Economics of Independence ScotRef Westminster Mismanagement

Evidence is clear Scotland is worse off within the Union

UK Treasury claims of £1,400 worse off independent, ITV News

UK Treasury claims of £1,400 worse off independent, ITV News

Westminster has not only broken its vows of substantial more powers for Scotland within the union, the evidence is clear that promises of Scottish families being better off in the UK are also unravelling.

The “worse off with independence” claims were a project fear speciality but they have not matched up to reality.  Last year the Treasury claimed we would be £1,400 worse off independent and Gordon Brown, a little less cataclysmic, claimed every household would be £450 worse off. As the Yes surge made the vote too close to call most observers believe that the No campaign won narrowly based on the combination of claiming people would be worse off, unmet promises of more powers and a bevy of big business friends of David Cameron claiming prices would go up.

Now a year later Labour supporting union Unison is claiming Westminster cuts will mean that 200,000 households across Scotland including 30,000 in Glasgow, will lose out under the Conservative’s tax credit cuts. Unison claims that 40 per cent of working families with dependent children could find themselves as much as £3,000 a year worse off when welfare reforms come into place in April 2016 just weeks after what would have been Scotland’s independence day. Frank Field, the veteran Labour MP who chairs the Commons Work and Pensions Committee has claimed that “Just before Christmas 3.2 million UK low paid workers will receive a letter from the Chancellor telling them he intends to cut their wage packets on average by £1,350 a year”.

So parents in Scotland with two children, and by my calculations approximately five hundred thousand low paid workers in Scotland, will be roughly £1,400 a year worse off and not £1,400 better off as claimed by Better Together. This is due to Westminster welfare reforms that wouldn’t have applied in an independent Scotland.

You might argue that Labour and Unison supported a No vote hoping for a Labour majority in Westminster but that argument would have more gravitas if Labour had bothered to vote against the welfare reforms they are now complaining about. For that matter new shadow Chancellor John McDonnell has pledged to support the Tory’s ‘budget responsibility’ charter – which commits to wiping out the deficit by 2020 – despite campaigning against spending cuts.  They say their cuts will have less of an effect on lower earners and that they will go after big business instead.  there are already signs that Labour’s more centralist supporters (the majority of voters not members) and their friends and donors in big business are defecting en masse to the Conservatives.

Sir Ian Cheshire and Johann Lamont, stating price rises in Scotland post independence

Sir Ian Cheshire and Johann Lamont, stating price rises in Scotland post independence

One former Labour big business No campaign collaborator was Sir Ian Cheshire the former CEO of B&Q, one of those rolled out to claim that retail prices would go up in an independent Scotland, this week launched an attack on the plan to increase the minimum wage. Cheshire wants the Living Wage promise reviewed after 2 years and the No Campaign’s Tory business club the CBI also attacked the Conservatives’ plans saying that paying a fairer wage will hit profits and jobs. Cheshire also claimed rising costs would happen in an independent Scotland due to uncertainty as to whether we would remain within the EU – which if this was in any way accurate, he would have voiced the same concerns about the EU referendum and possible exit but I can’t find any such comment?  This essentially means that Sir Ian who claimed we would be better off within the union is now campaigning to make people worse off within the union. This is a problem for the Conservatives as their argument is that the welfare cuts are balanced out by the increased wages but not only does this claim not stand up to scrutiny, the party’s big business backers are up in arms about the Conservatives faux Living Wage.

The Living Wage Foundation, campaigning for the living wage across the UK

The Living Wage Foundation, campaigning for the living wage across the UK

The real Living Wage as defined by the Living Wage Foundation is £7.85 per hour throughout the UK and £9.15 in London and represented the hourly wage people need to earn to live a basic life without falling into debt.  The minimum wage will rise from £6.70 to £7.20 an hour (admittedly an improvement) but still will exclude under 25’s who make up the bulk of the people on the current minimum wage and they are also one of the hardest hit sections of society by the cuts in housing benefits.

Now for sure the deficit needs to come down and over time the national debt as well. The Tories want to cut benefits and claim people won’t be worse off due to their faux Living Wage but that’s not true. Labour say they would match the Tories’ deficit reduction targets by getting more tax from big business. However both sides are claiming they will tackle big business tax avoidance, and Labour look likely to be carping from the side lines for a generation. The more sensible path is to increase wages to a real Living Wage over a period of time.

Higher pay means less people will qualify for benefits and the welfare bill will fall.  As more and more people earn more they will become more economically active, pay more taxes and boost the retail and service sector safeguarding and even creating new jobs. There are 414,000 low paid workers in Scotland earning less than the Living Wage. In many cases they work for big multinationals in retail and hospitality and as they don’t earn enough to live on most qualify for welfare payments. Housing benefit, Working Tax Credits, Child Tax Credits and Child Benefit mean that the tax payer is subsiding wages so that businesses don’t have to pay a fair wage.  These welfare payments to low paid workers amount to between £800 and £850 million pounds a year from Scotland’s budget alone. The extra Income Tax generated and National Insurance contributions from the increased wages would also generate between £220 to £250 million of additional revenue for Scotland. This means that, even before the economic stimulus effect from higher consumer spending, subsidising mostly big businesses so they don’t have to pay a fair is costing Scotland £1 billion a year.

Last year Better Together said that people would benefit from staying in the UK by £1,400 per person and some of the same people are now saying we will be £1,400 worse off. Apparently a year is a long time in politics.

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About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland Gordon ran a business strategy and social media, sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and Believe in Scotland.

1 Comment

  • £1400 better off by staying in the UK, now £1400 worst off based on the status quo. Does this not make us £2800 worst off based on original propaganda?

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