Miserable in our own way? Poverty, Exclusion, Inequality and the Scottish Independence Debate
It’s decision time, folks, as the Scottish Independence Referendum ‘campaign’ enters the last month of its long (3-4 year), wearisome/energising (delete as appropriate) course.
A large proportion of those who will vote ‘yes’ in September have long held that opinion, bound up with their sense of identity, history or whatever, and will not have changed their mind as a result of the campaigning and debating. However, there is another group, who appear to have decided to vote ‘yes’, or seriously considered it, for whom a different set of arguments and considerations seem to be important. The key issue for this group appears to be their perception of the current state and future prospects for ‘the welfare state’. They are people who, whatever their particular political shading, are concerned about poverty and inequality in society and wanting to promote a society which is more inclusive, more caring, more public-spirited, and more equal. Looking at the current policies emanating from the Coalition Government in London – austerity, drastic cuts in local services, welfare cuts and reforms, privatisation initiatives around NHS and schools – , not to mention the media treatment of issues such as working age welfare recipients or immigration, such people tend to recoil and, understandably, reflect on whether it might be better for Scotland to distance itself from this by separating.
What I want to argue here is that this reaction, while understandable, is certainly questionable and may be mistaken. As will be obvious, this is an opinion piece, and I do not disguise my general standpoint of regarding Scotland and the Rest of the UK as being ‘better together’.
With regard to the poverty and welfare aspect, there are five main planks to my argument:
- Scotland is not as poor and disadvantaged as its mythology suggests and is doing quite well in general, although not in all respects, under the current regime
- Independence is, to say the least, risky and problematic for its economy and fiscal situation in the short-medium term, which will not help with tackling poverty or improving welfare provision
- The biggest challenges faced in a globalised world, including environmental degradation and unregulated/untaxed mobile capital, can only be tackled by concerted action involving large main players (UK+EU+US)
- The wish to see Scotland as a Scandinavian-style social democracy does not mean that this is what will result politically from independence
- Greater devolution is a certain outcome of a ‘no’ vote, and this can include elements of the administration of welfare which have been particularly contentious, while retaining the equalising and risk-sharing properties of the ‘social union’
If Scotland were performing particularly badly, on the poverty/exclusion/inequality front, then it would be more understandable to go for separation on the grounds of having ‘nothing to lose’ or ‘it couldn’t get any worse’. However, contrary to a perhaps widespread mythology, Scotland is actually doing rather better than other parts of the UK, and better than its own past record, in a number of respects. Evidence for this is found within the findings of the largest-ever UK Survey of Poverty and Social Exclusion (PSE), funded by the ESRC and being discussed at a special day conference in Edinburgh this week [Ref1]. For example, the PSE poverty rate for adults and children in 2012 was 18% in Scotland vs. 22% in Rest of UK; for working adults the rates are 13% in Scotland vs 17% in RoUK. Also just published is the Scottish Government’s annual report [Ref2] on how it is doing in terms of Child Poverty Act targets and updating its strategy. This shows the headline relative poverty measure (below 60% of median net income, adjusted for household composition) has fallen from 28% in 1998 to 19% in 2012, while the combined ‘material deprivation and low income’ measure has fallen from 17% in 2004 to 11% in 2012.
What about other dimensions of social exclusion – how is Scotland doing on these? In the PSE study we developed measures covering 12 dimensions of possible social exclusion or disadvantage, going beyond basic income/economic deprivation, including services, social resources, employment, social participation, civic participation, health & wellbeing, education & culture housing and neighbourhoods, crime and harm. Of these 12 domains, four were cases where Scotland was significantly better than Rest of UK (economic, social, housing, crime), while for the remaining eight any differences were not significant, statistically. This result may seem surprising, and even counter to some other evidence, for example in the case of health (PSE data are self-reported, whereas some Scottish health indicators are based on ‘objective’ mortality data). But perhaps it should also give pause for thought; perhaps Scotland really is doing rather better in these matters. Certainly reading the recent Annual Report (Ref2] you get an impression of a devolved government which takes its responsibilities and aspirations in this area seriously, not least by subjecting them to measurement and monitoring through its ‘Performance Framework’.
With regard to Plank 2, the economic and fiscal arguments around independence have run pretty hot since the spring of this year, particularly once the currency issue became the focus. I would not attempt to add any original analysis of the Scottish economy to the existing debate, but simply point to a couple of relatively well-informed and objective reviews, the book by McCrone [Ref 3] and the recent special collection from the Scottish Economic Society [Ref 4]. My take on the core issue here is that ‘full’ independence (including own currency) is a risky option for Scotland, difficult to set up and establish and potentially volatile; while the ‘safe’ option of full currency union may not be negotiable and must be regarded as ‘independence lite’, as Scotland would be tied to UK-determined fiscal balance, monetary policy and banking regulation. Some of the downside economic consequences of independence (e.g. loss of financial services industry, university research and spinoffs) are more predictable/likely than some of the upside aspirations. Majority opinion among both economists and business leaders seems to be against independence. This is relevant because, as was evidenced by some of the presentations at a recent special conference on the PSE study findings for Scotland [see Ref1], improvement in poverty and exclusion outcomes results in part from improvements in the economy and the labour market.
The third plank of my argument is essentially that size does matter in a globalised world. For governments to achieve anything, in spheres where decision-making and its consequences flow readily across borders, they have to either be very large players, or work in concert with other fairly large players. Doyen of British social science Anthony Giddens spoke eloquently in the current Edinburgh Book Festival about the importance of working through Europe/EU on these issues [Ref5]. Leaving aside the obvious area of security, I would say two massively important areas requiring a global response are environmental degradation and the unregulated/untaxed movements and concentrations of capital. The excellent exposes of Nicholas Shaxson [Ref6] on tax havens and the major critiques of runaway economic inequality from Stiglitz (Ref7), Piketty (Ref8), Galbraith (Ref9) and others, even including more measured critiques from bodies like IMF/OECD (Ref10), previous standard-bearers for globalisation, all underline the critical need to tackle this issue. You cannot reverse the runaway inequality of recent years without robust progressive taxation, international tax transparency, and the substantial curbing of tax haven advantages. Scotland alone would be an insignificant player in these arenas. UK is big enough to have a lot of influence in Europe, if it plays its cards right. Also, UK is a peculiarly big player in the particular problematic issue of tax havens – probably a majority of the world’s tax havens are UK Dependencies and closely tied to the City of London. In my view, if UK decided to work collaboratively with EU and USA, who are both already minded to tackle the issue, much of the worst excesses of these ‘Treasure Islands’ [Ref6] could be curbed.
Could Scotland be more like Scandinavia (Plank 4)? Well, yes, it could be, to some extent; but this does depend on economic resources, culture, and ultimately the critical ingredient of political will. In the short term, Scotland will almost certainly inherit a fiscal deficit and will not be able to expand social provision significantly without raising mainstream taxes. In the longer term, Scotland might get lucky in terms of oil revenues and new strands of economic growth, but any funds from good years in the oil market would be better invested in a longer term fund than spent immediately. The key question is, do Scotland’s likely governing parties have the political will to raise taxation? The evidence is not encouraging. The SNP’s main bright idea to promote economic investment is to reduce the rate of corporation tax; it is also keen to cut airline passenger duty (not exactly environmentally pukka). It is hard to believe that they would raise the higher rates of income tax, given that similar arguments will be deployed in this case as with corporation tax (the need to attract ‘entrepreneurs’, ‘investors’, ‘talented individuals’, etc.); they could well do the opposite. There is a general name for this kind of approach to national (or regional) economic development: it is called ‘The Race to the Bottom’. It is the approach exemplified by Ireland, much admired by the SNP leadership prior to the 2008 crash; it is also popular in some countries not far from Scandinavia, the Baltic states. So, I say to friends who are seduced by this argument, be careful what you wish for – instead of Norway you may get Ireland (or possibly Latvia).
Stepping onto the final plank of my soapbox, what is actually likely to happen, and what could happen, in the event of a ‘No’ vote (still the most likely outcome, according to the polls)? It seems pretty certain that there will be a further significant measure of devolution to Scotland, perhaps ‘devo-max’, certainly ‘devo-more’ [Ref 11]. Some putative ‘yes’ voters say they are voting that way because they are annoyed not to have been given their real preference to vote for, namely more devolution. All three main Westminster parties are signed up to more fiscal devolution, although perhaps some more tentatively than others. What would or might this mean for policies on welfare, inequality and exclusion? The first point to emphasise is that, in many areas of policy, the main levers have already been devolved since 1999. This is true of education (apart from the ‘research’ side of Universities), health, social care, housing, planning, environment, culture, criminal justice and most of transport. Arguments about ‘saving the NHS from privatisation’ are beside the point, given that control over the NHS in Scotland is already firmly with the Scottish Parliament.
The main relevant areas which have remained largely reserved to Westminster, and to some degree problematic, are social security (pensions and welfare benefits), employment, and areas of regulation including energy and finance/banking. A number of aspects of welfare benefit policy and administration have generated controversy and conflict recently, such as the so-called ‘bedroom tax’, other cuts to Housing Benefit/Allowances and Council Tax support, and the proposed introduction of ‘Universal Credit’ [Ref12]. It is argued that any or all of these ‘iniquities’ could be avoided by an independent Scotland, to which the answer it, ‘yes, but at a cost’. What about the position in a more devolved set-up post-referendum? This is not quite so straightforward. Welfare spending is intentionally redistributive, between demographic groups and between income groups. The component countries and regions of the UK gain a ‘solidarity’ benefit from being part of a uniform social security system – if Scotland had more older people, or more unemployment, then more resources would flow to it automatically. There is an apparent challenge for devo-max here, because it suggests a tradeoff between devolving chunks of welfare benefits policy, and so avoiding ‘inapppropriate’ policies (like the bedroom tax), but losing the potential solidarity benefits at the same time (for example if there was more unemployment or more rapid population ageing in Scotland).
I think there is a twofold answer to this problem. One part is to focus further devolution on those aspects of welfare policy, and more particularly its administration, which seem likely to be more controversial, and/or more likely to offer scope for synergies with other allied policies applied at the local/regional level – for example, job creation, training, work experience schemes etc. alongside unemployment benefits; or rental housing provision and regulation alongside housing benefits. The other part is to recognise that you do not have to have a uniform eligibility and payment system to achieve the main aims of solidarity and responsiveness to need. You can achieve the same result by distributing a block grant based on an appropriate needs formula, as is routinely done with local government, education and health services. For example, JSA and the Work Programme could be devolved and the block grant could include a needs formula which took account of unemployment rates and durations, based on an independent data source (the Labour Force Survey) rather than actual benefit claims. It is widely acknowledged that the Barnett Formula, as used currently to determine Scotland’s block grant, is past its sell-by date (at this point I dust off my 1990 book, Equalization grants and local expenditure needs: the price of equality [Ref12]; I knew its time would come again!)
Whatever the outcome of the Referendum, and perhaps particularly in the event of a close vote, many people will be unhappy at the outcome, within and beyond Scotland. We cannot stop Scots, or others, from being miserable, for this or other reasons. However, poverty is probably the most widespread and systematic cause of misery – and here there is reason to be cheerful, because we can actually do something about it, whether devolved or independent. The devolved Scottish government has demonstrated concern and taken a range of actions which have helped, and could do more. At the same time, UK in concert with other major countries and groupings can take action against the worst excesses of globalisation which have fed inequality and the temptations of the ‘race to the bottom’.
- See Press Release here; detailed PSE research findings are accessible through the project website at www.poverty.ac.uk/pse-research ;
- Scottish Government (2014) Annual Report for the Child Poverty Strategy for Scotland August 2014. http://www.scotland.gov.uk/Publications/2014/08/5884
- McCrone, G. (2013) Scottish Independence: Weighing Up the Economics Birlinn. ISBN-10: 178027159X.
- Bell, D., Eiser, D., & Beckmann, K. (2014) The Economic Consequences of Scottish Independence. Helmut-Schmidth Universitat, Hamburg. ISBN 978-3-86818-070-1.
- Giddens, A. (2006) Europe in the Global Age. Polity/Wiley. ISBN: 9780745640112.
- Shaxson, N. (2011) Treasure Islands: Tax Havens and the Men Who Stole the World. London: The Bodley Head.
- Stiglitz, J. The Price of Inequality. New York: Norton.
- Piketty, T. (2013) Capital in the Twenty-First Century. Cambridge, Mass: Belknap.
- Galbraith, J. (2012) Inequality and Instability: A study of the world economy just before the Great Crisis. Oxford: OUP.
- OECD (2014) Focus on Top Incomes and Taxation in OECD Countries: was the crisis a game-changer? OECD Directorate for Employment, Labour and Social Affairs. http://www.oecd.org/els/soc/OECD2014-FocusOnTopIncomes.pdf See also IMF (2014) ‘Inequality seriously damages growth, IMF hears’, in IMF Survey Magazine, 12 April 2014.
- Eiser, D. & Bell, D. ‘Fiscal alternatives to independence’, in Bell, D., Eiser, D., & Beckmann, K. (eds) (2014) The Economic Consequences of Scottish Independence. Helmut-Schmidth Universitat, Hamburg. ISBN 978-3-86818-070-1.
- Gibb, K. & Stephens, M. (2012) Devolving Housing Benefit: A discussion paper. Edinburgh: Chartered Institute of Housing. www.cihscotland.org.
- Bramley, G. (1990) Equalization Grants and Local Expenditure Needs: the price of equality. Aldershot: Avebury