Economics of Independence Scotland's Economy

Westminster driven poverty damages Scotland’s economy

Written by Jo Edwards

By Jo Edwards, freelance contributor

Poverty in Scotland

Poverty in Scotland

In times of economic hardship history has continually shown us that people become discontent and angry, first they look to blame politicians and then the politicians look for minority groups to blame to be the media scapegoat.

At the moment one of the key groups being targeted by the Westminster Government are the poor and people who rely on the state. As a result, instead of having the means to understand and react to the fundamental cause of the problem of poverty, we instead have a culture of directing media hatred towards the poor and disadvantaged. What questions does this raise for Scotland’s business community and those who desire a prosperous, independent Scotland?

Firstly, what should be causing alarm is the disproportionality of Westminster’s austerity measures. Scotland’s disabled population in particular sees itself as bearing the brunt of a bedroom tax that is driven by rising property prices and private rents in London and the South East. Scotland’s housing market and stock is different with much lower social rents; yet a singular policy has been imposed across the UK.

There are of course instances of benefit fraud. That is wrong. But what impact do those limited cases really have on the UK economy when compared to the problems cased by Westminster politicians failure to properly regulate the banks or build an economic strategy without a heavy reliance on unsustainable property and stock bubbles in the first instance?

The context of welfare spending is important. The UK government estimates that for 2012, benefits and tax credit fraud was just under £1.6bn. That is a lot of money but is less than 1% of the overall benefits and tax credits expenditure. Whereas a staggering £69.9bn is lost on a yearly basis in what the Tax Justice Network calls the “shadow economy”– a mixture of tax evasion and tax avoidance.  That figure, they point out, “represents 56% of the country’s total healthcare spend”. And who conducts the tax fraud? It is not those suffering under the crippling economic slow down, its not Scotland SME business owners and employers who make up the vast majority of the Scottish Business community (and the majority of the Business for Scotland membership). It is the large corporations given free reign by the UK government even though it is drowning in debt. You could argue in corporation tax terms the UK itself now has a reputation of being a tax haven.

Meanwhile some 40% of those living in poverty in Scotland are in work – a figure that has risen substantially in recent years in comparison to the rest of the UK. (Oxfam ‘Our Economy’ Report) This flies in the face of the media coined ‘shirkers’ and ‘skivers’. The Institute of Fiscal Studies states that overall pay cuts have been unprecedented under a Westminster government, amounting to a total pay cut for Scotland of 9.7%.

Benefits have to cover this shortfall, and even by the Government’s own studies, it is estimated that the 1% cap on benefits uprating will force an extra 200,000 children into poverty by 2015/16. And this month, a CPPR Report says that on current projections the budget in 2016 and 2017 will be cut by almost £1bn pounds, with most of this falling on social services. Those suffering, and who stand to keep suffering under austerity, certainly aren’t the ones to blame. UK benefits policy certainly isn’t working for Scotland, yet Benefits Policy remains stubbornly reserved to Westminster.

We have all heard Scotland being given the sick man of Europe tag. In fact with the lowest life expectancy in western Europe, Scotland has been in the grip of a public health crisis for decades now. A 2007 report by the Medical Research Council (MRC) directly correlates economic hardship and such health problems, stating that if social and economic conditions improved, many of Scotland’s health issues would in-fact disappear. The research also found that poor health and lifestyle were of considerably higher instance among people with low education levels, middle-aged men, and women out of work or in low-skilled jobs. And since then the situation in Scotland has got a whole lot worse.

So what has all this got to do with business?

The best way to grow your economy is to make sure that a higher percentage of people are economically active. Social problems and social costs, ill health and diminishing skills are all linked to poverty and poverty in an established economy is driven by unfair distribution of wealth.

For the last 30 years, Scotland has generated more tax revenues per head for the UK treasury than the rest of the UK. Figures taken from the Government Expenditure and Revenue report Scotland (GERS) 2011-12 states that despite Scotland generating 9.9% of the UK’s tax revenue it received only 9.3% of spending. The difference is sucked into Westminster, last year amounting to £4.4bn.

During generations of de-industrialisation in the UK we were told there was no alternative. Meanwhile Germany took a different path and focussed on SME manufacturing and improved productivity. For Scotland this decision left previously heavily industrialised areas short of economically active adults and that has slowed our economy down.

In GDP growth, Scotland has been under performing relative to the UK average and relative to other EU countries of similar size since at least 1963. The data showed that, over the period 1963 to 2011, in real terms, UK GDP increased by 329.3%, while Scottish GDP increased by 263%. In terms of average growth rates per annum, that for the UK was 2.514%, while that for Scotland was 2.04%: an average annual difference of 0.5%. Had Scotland’s GDP grown at the same rate as the average of the UK since 1963, Scotland’s GDP would be 25% larger than it is today.

Businesses don’t start global they start local and grow. How do you build a big business when 25% of your economy is missing? How do you grow faster than your London based competitor when your local market is low waged, low skilled and highly unemployed?

Stiglitz

Professor Joseph Stiglitz

Conclusion

We hope that the Scottish business community can build the foundations of a new economic model for Scotland. As Nobel Economist Professor Joseph Stiglitz has argued;

“A concentration of income and a weak social system restricts the potential of people to contribute productively to the economy.  If Scotland is to unleash its economic potential then it must take control of taxation and spending powers. That opportunity rests on September 18th 2014”.

Alternatively, there is a bleak future for Scotland a country that has consistently generated more revenue and created less debt than its UK neighbours. A country that continues to be ruled by a government it did not vote for, and a country that continues to suffer economically, socially, culturally, and environmentally from a lack of localised decision making.

One thing I know for sure though is that I like many in Scotland will not be hoodwinked into not knowing who to blame, and that blame falls at Westminster’s detached economic indifference to Scotland.

 

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About the author

Jo Edwards

Jo was born in Edinburgh and studied in Aberdeen for nearly ten years, returning home last year with a Masters in Corporate Communications and Public Affairs. Having been brought up in a campaigning background, she became politically and socially aware from a young age. With an academic history in marketing, philosophy, media discourse, and the role the media plays within our society - Jo began writing, taking up her first position with the Scottish Times. Since then she has never looked back, and alongside her day job in marketing, Jo continues to write in areas such as the economy, social issues and Scottish independence.

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