Labour should believe in better

The euro crisis has shown that you can’t have a single British currency without fiscal union, says PAUL SINCLAIR


One of the lessons of the AV referendum was that you can’t sell a solution to the public when they don’t see there is a problem.

John Swinney’s suggestion that we can kick-start the economy by the Scottish Parliament taking control of – and lowering – corporation tax doesn’t have that kind of hurdle: we see the need for growth in the economy every day. We shouldn’t therefore dismiss it out of hand just because it comes from the SNP or involves a transfer of powers from Westminster to Holyrood.

While Nationalists naturally have a dogmatic view of where powers should lie, the Labour view should be more pragamatic, but based on these two principles: that power lies with the Scottish people, and that the choice of  institution to exercise specific powers depends on what is in the best interests of the Scottish people.

But then there is another problem which the Scottish public see every day which points to Swinney’s solution: George Osborne deciding what Scotland’s tax rates are when he is cutting too fast and too deeply and has no mandate in Scotland.

That is the argument ten minutes into the debate, and it’s one which seems hard to answer.

Problems, problems and seemingly only Swinney solutions.

But if we look at the bigger picture, there is a fundamental problem which the public see on their televisions, smartphones and iPads all too often which blows Swinney’s solution away – the euro.

In these miserably uncertain times there is little agreement on economic solutions, but one orthodoxy is emerging: monetary union doesn’t work without fiscal union and possibly political union. The Euro doesn’t work for Greece because the Greeks’ fiscal policies don’t fit the euro. The same is true for Portugal and increasingly for Italy and Spain.

The lesson of the euro is that one currency means one fiscal policy and preferably political union.

You could argue that on these islands we realized that more than three hundred years ago.

But with the SNP currently saying that an independent Scotland would retain sterling, you have to ask why they then would want to replicate the economic system which has put Greek in a straight jacket of economic decline they can’t get out of – monetary union without fiscal or political union?

Why do they want to start the process now with corporation tax?

An independent Scotland would have the choice of three currencies: the euro, Sterling or the Scottish pound. Only the last one would allow Scotland to have independent fiscal policies – if you fancy launching a new currency in the current economic circumstances.

Swinney’s solution can be demolished – but it still leaves the problem of what we do in Scotland to promote growth. Those of us who believe that Scotland is best served by remaining part of the United Kingdom have to do better than just attack what the Nats come up with.

This goes to what I believe is one of the reasons why the SNP won a landslide in May.

For me, people like John Smith, Donald Dewar and Robin Cook are political heroes not just because they championed social justice but because they also offered a sense of possibility for Scotland; that Scotland, through devolution, would remain part of the Union but would be able to come up with particularly Scottish solutions to Scottish problems and build our own distinct prosperous and just society.

Fairly or unfairly, neither our policies nor our candidates at the last few elections seemed to measure up to that ambition.

In contrast the SNP set the question of independence aside and with a towering figure like Alex Salmond, and increasingly impressive ones like Nicola Sturgeon and Swinney, seemed to own that sense of Scottish possibility.

The SNP seemed positive while we, at best, looked inert.

To get that sense of possibility back we need to offer a clear and understandable idea of how we would rebuild the Scottish economy – and it needs to be a bit more than just saying jobs. We need a vision of what a Labour Scotland means.

And there is something fundamental we need to do which should have been done decades ago: explain in clear terms why Labour values lead us to the conclusion that Scotland is best served by being part of the United Kingdom. Why we believe in a politics of values rather than a politics of identity. Why the Union is the positive choice which gives Scotland greater opportunity.

And we must smash the view that London retains the power and only grudgingly doles it back to Edinburgh in small, hard fought for, rations. Power resides with the Scottish people and where it is exercised should depend on what is in the interests of the Scottish people, decided by the Scottish people.

If the upcoming debate on independence becomes a fight between William Wallace on one side and the Bogey Man on the other, both the SNP and the Labour Party will have let the people of Scotland down and we will have missed a great opportunity to explain what we want Scotland to be.

Those of us who oppose independence don’t do so because Scotland isn’t up to it – we do so because there is a better future for Scotland in the UK.

Saying ‘No’ to the SNP is the easy part. But we will lose if we don’t expand the statement to say, ‘No, we can do something much better.’

And the answer to the Osborne point is quite simple: monetary union benefits Scotland and fiscal union is the price we pay for it. We don’t want to end up like Greece.

We need as much influence as possible within the UK and in the global city of London to make sure that our neighbours adopt policies which allow us to build our Scotland whether we are in the Union or not.

And George Osborne really isn’t a significant enough figure to change Scotland’s destiny.

Scotland’s problems are clear. The SNP’s solutions always seem to be to make the world a little smaller.

Labour will get back to winning the arguments when we look to the bigger picture – and have greater ambitions for Scotland.

Paul Sinclair is the former political editor of the Daily Record and a former special advisor to Gordon Brown and Douglas Alexander. He Tweets as @PaulBSinclair.

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17 thoughts on “Labour should believe in better

  1. The bigger picture, the actual reality is;

    Currency (monetary) union WITHOUT fiscal union is very common in this world.

    Currency union with fiscal union is a rarity.

    It makes sense for countries in an optimum region to maximise economic effectiveness by sharing a common currency. There is no need for for fiscal union under such circumstances.

    Indeed, it has been argued that the UK nations, France, Germany, Holland and the Scandinavian countries describe an optimum region for a common currency without the need for fiscal or political union.

    So an independent Scotland retaining sterling has a great deal of merit in pure economic terms.

    1. “Currency union with fiscal union is a rarity. ”
      What are you talking about. Almost every country that operates a federal system takes this approach. For instance in the US does Texas operate a different currency from New Hampshire. No. What we have seen is the inadequacy of monetary union without some form of fiscal union (which Sarkozy and Merkel now accept).

  2. Excellent article. You’re right that it’s principles and vision that inspire people and win elections. That distinct air of possibility that makes people believe in themselves and truly feel that they can build a better nation.

  3. With 70% of Canadian trade being with the USA, should Canada form a monetary and fiscal union with the US?

      1. It has been an issue of debate on whether to abandon the “Looney” as the currency is called in favour of the Greenback or the so-called NAMU (North American Monetary Unit) – the North American answer to the Euro.

        Some parts of the world are of course already in currency union with the USA without fiscal union. Most notably for us Brits the British Territories of British Virgin Islands and the Turks and Caicos Islands rather than choosing the East Caribean Dollar.

  4. C,mon Paul- you cant have it both ways.
    “And we must smash the view that London retains the power” etc
    “We need as much influence as possible in the Uk and in the global city of London”etc

  5. “Power resides with the Scottish people and where it is exercised should depend on what is in the interests of the Scottish people, decided by the Scottish people.”

    I agree with that completely but you must realise that is completely at odds with the position set out just yesteday by Prof Midwinter where he made the case for enhacing or extending devolution only when it brought a benefit to the United Kingdom and indeed cemented Scotland’s position within the Union.

    I don’t see how you can reconcile those two views – unless you are going to say that by definition what is good for Scotland must be good for the United Kingdom and vice versa.

    1. Prof Midwinter… made the case for enhacing or extending devolution only when it brought a benefit to the United Kingdom and indeed cemented Scotland’s position within the Union.

      He did no such thing. To the contrary, he endorsed the Calman proposals as a positive, evidence-based improvement to devolution. He did point out the fact that one particular option – “devolution max” – cannot be implemented without the agreement of the whole of the UK, leading readers to the conclusion that you have reached yourself, Indy: that the referendum will be a straight choice between full separation and the post-Calman devolution settlement.

      1. I would ask you to re-read Professor Midwinter’s article – these passages in particular.

        It is clear that such a model (full fuscal autonomy)would be regarded as a major step towards independence, and it is difficult to see what benefit it would be to the rest of the United Kingdom…..

        the SNP does not provide any assessment of the financial implications of such a model, nor any acknowledgement that – unlike independence – this is not a matter for Scottish voters only……

        …… Devolution Max is incompatible with the UK fiscal structure and principles, and would generate significant instability in the Scottish public finances, and not, as Calman seeks to do, strengthen the Union…..

        Responsibility for managing the economy in common with international practice is reserved to the central state and exercised through the Treasury and the Bank of England. The Calman Commission’s financial remit was to consider changes which would improve the financial accountability of the Scottish Parliament and secure the position of Scotland within the United Kingdom. ”

        That is very clear surely? Greater fiscal autonomy must be judged not only on what it would bring to Scotland but what it would bring to the United Kingdom and – unlike independence – “this is not a matter for Scottish voters only.” Management of the economy is reserved to the central state i.e. Westminster.

        That point of view is fundamentally incompatible with the view “that power lies with the Scottish people, and that the choice of institution to exercise specific powers depends on what is in the best interests of the Scottish people.”

        1. Indy, you need to re-read the passages you quoted. As I said earlier, Professor Midwinter was referring only to one option – “Devolution Max” – and not, as you claim, to “greater fiscal autonomy”, which is exactly what we shall have once the Calman proposals are enacted.

          1. That’s not my point. He is referring to Devo Max – he could be referring to anything frankly.

            As long as you place your assessment of any policy in the context of its effect on the rest of the UK and predicate your policies on securing Scotland’s place in the Union you cannot argue at the same time that power rests solely with the Scottish people.

            In many ways this is at the heart of the debate that Labour are having. If you put Scotland first you cannot also put the UK first.

            And if you believe that power should be exercised for the benefit of the Scottish people you cannot also believe that it should be exercised for the benefit of all the people of the UK. There may be many instances where power can be exercised to benefit both the Scottish people and the rest of the UK. But there will also be cases where Scotland’sm interests are different to the rest of the UK. If you believe that in those cases power should be exercised to benefit the Scottish people, rather than the people of the whole of the UK, you are a nationalist. Perhaps with a small n but you are still a nationalist because you are guilty of the crime of putting your country first.

  6. Sorry Paul, I missed a wee bit out when I read your blog.
    “whether we are in the union or not”

  7. At last! a reasoned and elequently written article. Now lets see if the big wigs in the party actually listen.

    The article neatly exposes many of the reasons why I didn’t vote Labour at the last two elections in Scotland.

  8. Excellent article Paul.

    The core truth is that our Labour values are the values that will deliver a better country, and we should build on these values to produce the policies and delivery systems that will improve Scotland and the UK within the sensible political, economic and social arrangements we have created (and which also can be improved, we realise that) on this small island..

  9. Uhm, quite a few countries peg their currency to the dollar or euro or use the dollar or euro as legal tender, and you’re conflating monetary policy and fiscal policy.

    It’s possible to give up control of monetary policy and still have a largely independent fiscal policy so long as the bond markets will fund periods of deficit spending (ie. if those deficits are relatively small, relatively short term and the government is credible enough to pay back those debts). Which is essentially what the Eurozone stability and Growth pact was supposed to enforce, but of course Greece essentially fiddled it’s books and shouldn’t have gone in.

    What’s being talked about in the Eurozone is much more complete fiscal union, with taxation and spending levels agreed upon, due to the failure of the Stability and Growth Pact.

    If we were to abandon any and all control of our monetary policy (and, TBH, I can’t see now being a good time to launch a new currency or even just a new currency board, better to just use one or the other as legal tender) by becoming independent then we would need to set out a firm and robust fiscal policy.

    But we would still be able to retain most of the control over our broad fiscal policy, we just couldn’t run large deficits funded by bond markets. That’s probably not something we’d be able to do for a while anyway.

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