I apologise to all those who think I have suddenly become obsessed with Scotland, but there is another story on the political economy of that country that demands comment this morning.
According to Politics Home (and others) Gordon Brown is going to intervene in the independence debate today, suggesting that instead of leaving the Union Scotland should be given additional powers. Environmental regulation, fisheries and agriculture are all mentioned, being areas that Scotland could take from the EU. He also suggests Scotland should have the right to set its own VAT rates and sign international treaties.
There are merits to these arguments. First, they say that those who campaigned to stay have moved on: the sterile and belittling arguments of 2014 are not, nexcess arise, the view this time.
Second, the environment, fisheries and agriculture are all very logical areas for Scottish control, although the £800 million he suggests come with them is clearly inadequate: the total spend on these issues is much more than the EU contribution made for them, so he seems to need to do some rethinking there.
And to recognise that Scotland could have its own VAT rate takes me right back to the debate of this week on the quality of Scottish economic data: it would, of course, only be possible for Scotland to have its own VAT rate if Scotland knew what VAT chargeable sales in Scotland were, and that would also require data on all Scottish imports and exports. Some of the key missing data to assess Scotland's real national income would then be available. I have to welcome that.
But then let's move to the problems. The first is the obvious silliness of suggesting Scotland can sign its own international treaties and then deny it is an independent country. I know the UK supposedly lets the Crown Dependencies sign tax agreements in their own names, but the reality is that we demand they do it and they are all based on OECD rules, meaning that this is pretty notional. Maybe that is what he has in mind: it could be argued Revenue Scotland might need such agreements in due course, but it's pretty patronising if that it's all it's about and to be dismissed as such: this is tokenism.
There is, however, something worse inherent in the suggestions that drives to the very heart of the debate on what an independent state is. As Brown should know, almost every tax power devolved to Scotland has been, to some extent, a poisoned chalice coming with it the challenge 'Use it if you dare'. And in almost every case a rational politician would not because to do so would be counter-productive. This is because, as I have long argued (especially in The Joy of Tax, which I know some in the SNP have read and understood) tax is only an exercise in raising revenue to balance a budget when a government does not have control of its own currency, its own borrowing and its own macroeconomic policy. When a sovereign state with its own money, in which it issues its own debt, taxes it does not do so to pay for the services it supplies because it prints (albeit electronically) its own money to do that. This has to be true: unless it prints and spends the money to pay the taxes into the economy there is no money available to pay the tax. That's a simple fact: it can't come from anywhere else. And when a state does tax to reclaim the money it has created to pay for government services it does so for six quite different reasons than paying for that spending, because it's already done that . Those reason to tax are to:
1. Reclaim the money it has spent with the primary goal of preventing inflation;
2. Ratify the value of its currency in the economy: demanding that tax be paid using the money it has created does this and would be the reason why, for example, Scotland would have no choice but use a Scottish currency if its government decided to have one because the demand that tax be paid in it would mean using sterling locally would simply not be a viable option;
3. Reorganise the economy to suit its priorities using fiscal policy;
4. Redistribute income and wealth;
5. Reprice goods and services to suit Scottish social priorties;
6. Raise democratic representation - because people who pay taxes set by a parliament vote for it.
If Brown really understood macroeconomics, money, the role of tax in nationhood (and I question that) then he would know this, which I call modern taxation theory. And because his proposal very clearly denies Scotland all these rights - which are at the core of what defines the ability of the state to reflect the mores of the society it represents by taxing to reflect those social priorities - he is still in denial about the fact that Scotland is a nation in its own right, even if he, as a token gesture, says it can sign international treaties.
Worse, Brown denies Scotland the right to control its economy.
And the right to have is own currency and so monetary policy.
And instead he leaves it little better than a glorified local council.
Now, I stress, if Scotland were to join the Euro it would voluntarily give up these rights and so negate many of the same benefits. But that's not the point here: my point is three fold.
First, Brown clearly still has a lot to learn about macroeconomics, tax and statehood.
Second, I suggest the Scots do need to be a step ahead on this. Control of this narrative is the route to independence precisely because not being able to answer these questions last time was what lost the vote.
And third, the issues need to be much more widely understood. Then we might truly end up with economic and social policy worthy of the name, as well as government in control of its fortunes, and so have worthwhile politics. Scotland could claim that prize. But not with Gordon Brown's sorry prescription.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
And of course he isn’t in politics now (not an MP) and the party he once represented isn’t in power anywhere except Wales, and is unlikely to be for a long time.
And why didn’t this go in the Smith Commission, and why didn’t he do it when he was PM.
And labour MPs voted down all such powers when put in as amendments during Smith debates.
Excellent comment. However I would also argue that one of biggest problems Scotland has is a dysfunctional financial sector – notably the banks – which since the “Big Bang” have been of considerably less benefit to Scotland’s industry than they should have been. This can be seen clearly in the oil & gas supply chain where US and Norway & others now dominate because they invested where we didn’t. Same applies to most other sectors as well of course.
Brown’s federalism provides no opportunity to change this situation and is therefore effectively pointless as it maintains one of the main obstacles to growing/broadening the economy.
I was thinking along the same lines really that there should be more devolved powers but I agree with you since you have so diligently pulled his proposals apart.
There is going to be so much bad information about the idea of Scottish independence which is shame really since the grounds for wanting it are quite sound really! My concern remains that the Scottish people will be befuddled by a lot of tosh or just plain bad information.
Thanks Richard
I’ve been trying to push these pfacts since before the first referendum!
Mr Brown does not understand macro economics. This is abundantly clear. While PM he subscribed to the conventional theory, overtly and in toto. Within those parameters he actually did quite well, despite the mainstream narrative which portrays him as severely incompetent
(selling gold is a major plank of that characterisation, for example: most people who buy into the “household budget” narrative find that unforgivable). His actions while in power were exactly what neolib economics demand and it is ironic that his rep was trashed for doing what all mainstream economists and policy makers advocated
However the real problem with Brown’s “intervention” does not lie there. Most people in Scotland do not get the reality you describe any more than people in rUK or indeed EU and US. What makes this ridiculous is that we have seen this before from him. Prior to the 2014 vote.
Then, as now, he held out promises he was in no position to deliver. To overcome that wee problem he was an architect of the infamous “Vow” signed by all three leaders of those parties which had a chance of forming the Westminster govt: so it appeared he could in fact make those promises in honesty. But it was, and was swiftly shown to be, a con.
Mr Brown also said he would personally work hard to ensure those promises were delivered after any no vote: then vanished without trace until now
Mr Brown is respected in Scotland according the the WM bubble. They consider his intervention in 2014 proof of his influence in Scotland, and it is true that at that time he was not so toxic here as in rUK. But I am not convinced his statements alone would have worked without the “vow”. They overestimate his importance then: and have failed to notice that even if they were right then, he destroyed his credibility to secure a NO vote. As with many things, they won that battle but lost the war.
Scottish independence is by no means certain to be won this time around. But Mr Brown is frankly irrelevant precisely because he has nothing new to suggest; his proposals have already been rejected, not just by Ms May but by WM as a whole every day since the last indy vote.It is obvious he has no power to do anything, even if he was right. And that is what is causing massive hilarity in Scotland this time
Hi There
Really good article but is there any chance you could fix the typos?
Thanks
Typos are a feature of this blog….and this was written in a great hurry on an iPad on a train – never good for accuracy
I also admit I find them very hard to see and I write a lot
But now I am out of a lecture in Mancehster I’ll see what I can do
Appreciate the work you’ve put into this – thanks
bravo professor
Agree, entirely with you Richard. Brown’s no doubt much heralded intervention, betrays a fundamental and wilful ignorance of the political economy of the current debate.
I wonder how it works in the USA? Any reference to the pros and cons of federalism over there?
Little real economic devolution there and what there is results in a lot of tax competition – not good
What about across Canadian provinces? And yes, thank you for these posts about Scotland. As you have pointed out, there is a lack of expertise from non-politicos in the independence debate – last time and still, at least so far…
I enjoyed this post as I learned something that I hadn’t previously appreciated, that government spending is paid for by printing money and that taxation is to reclaim that money from the people who produce goods and services (broadly).
Look forward to reading more from you.
PS can you fix the typos? As a spelling and grammar nazi it hurts to see them.
Will try – written in a hurry on the train
Send me a word version with corrections needed highlighted
Contacts are on the blog
Richard as another Grammar Nazi (and a former journalist!) I found myself too absorbed in the content to even notice typos. If it’s REALLY an issue, I’m willing to bet there’s any number of your readers who’d be willing to proof read for you!
It’s more an issue of timing: that one was written in a hurry on a train to Manchester and I got it wrong
Although I partly got it wrong by posting the penultimate draft – again a matter of haste
I admit I place more value on content than typo perfection
And why not have a sub? I admit I’m not keen to share passwords…..
Thank you for this sanity. Brown is nothing more than an elderly resident of Kirkcaldy, so it’s incredibly insulting to everyone to imagine his ‘intervention’ is anything more than a circus act. A poor one.
The man has no shame. He was the main architect of The Vow in 2014, which was to make Holyrood one of the most powerful devolved gov’t in the world. During the Smith Commission, Labour worked with Tories to give Scotland – road signs. Yes, a bit of taxation powers, but as you point out, that’s a trap.
I hope you will stay with us on this journey, and watch as once again we see insults and smears thrown with arrogance, at Scotland, who is too wee, too stupid and too poor.
I’ve already taken m y fair share of insults this week
I suspect I’m in for the duration
I thank you very much for your input and look forward to your insight going forward. Showing up the uninformed opinion from unqualified commentators used by MSM is going to be extremely important going forward.
To be pedantic GB lives in North Queensferry, and I’m not that keen on the “elderly” tag – I think he’s younger than me. In all other respects I entirely agree. Labour in Scotland is finished for the foreseeable future and are expected to lose control of most of their local authorities come May.
The one hopeful thing is that so many Unionist fibs were deployed in 2014 that can’t with any credibility be offered next time.
He’s a resident of North Queensferry actually
I would love you to be obsessed with Scotland! Your honesty and straight talking is a welcome change from all the lies and negativity that is normally published. The more people who start telling the truth about Scotland, the better.
“If Brown really understood macroeconomics” – firmly in ifs & ands/pots & pans territory I’m afraid. Mr Brown presided over one of the biggest off-balance-sheet scandals of all time (dwarfing the Enron shennanigans) – with PFI – which he thought was wonderful. The phrase odious debt springs to mind when applied to Brooons PFI disaster.
A normal person after having committed such a massive cock-up would go into a lifetime of purdah – but not Gordon – his ego prevents this & as you rightly point out comes out with more rubbish & the MSM even give space for this idiot to continue to talk more nonesense.
This is Brown trying to stop any genuine independence by fobbing the Scots off with a cosmetic, faux version. He does the Establishment’s work here, I fear, and his presence and involvement perhaps illustrates how scared they are of the potential break-up of the Union. We should obviously support it then 🙂
Given the likely trajectory of Brexit it is perfectly possible that the UK will end up with no EU deal and become a low cost tax haven with a minimal state – a neoliberal dystopia where the 1% does well with the subjects (99%) increasingly become debt slaves, with a degraded environment – a return to almost feudal conditions for the masses.
I hope I’m not being too gloomy but the Brexit negotiation is the most complex event of the past 70 years and the UK Brexit team is the least talented bunch I have ever seen at the top of Government. Ive spent a lot of my professional career working out p(0), the probability of seeing nothing. I try not to assign a probability of p(0) to the Brexit negotiations ( where this means no agreement) as I find it too depressing. I think there a faction of the Tory right who want a complete break with the EU and will torpedo any reasonable deal aided and abetted by the vile right wing press and soon augmented by a UK version of Fox News and Breitbart.
Another way is of course possible and the Scots may deliver it. A form of positive nationalism.
Any regular reader of these comments will realise I’m Irish. There is almost zero support for rejoining the UK. Ireland is not a perfect country by any means and we will have our own Brexit problems. It does however aspire to high ideals: “The Republic guarantees religious and civil liberty, equal rights and equal opportunities to all its citizens, and declares its resolve to pursue the happiness and prosperity of the whole nation and of all its parts, cherishing all of the children of the nation equally…”
Of course it has not always succeeded but the trajectory had in general been positive. In 2008 for example the country had a banking crisis (much worse than that of the UK) but is now growing strongly with a trend growth rate of about 5%. In the UK recovery looks like a mirage receding further into the desert when there is some hope.
My message to the Scots is go for it and could you perhaps extend the border down to Hadrian’s wall (I live north of it in Northumberland).
One of the voices of economic reason told me Scotland has no hope this morning in Mancehster. The data showed it, she said
Our conversation was cool
The inability of those who think they can read data without awareness of context or the human condition always baffles me
My experience is that many people are blinded by mathematics and statistics
It can be difficult to see the wood for the trees. I’ve seen this too often with my students and even some of my colleagues
I hypothesise that Economicists are particularly vulnerable. It’s easier for in Physics
No matter how beautiful the theory it has to agree with reality.
Indeed a good theory is something with predictive power, if one does a particular experiment
One will get a previously unexpected result.
Not always possible but at least one needs to understand the limitations of data.
N
Once you understand that the Neo-Liberal ideology of pursuing Expansionary Austerity is an attempt to get back to feudalism and the authoritarian power of “rent-seeking” war lords (now “rent-seeking” bankers and big corporation CEO’s) by denying the people the right to create their own public money and control the terms of their global trading arrangements the mists clear!
Please, Mr. Murphy, come to Scotland, stand for the Scottish Parliament, and take the Finance Minister’s job. Not that he’s bad, but you’re better!
My job is as a thinker
But I’m always happy to talk
And I will be in Scotland this year….
Your arguments concerning money are spot on Richard but there seems to be huge ignorance out there amongst the electorate and the politicians that exercising a healthy democracy depends upon understanding what money is and how it best works. The British economy has trod water (under-performed) because since the early 1970’s Conservative, Labour and LibDem parties have pursued the irrational Expansionary Austerity policies of Austrian economists such as Eucken, Ropke, Hayek and Friedman who influenced the “win-lose” OrdoLiberal policies of Germany. Irrational not least because the Germans refuse to accept that running a trade surplus requires other countries to run a trade deficit. This refusal enables them to turn their backs on helping other countries like Greece to win-win solutions. I think OrdoLiberalism like Neo-Liberalism is in the end an ideology that most benefits greedy bankers.
http://michael-hudson.com/2017/03/why-deficits-hurt-banking-profits/
Unwinding the UK from the EU will be difficult enough – especially with a triggering of Article 50 just a couple of months before elections in the two largest EU economies. Then unwinding the UK itself at the same time or just after – and all the time with the side order of permanent austerity. Who could fail to be delighted by the firm steady hand of our Conservative government?
Even the ‘Spectator’ doesn’t think much of it:
https://blogs.spectator.co.uk/2017/03/beware-cult-brexit/#
And of course without our own independent currency to put into ERM II and be stable in it for at least 2 years we cannot join the Euro. Which is why the SNP government repeatedly and flatly rules out joining it as an option.
I’m one of those who backs pegging our currency to the Euro rather than Sterling, both to smooth trade, services and tourism with the rest of the EU and because when Brexit happens, we become Independent and remove our economy, our exports and of course the oil from the Sterling zone then sterling will become, um, volatile. The sharks will be circling and the Portugal situation comes up, except with an independent currency.
Without commenting on the rest of the blog, a point on the £800m figure for the devolution of agriculture, the environment and fisheries: Brown is talking about powers which are already devolved in domestic UK law. It’s just that EU competence applies, and so devolved policy operates within those constraints. As a result, non-EU funding would surely come under the block grant to Scotland at present, which I would think means he’s right to zero in on the EU funding angle – the rest is already with Holyrood.
On international treaties, without commenting on the rights and wrongs of the idea in a UK context, Belgium does in fact have an established principle that treaties may (depending on whose competencies are engaged) by concluded by the Communities and Regions, the Federal level or jointly.
You ARE aware, Richard, that by taking this stance with your reasonable level headed thinking, logic, honesty, and integrity that you’ve just missed your opportunity of a Knighthood for services to her majesties purse?
Just think, you too could have been found snoring at the back of the HoL having spent a thrilling afternoon mixing up with inspiring Lords n Ladies such as Faulkner, Liddle and Michelle Mone?… Er…. on the other hand.
I have been offered it once – by John McDonnell
I didn’t want it then and don’t care if it does not happen again
Laughed out loud at the first sentence
Applause for the second!
I think Gordon Brown the ex chancellor understands macro economics fine, but being staunch British his job is to keep Scotland down, its a common trait we see often in Scotland. You Richard Brown are an asset please feel free to keep up the good work 🙂
This was the man who presided over the closure of the Bradford and Bingley which was capitalised but “insolvent” whilst supporting the Scottish Banks with UK taxpayers money to the tune of 65 billion. I suppose they would borrow from the Bank of Scotland.
Sorry I called you Richard Brown, my mistake, perhaps you could make an edit 🙂
Quakers don’t believe in titles – even Mr or Mrs, but perhaps Professor…
The don’t, you’re right
But it’s darned hard to avoid them
Patronising sums it up Richard. Gordon Brown’s connection with Scotland is such that, in an interview on ABC News, he referred to himself as coming from ‘North Britain’.
His object is to distract Scots away from the notion of independence by offering Something Shiny. He made similar promises during indyref Sept 2014 which pretty much evaporated as soon as the no vote came through.
I wouldn’t like to guess whether or not he has any real understanding of the economics (not my subject) but at the end of the day it isn’t the point. He is there to throw up a smoke screen. I hope the voters that fell for it last time will be wiser this.
I’m glad you found it necessary to comment.
Richard,
All your comments about federalism not giving full economic leverage are true. But a real issue for Scottish voters is that the SNP are still not detailing what their economic strategy for independence will be. In interviews with some of their prominent figures recently, no answer on what currency will be used was given. In my opinion, to adopt the Euro would be a disaster, paving the way for draconian austerity measures. That’s assuming Scotland get back into the EU as the SNP say they want to do.
Michael
Got to this debate somewhat late since trying to have a normal life but whilst I have some sympathy with Richard’s position re GERS there is some pretty clear evidence that Scotland runs a deficit in relation to its tax revenues as against the volume of public expenditure. Actually there does seem to be some clear data on Income Tax since the SNP government in explaining why it did not introduce a 50P rate was able to give quite specific figures on the numbers of tax payers by band in Scotland and I can see how these can easily have been extracted from a data base and not from estimates. Richard was of course right about the booking of NI and VAT (and other indirect consumption tax) data but we do need to look at the underlying reality of the Scottish Economy i.e. as a post-industrial industrial society itself affected by the virulent disease of financialization and in Edinburgh at least of increases in asset prices with no addition to the real use value of the assets – the associated disease of property valuation inflation. There is good evidence that Scotland has done well out of the Barnett formula in contrast to much of the rest of the post-industrial UK, especially the North of England, with most of the benefits going to the upper half of the income distribution. However, the key point is that a deindustrialized economy with a flexible low wage labour market is not delivering the revenues necessary for the maintenance of a social democratic welfare state and Oil Revenues do not look in the least likely to solve this problem. The Scottish Greens by the way have to look hard at what they want since their obvious commitment should be to leaving what Oil there is left where it is. Brown should be regarded as irrelevant to any debate on fiscal policy. This is the man who thought PFI was a good idea but the big issue is the lack of any mainstream political party addressing the problems for maintaining a welfare state in a deindustrialized economy and Scotland is that in spades.
David
I fear the income tax data was likely to have been as illusory as the rest – until very recently it seems very likely that Revenue Scotland had very poor data on who might be resident in Scotland – I strongly expect this was an extrapolation
I am not for a minute saying Scotland is necessarily in a better position than GERS implies: I am saying we can’t be sure and that this is not an indication of what might happen. My argument is that the data should be improved whatever happens on independence
Good to hear from you
Richard