My paper criticises recent work by Scottish Government economists in the Office of the Chief Economic Adviser (OCEA), which purports to show that increased productivity, investment and exports will raise the growth of the Scottish economy and generate more tax revenues.
That is unexceptional.
However, the March 3rd paper, which accompanied the Government’s new Economic Strategy, has the implicit sub text that the new strategy will raise the rate of growth of productivity etc. The March 3rd paper is careful to say that it is ‘illustrative’ but nowhere does the paper mention the difficulties of getting an effective growth policy, something that has eluded governments for years.
It is the March 9th paper, which I find most troubling. This is essentially the March 3rd paper with anther scenario added to the analysis contained in that paper which is branded the first scenario and called the Smith Commission Scenario. The second scenario is branded the Full Revenue Retention Scenario.
What I find particularly troubling with both scenarios is that they ignore the partial or complete loss of Barnett that would have to occur before either scenario could be implemented. The second scenario is simply full fiscal autonomy (FFA) in different words and so would only follow after the loss of Barnett.
In the Scotland on Sunday news story the Scottish Government responds with:
“Going forward, these figures illustrate once again the need for the Scottish Government to have full control of job-creating powers.”
I suspect what they mean with the phrase "Going forward" is that from an initial equilibrium state increased growth would generate more tax revenues for Scotland if Scotland had FFA.
But this is the wrong counterfactual.
The correct counterfactual must be taken into account, which is that in each period future public spending will be lower in Scotland because of the loss of Barnett. The counterfactual used in the OCEA model and in the quote above is that baseline public spending is unchanged. This would only be the correct counterfactual after FFA had been implemented and after the loss of Barnett.
However, given that we currently benefit from Barnett, to undertake an analysis which does not acknowledge this loss is partial at best and dishonest at worst.
I fear that this is a further example of the politicisation of the Scottish civil service. One would have expected in the past that the OCEA would have resisted pressure, had it occurred, to produce such a partial analysis.
This is an issue that clearly needs further discussion and debate.