and housing over the next few weeks.

The referendum campaign has been a triumph for participative democracy

Regardless of the outcome, the referendum debate has been remarkable for the enthusiastic engagement of people throughout Scottish society.  There have been sour notes, a stream of misinformation – my colleague Ian Broadbent, in a comment yesterday, calls it a “tournament of lies” –  and I’ve often lamented the quality of the arguments, but I’d like to give credit to the best.  The strongest argument I’ve seen for ‘yes’ came from George Monbiot in the Guardian.  The best for ‘no’ has come from Gordon Brown: you can see it here on Youtube.  Whatever you think, and whatever Scotland decides, our democracy is stronger for  the experience.

 

 

 

The No campaign finds it hard to get past the negatives

There have been some stronger arguments for ‘no’ in the last day.  The Herald posted a formidable editorial to say that

“The Herald backs Scotland staying within the UK at this stage.  But fudge this process, stitch it up and fail to deliver far-reading further devolution, and make no mistake – you wil be guaranteeing another referendum – one that you will lose, and deserve to lose.”

They complain – fairly – that

“in promoting its manifesto for Scottish independence, a Panglossian emphasis on the best-case scenario has at times strained its credibility.  …  the case for independence has been built upon a string of ideal outcomes.  Even the other party in this great divorce, the Government at Westminster, would, it is assumed, act at all times during separation in accordance with the Scottish Government’s wishes.”

David Webster also asked me particularly to mention a negative argument by Carol Craig in the Scottish Review.  Her best point is that:

“If Scotland gains independence then for decades most of its political and intellectual resources will be channelled into becoming another, largely inadequate, European state.”

I don’t agree about the inadequacy.  I do agree that it will take time, and resources.

There has also been, however, a chorus of negative, scaremongering  comments.  Supermarket prices will go up;  Scotland can’t afford the NHS (stuff and nonsense); it will not be able to run a finance industry without a lender of last resort (doesn’t anyone remember the  building societies, built on mutualism and secured loans?)    This has been the weakness of the No campaign all the way through, made worse in the last week  by carpet-baggers from London who imagine that Scottish voters haven’t thought about anything in a two year campaign.

With a day to go,  I’m still undecided.  The ‘yes’ campaign wins out on principles and on process.  I’ve loved the energy, intelligence and civic sense of the ‘yes’ campaign – a far cry from the way it’s painted  by people who’ve not been around to hear the arguments.   The ‘no’ campaign wins on practicality, but not on much else.

The failure of the United Kingdom

However the vote on Thursday goes, one thing seems plain:  the UK is broken.  The problems that Scotland has been complaining of have dogged the UK for decades.

The most obvious problem is remoteness –  the problem of London-centred government.   That was a problem in the 1920s and 30s, and the centralisation of the UK since World War II  has made it progressively worse.   The process began with the centralised control of services and resources that were necessary in wartime; after the war, while central government gradually (and reluctantly) relinquished control of industry and markets, it retained control of resources and services that were formerly part of local government.  With the reform of the Treasury in the 1950s, the super-ministries and the Heath government’s mania for administration and planning, the process of government became increasingly centralised.  The legacy of that approach now is a hierarchical system of control, headed by a remote political class who think that politics is about leadership when it ought to be about dialogue.

In the process, the regions – all the regions – have been left behind.  It’s not just the arrogation of control to the centre over public services; it’s been the sustained campaign to deny any part of the regions the power to borrow, to build,  to take action on behalf of their population.

That is most of the problem, and  the current government is not responsible for it; but  it has made the situation worse.  They set about imposing a model of government based on the ideological doctrines of the new right.  They pretended their policy was about financial prudence and ‘austerity’ when it was about rolling back the frontiers of the state.  They privatised the Royal Mail and legislated to privatise the the English NHS.  They directed the bulk of the cuts to the people least able to defend themselves; it is not an accident that people are relying on street begging and food banks.   And they directed a stream of poisonous propaganda at the people who were poorest and most vulnerable; a society where disabled people are spat at in the street and refugees are told to  ‘go home or face arrest’.   They set their faces against the solidarity that should have been the foremost argument for the Union.  If there can be said to be  a social compact, they’ve reneged on  it.

This will be hard to remedy.  It seems clear, though, that the UK – with or without Scotland – has to do things very differently in future.   It needs a commitment to public services, to welfare, and the promotion of personal security.  It needs to be decentralised, with economic power moving to the regions and to local areas.  And it needs a written constitution (as the Scottish campaign has promised); the unwritten rules do not safeguard the powers of local government and cannot protect the vulnerable.

Negotiating for independence

While I’m generally sceptical of most arguments about the consequences of a Yes vote, both negative and positive, Alan Trench raises a formidable point about the diffficulty of the negotiation.    The key points to be negotiated, he suggests, are

  • currency
  • the physical border
  • arrangements for the movement of persons
  • the EU
  • the National Debt
  • assets and liabilities
  • nuclear bases
  • Benefits administration, and
  • mechanisms for resolution of disputes.

That’s not the full list – others include community security, policing (are we going to have extradition proceedings?),   energy, telecoms, information sharing, the Crown Estate and air traffic.

Trench goes on to make a telling point.  The main thing that the UK wants of Scotland is simple: to remain in the UK.  Once that point is decided, Scotland doesn’t have much to bargain with.  So the negotiation will be an assymetric one, where Scotland asks for things and rUK says yea or nay.   And all Scotland really has to set against its requests  is the debt – despite what so many people are saying, it doesn’t have to accept responsibility for the debt if the UK keeps all the balancing assets, and it might yet have to walk away without either.

With good will, the negotiation could be done rapidly; but I see no reason to suppose that the good will is there.   In other cases where countries have become independent – Slovakia comes to mind –   many of the issues are unresolved years later.  That’s one of the reasons, by the way, that I’m sceptical about the arguments on consequences.  The weather will not change, Scotland will not be immediately invaded, and there won’t (with all respect to the Deutsche Bank spokesman) be a great depression.  The most likely outcome is that not much will happen, and that (as happened in Ireland) people will be moaning how little was achieved fifty years on.  That, yes or no, is what we need to avoid.

The argument on powers

The nation-state is dead, Scotland on Sunday argues in today’s editorial; the real issue now is about powers.   The choice lies, as they see it, between a position where an independent Scotland  cedes powers in a negotiation with other authorities, and one where a devolved Scotland gradually gains greater powers through devolution from the United Kingdom.

The powers currently on offer fall short, however, of the devo-max that  many people in Scotland want to see.  They fall short even of the powers that a local authority would have had a century ago.  Local authorities have lost, in the last 70-80 years, powers over social assistance, police, fire, hospitals, water, energy, public transport, and much besides – they may have some residual powers over housing, for example, but nothing like what they used to have.  One of the key powers they’ve lost, though we hardly noticed it going, is the power to borrow on the markets by issuing bonds; another is the power to create jobs.    Scotland, and much of England, need powers to regenerate local economies, to make jobs, to develop infrastructure and to build.  It’s not on offer.

I don’t see this changing with a ‘no’ vote.  The problem lies, like many problems in the UK, with the Treasury, which would have to let go, and with the neo-liberal dogma that holds to the idea, despite decades of evidence to the contrary, that government can’t create jobs and that public borrowing is always bad.  It’s not going to happen.

Independence: the curse of the White Paper

The referendum is going to be close, and relatively minor issues – like arguments about supermarket prices – may still tip the balance.  But the support for independence is lower than I thought it might be at this stage, and in part that is attributable to the White Paper, Scotland’s Future.  When the Scottish Government introduced it, they thought they were addressing one of the key problems that independence debates have faced elsewhere – the argument from uncertainty.  Pin down the position, the argument goes, and there won’t be scope to generate fear and uncertainty.  I think that was a strategic mistake, which has hampered the argument for independence, and it may still be decisive.

The central problem was that the White Paper was set in concrete.  There is a limited recognition of the need to negotiate, but many of the statements in it wall the government in.  Why would an independent country want a currency union? Why keep distinct defence forces rather than develop an integrated service?  Why commit to preserve pension entitlements as they are for most of the next century?   There are other potential issues lurking in the wings:  a restrictive timetable that must mean that Scotland loses its representation in London long before many issues are settled.

That leads to the second problem. the problem of presentation.  The Scottish Government has been determined to treat the White Paper as a manifesto, so that a vote for ‘Yes’ is treated as a mandate to enact everything in it.  The SNP’s determination to reiterate that the policy is what the White Paper says it is has hampered the supporters of independence –  none more so than Alex Salmond, whose woes in the first televised debate were almost entirely the result of trying to defend the inflexible position of the White Paper.

The third problem is a strategic one.  Much of the campaign for independence has been based on participative public engagement.  The White Paper has been the opposite: a top-down policy document now being offered for a ‘mandate’.  There was time to consult, to see which policies would fly, which needed to be modified, which needed to be dropped.  That hasn’t happened – and the albatrosses that the Yes Campaign is carrying are birds that supporters thought they’d shot a year ago.

Thinking about Devo-Max

In the rush to consider alternatives to independence, the parties at Westminster are flirting with different ideas about further devolution: further powers over taxation (probably income tax), welfare (housing benefit and attendance allowance) and borrowing.   These are being referred to as options for  “Devo-Max”; they’re not.  The clue about “Devo-Max” lies in the second part of the expression: it is supposed to be devolution to the maximum possible extent.  The powers that Scotland does not have, and which it would gain with independence, are

  • The constitution
  • Economic policy
  • Public expenditure
  • Benefits
  • International relations
  • Defence
  • Immigration and nationality
  • Access to information
  • Business law
  • Labour market law
  • Consumer protection
  • Energy
  • Transport
  • Broadcasting

Northern Ireland has (in principle) powers over transport and benefits; neither of these is likely to be devolved in full to Scotland.  Devo Max would cover pretty much everything that could be devolved, which leaves only the constitution, monetary policy, international relations and defence, and nationality.  That’s not dissimilar to the situation of the Crown Dependencies (the Channel Islands and the Isle of Man), which have their own economic policy, taxation and social provision, but (with the exception of the EU) share the UK approach to foreign policy, defence and money. That level of devolution isn’t on offer.

There’s a strong case for moving towards federalism in the UK, but federalism starts from a different place.  One of the key problems with the devolution settlement has been that powers have offered reluctantly, with restrictions, often requiring subsequent correction or special legislation.   The presumption in federalism is the opposite: power flows from the lower areas or member states, not from the top.

How Better Together has been losing the argument

The latest poll puts support independence, for the first time, above the ‘No’ vote.  I am still sceptical that this will translate into a ‘Yes’ vote overall – the polls have narrowed, but they have not turned.  It does seem clear, though, that Better Together is having the worst of it – and as things are likely to develop in the short time before the referendum, they will make things worse again.  [An example, on 10th September, is former PM John Major’s cringeworthy assertion that Scots ‘haven’t understood’ the objections to independence, after a two-year campaign.]

There are three fundamental problems with the No campaign.  The first, which at this stage they can do nothing about, is that ‘yes’ has been much better organised – mobilising people in local campaigns, getting them to sign pledges, involving them in discussion.  The second is that Better Together has been relentlessly negative; honorable exceptions Gordon Brown, Douglas Alexander and JK Rowling have tried to inject some positive arguments, but the positives have been drowned out in a sea of negativity.  At this late stage, it is still hard to find what anyone, on either side of the border, is gaining from the Union.  The third problem is that bad arguments have drowned out good ones.  There have been so many foolish claims – about Europe, immigration, currency,  defence, and so forth – that it has become hard to pick out the arguments which have any merit. In the table that follows, I’ve sketched out in general terms what I see as the main arguments.  Like the polls, they are finely balanced.

In the next few days, London-based politicians will be falling over themselves to get to Scotland and to offer views and arguments that they think people should be persuaded by.  It won’t work – if anything, it will have the opposite effect.  At this stage, people know many of the arguments.  They’ve heard enough foolishness  to know what not to take seriously  – such as George Osborne’s preposterous assertions about money or  Ed Miliband‘s inane intervention today, suggesting that independence implies a fence on the border.   What they’ve not heard is people saying that it would be good to co-operate or why it might be better to stay.

 

Good arguments for YES

(and what I see as the counter-arguments)

Good arguments for NO

(and what I see as the counter-arguments)

Self determination and accountability.

The Scottish Government wants to continue with a series of unions, e.g. in currency and defence, which will undermine self determination and locate control outwith the country.

Solidarity and mutual responsibility: the UK founded the welfare state.

The welfare cuts have undermined solidarity; the programme of ‘rolling back the state’ has undermined the welfare state.

Responsiveness to need.

The centralisation of power and functions in Holyrood (e.g. police, fire, council tax and social care) reduces local responsiveness and accountability.

 

Common physical geography: policies that need to be considered together include maritime policy, transport, energy, communications.

London has ignored issues of remoteness – and most major projects (like HS2) benefit London first.

The failure of UK government to reform and the promise of   participative constitutional development

 No answer – but the last-minute pledge from all parties, a week before the vote, from all parties to an ‘iron timetable’  suggests the force of this argument has belatedly been recognised.

Pooled resources lead to greater capacity – e.g. the BBC, the NHS (could Scotland support unusual specialisms?), financial control

No answer

Scotland needs a different economic policy from that pursued by all the main parties.

So does England.

Pooled risks – economic management is better done in a larger unit

 The UK has embraced neo-liberalism and its consequences.

Bad arguments for YES

(with counter-arguments)

Bad arguments for NO

(with counter-arguments)

The White Paper has the answers.

Any settlement must be negotiated and so all answers must be uncertain.

Uncertainty is scary.

All politics are uncertain – but what we’re sure of to date is bad policy.

The negotiating parties will all agree with the Scottish Government’s assessment of everything.

They won’t.

Scots won’t be allowed to use rUK facilities – using the pound or watching the BBC.

Special permission to do many things is not needed, and the EU guarantees many basic forms of co-operation.

Institutions like the Bank of England and the BBC are Scotland’s and will be shared.

Institutions won’t be shared, by any precedent in international law. Property assets and financial liabilities should be, but there has been no discussion of property assets.

If Scotland votes no it will get more powers.

The Treasury will keep a stranglehold – look at the fines imposed on Northern Ireland for not passing the laws that London wants them to have.

 Scots will be £1000 better off.

We don’t know – but it would still be a bad reason to change the constitution if we did.

Scotland runs a deficit.

The UK runs a bigger one.

There’ll be no working arrangements for a wide range of policies – currency, immigration, pensions, security, etc.

The UK makes these arrangements now with its neighbours – such as Ireland and the Crown Dependencies. The only reason for not doing so would be revenge.