Why Scottish independence? Humza Yousaf promises the answers

The SNP cannot avoid awkward questions about borders and currency now the defacto referendum is dumped (sort of).

Humza Yousaf’s leadership rival, Kate Forbes, did not attend the 89^th SNP conference in Aberdeen this week. Otherwise engaged in the USA apparently. But she was there in spirit if not in body. Humza Yousaf has clearly been listening to her low tax, pro-growth criticisms of SNP economic policy, and her questioning of the coalition with Scottish Green Party. Humza Yousaf has also, I suspect, been listening to his astute new media guru, Kevin Pringle, a veteran of the ground-braking administrations of the SNP’s first First Minister, Alex Salmond, in the noughties.

Humza Yousaf had been teasing us for months about “progressive taxation” and musing about a new tax band on those earning over £75,000 a year. We heard nothing about this in his conference speech, his first as SNP leader. Instead he has gone back to Salmond’s policy, circa 2007, and announced a restoration of the infamous council tax freeze.

This moratorium on local tax increases was only lifted couple of years ago. It has been blamed for a crisis in local services: everything from cuts to social care, library and leisure centre closures, to potholes in the roads. Local government has indeed been starved of funds in the past. The Institute for Fiscal Studies reported recently that even with a 5% increase in council tax, Scottish councils would have to make deep cuts in future. So what happens now?

The Scottish Green Party finance spokesman, Ross Greer, was furious. “We are concerned about the effect this freeze could have”, he said, “on already-strained frontline public services." This is a regressive move, Greer insisted, echoing the STUC’s Roz Foyer and the view of many in Cosla, the body that represents Scottish local government. So much for Humza Yousaf’s Verity House agreement last June, they said, under which the Scottish Government is supposed to cooperate with Scottish councils. They weren’t even informed about the move in advance of the leader’s speech.

But the council tax freeze wasn’t the only policy the Scottish Greens might find uncongenial. The First Minister also announced that for the first time the Scottish Government would later this year start issuing bonds to raise funds on the international money markets. It would, he said, show that the SNP are serious about financial responsibility. This will “bring Scotland to the attention of investors across the world” said the FM, “as a place where investment returns can be made”.

However, the risk in opening Scotland to the “spivs and speculators” of financial capitalism, as the left might put it, is that you become dependent on investors continuing to underwrite Scottish debt. The debt rating agencies, like Moodys and Standard and Poors, will start issuing verdicts on the soundness of Scottish bonds. If Scottish credit is not trusted, because of irresponsible fiscal conduct, investors could start charging higher interest payments on Scottish debt. This is what happened to Liz Truss after her mini budget. The money men just didn’t believe her unfunded tax cuts and spending plans. It caused a knock on crisis in UK pension funds and a spike in the cost of servicing the UK national debt.

It is unlikely that, in the near future at least, Scotland will be issuing bonds in sufficient volume to pose a threat to Scottish financial stability. Anyway, as things stand, Scottish debt will be underwritten by the UK government, because largely finances spending in Scotland. Nevertheless, for the first time Scottish debt will start being traded as securities on the international money markets. This is a significant step and could be a move towards preparing for an independent Scottish currency.

But issuing bonds requires financial discipline and it is not clear that the Scottish government is quite ready for that. The SNP has always relied retail politics to win elections: free tuition fees, free personal care, free prescriptions. Alone of the major parties, the SNP still living in a world of cheap money, believing that Scotland can emulate the public spending of countries like Norway without raising taxes to Scandinavian levels. Labour under Keir Starmer is making fetish of fiscal discipline and the “Iron” Shadow Chancellor, Rachel Reid, is sounding almost Thatcherite about only spending what you can afford.

By contrast, Humza Yousaf’s speech was replete with crowd-pleasing spending announcements. In the space of 45 minutes he added nearly a billion of unfunded commitments to the Scottish budget: £500m for offshore supply-chain investment, £300m to reduce hospital waiting lists, £100m for the arts. Also money for reviving Scottish city centres, helping victims of domestic violence and making Scotland a haven for Palestinian refugees. Where will he find the cash when we already know the devolved Scottish budget is overdrawn by £1bn this year? Humza Yousaf has to find the money for his more generous pay deals to public sector workers in Scotland: teachers, doctors, nurses.

In the past, the Scottish government has always relied on its flexible friend, the Barnett Formula: the fiscal transfers from the UK exchequer. But that is becoming less easy since Scotland acquired is own powers to raise income tax and even create new taxes. In many ways this is a good thing. If Scotland is to become independent, then it will have to learn to live within its means. Say goodbye to the magic money tree. But can the Scottish National Party level with Scottish voters about what independence will mean for the Scottish economy?

Humza Yousaf told conference that it is time for the SNP to “concentrate on the WHY of independence, not just the HOW”. He says that the party must stop bickering about process and defacto referendums and show voters how they will enjoy “higher living standards” by leaving the UK. This will require heroic powers of persuasion. Scotland’s notional deficit - the difference between what is spent and what is raised in taxation - is currently around £19 billion or 9% of GDP. An independent Scotland would begin life with severe public spending restraint and/or tax increases, as the SNP’s own Sustainable Growth Commission Report admitted in 2018. A land of milk and honey it may well be in the long term - Yousaf is right to say that with this nation’s many assets, not least in energy, there is no reason why Scotland could not become a prosperous small European country like Norway or Denmark. But the problem is always getting from here to there. Leaving the UK and rejoin the EU is a hard road any way you look at it.

Indeed, one of the reasons Nicola Sturgeon resorted to the constitutional theatre of Section 30 Orders, Supreme Court actions, defacto referendums and the rest was precisely to avoid having to remake the case for independence following the shock of Brexit. After the UK left the EU, everything changed. Unlike in 2014, independence for Scotland now means erecting a hard border with her biggest trading partner, setting up an independent currency and negotiating a re-entry into the European Union. It will also mean doing without financial transfers from the UK under the Barnett Formula and taking on the burden of paying Scottish pensions.

These have always been problematic issues for the independence movement. But in 2014, they seemed more than manageable. After all, Scotland and England would, everyone assumed, be remaining jointly in the European single market. That meant there need be no regulatory or customs border between Scotland and England and that the countries could plausibly remain in a currency union. The 2014 independence prospectus was for an advanced form of federalism in which Scotland would achieve autonomy within a new United Kingdom. The project of today is looking more like the pure independence or separatism of the SNP back in the 1980s before it adopted the slogan of independence in Europe.

Humza Yousaf said that Brexit is now one of the most important “whys” of independence. Scotland needs to leave the UK to rejoin the European Union. But that would take five to ten years and is not a consensus view even in the Scottish National Party. Many like the former SNP MP, George Kerevan, are highly sceptical about the SNP’s “slavish” support for European Union and fear Scotland might become even more “dominated by foreign capital” if it rejoined.

But credit where it is due. Humza Yousaf has united his party, at least for now, in abandoning his predecessors defacto referendum, even if he appears to have replaced it with another phoney plebiscite. The new policy is that a majority of seats at the next election will he a mandate for the SNP to “begin immediate negotiations with the UK Government to give democratic effect to Scotland becoming an independent country”. That seems only marginally less delusional than Nicola Sturgeon’s idea of basing the demand for negotiations on a majority of votes. No matter how you calculate it, the UK government will simply say no, and likely claim that the SNP has lost its proxy plebiscite.

If Yousaf is serious about addressing the economic case for independence, and answering questions about borders and the putative Scottish currency, then that will be a genuine advance on the obfuscation of the past. However, if he is to be honest with Scottish voters he will have to speak to the realities of independence post Brexit not the comforting, pastel-coloured

dream.