So I was unsettled on Thursday night when the leaks were pointing to the Commission recommending the only currency option specifically ruled out by their forerunner The Fiscal Commission Working Group.
I'll deal with Sterligisation later (although I've already blogged on it here).
This confusion created a fog that took quite a while to lift but when it did it all became clear.
Peeling the onion
Wilson had the task of writing a report that would deal directly with a plan for independence (it was an SNP commission after all), whilst at the same time setting out policies that can enable the Scottish economy to grow (the clue was in the title). Many have viewed these objectives as one and read the reports as a single document, but that's not the way I believe Wilson intended.
Indeed he was on TV and radio yesterday giving as many hints that he could that they are almost separate. He repeated the point that many of his recommendations can be achieved right now under devolution. Furthermore, to give a tiny piece of insider information, the line - that we can achieve most of the recommendations under devolution - was emphasised directly to me by Wilson over a drink at a mutual friend's 50th birthday party and repeatedly said to me by Jim Mather (an extended family member) and member of the Growth Committee.
It's like the first time you read the New Testament in parallel, that is reading Mark alongside Matthew and Luke. Suddenly you see the latter two as picking and choosing parts of Mark and redacting and augmenting the text to put their own spin on it. The challenge then is to peel the layers of the onion to find exactly what each of the authors of Mark, Matthew and Luke were really saying rather than mashing them together.
When you make that subtle shift and peel the particular Growth Commission onion you suddenly see two quite distinct reports and it's nothing short of a work of genius, almost a piece of art.
The "two" paths for Scotland (just one)
Wilson has set out two distinct paths for Scotland both with radical implications for economics and politics in Scotland.
Path one is Devolution Works a radical Scottish Government under devolution (with enhanced powers over immigration) with a Brownite consensus about an active focussed state aiming to encourage innovation, exports and growth whilst maintaining social justice.
Path two is an independent Scotland trying to do the same, but worse off by at least 5% of GDP, with a severely reduced financial services sector, tough austerity, serious fiscal constraints, no control or say over monetary policy and no method of entering the EU.
When you read it that way it's quite clear path two is completely irrational, all logic points towards going down path one and, if it works, perhaps thinking about path two. Its the triumph of the ultra-gradualists in the SNP.
This has radical implications for Scottish politics.
I expect Scottish Labour and possibly the Liberal Democrats to move towards this Wilsonian view of achieving growth with a radical use of devolved powers and embracing some kind of devolution of immigration. Wilson repeatedly calls for this consensus and it shines out as the loudest theme in the report.
At the same time the more extreme elements of the independence campaign, the flag waving and marching "End London Rule/Tory Scum" Yes Movement will be devastated by the outline of an independent.
They can't march for independence for social justice and stand behind the prospectus set out by Wilson (see later).
What's all the more impressive about this piece of work is that it's so subtle that few in the "Yes! movement" have realised what's just happened.
To explain this in more detail I'll explain exactly what Wilson has done to the Yes! Movement's case.
Confirmed: We will be worse off under independence
There is no question here and the report is quite explicit about this fact if you know where to look.
To make it easier I've made a small amend to Figure 4-10.
Here I add in the equivalent actual deficit for Scotland as part of the UK, remember as part of the UK our deficit is nothing more than a population share of the UK deficit.
Therefore even taking into account the "savings" made by Wilson (more on that later) we will be worse off by about 5% of GDP. Thats around £12-£13bn gone overnight.
Confirmed: Independence means austerity
Firstly as the chart above shows independence is not contemplated until 2021, as Kevin Hauge points out, that means Wilson is expecting the UK to do the heavy lifting in terms of austerity and accepts the deficit reduction plans by the UK, also known as austerity.
Furthermore the future spending plans include real terms increases in public spending but below trend growth, to get the deficit under control. That's austerity on the same terms as the UK.
Whilst total spend in the UK has remained flat in real terms (which is what is being proposed) it has been below growth trend to get the deficit under control and falling as a percentage of GDP.
As the noise over this 'continued austerity' started to feed through to Sturgeon she tried to spin her way out of it.
The trouble is within the same tweet she switched her accountancy basis.
Overall government spending is not the same as spending by the Scottish Government under devolution. But under independence those two are the same thing.
The problem is the areas of spending that have increased the most over the past few years are welfare (not in the devolved Scottish Government budget) and debt interest.
As debt interest costs aren't optional that can only mean that the Scottish Government could halt "austerity" by cutting welfare. Under independence the level of spending currently applied by the devolved Scottish Government would be just as tight, if not tighter.
Independence means austerity and a lot more of it for a lot longer.
Confirmed: An independent Scotland could not join the EU
You have to look very hard for it, but the fact that the SNP Growth Commission is entirely neutral to the point of being vague on an future independent Scotland being in the EU.
That's strange, it's not just about politics (with so many SNP supporters being in favour of Brexit) because SNP policy is still to rejoin the EU. So what's going on?
Sterligisation is what's going on.
It's not passed by the elevated minds of the SNP Growth Commission that using the Pound without permission violates one of the main entry requirements of the EU.
Not least, we don't have a real central bank (as required by Chapter 17) but it's the fact that the EU cannot accept a member state that has no control over their exchange rate. By definition then it cannot be used as a matter of common concern.
For example if the UK (as a non EU member) decided to engage in activities to achieve a competitive devaluation in Sterling, quite possible following a hard brexit, then Scotland would follow that devaluation giving it an advantage over other EU members. This can't be allowed in the single market.
The EU have been very clear about this point.
Incidentally this isn't about joining the Euro. Absolutely Scotland would need a derogation from the notional intention to join the Euro, but Chapter 17 is very clear that those with such a derogation MUST align their monetary policy as a common concern. That's not possible when you don't control your monetary policy.
The only solution to this for Scotland would be to unilaterally adopt the Euro instead of Sterling.
Confirmed: An independent Scotland would lose its financial services sector
I couldn't believe that the Growth Commission would recommend Sterligisation because I knew the devastation that this would cause to our biggest onshore sector. Indeed I think that this is the greatest "tell" from the Commission that they just don't believe this is the way ahead for Scotland.
From listening to Wilson I suspect that the cover for Sterlignisation came from Mervyn King when he said that Sterligisation was an acceptable currency option for Scotland. Being able to quote a former governor of the Bank of England is a powerful tool for independence campaigners, until you recall that King is a right wing monetarist and when you look at what he actually said...
King admits that the financial services sector, and especially the banks would need to rebase from Scotland. But whilst this sounds like a brass plate affair when you look at the footnotes in his book "The end of alchemy" it's all too telling.
King is almost tongue in cheek here. He argues that Scotland won't lose any corporation tax from the move because corporation tax is a UK wide tax, therefore Scotland has never received it directly (it certainly gets it via London).
The trouble is this corporation tax is very much included in GERS and included in the datasets that Wilson uses. However there is no serious recognition of this loss anywhere in Wilson's analysis.
Indeed there is no recognition of the losses from losing large chunks of the financial services sector.
Let's be clear about it. The SNP Growth Commission accept that this will happen.
What is remarkable is the accompanying text from the Commission to this admission:
"During the independence referendum in 2014 the charge was made that an independent Scotland could not afford to “bail-out” banks deemed too big to fail. Given all of the above, this charge is no longer relevant."
To paraphrase, Better Together were right when they said the banks would leave, well sod 'em and don't let the door bang you on the ass on the way out.
It's nothing short of a breathtaking piece of bile to go into the report and has clearly been spun in by some SNP official, however why would someone like Wilson allow that to go in, other than to sabotage the case for independence.
There is a wide and open consensus that Sterligisation would have devastating consequences for the financial services sector.
Put simply without the ability to print money, an independent Scotland could not stand behind the financial services sector as a true lender of last resort, similarly it could not stand behind the financial services industry in the event of firms collapsing as it couldn't guarantee to afford to meet their obligations.
This is fully confirmed in the report:
-
"Neither the Scottish Government nor the Scottish Central Bank will bail out failed or failing
financial institutions"
Let's just remember Dunfermline Building Society went to the wall during the financial crisis a local Scottish mutual building society, not an investment bank. That institution would have been allowed to fail under this plan and account holders would have lost significant amounts of their savings. For financial firms in Scotland this leaves them in an impossible situation. Stay in Scotland and receive no backing and therefore appear far more risky to your clients in Scotland and throughout the world.
Or move your operations to the UK where you have the comfort of state backed guarantees and a real lender of last resort.
There really is no choice for a business, no amount of flag waving and patriotism can get away from that cold hard fact, the financial services industry will be forced by their client base to leave with devastating impacts for jobs and tax revenues.
Of course none of that impact is factored into the budget numbers.
No wonder even the radical left nationalist wing recognise that this would be a disastrous policy for Scotland.
Devolution works!
So let's draw all of this together.
There are two paths set out for Scotland in this report, independence or Devolution works.
Both set out plans to increase Scotland's growth rate (and there is precious little to suggest that independence will improve Scotland's growth rate over and above that which is possible under devolution).
Independence then comes with all of the above plus:
- An immediate 5% reduction in our GDP (probably more)
- Continued Austerity for at least 10 years
- No entry into the EU
- The loss of the financial services sector
So what rational person would select the independence route over the Devolution Works?
It may be possible to argue that independence will increase our growth rate over and above that of Devolution Works but the Growth Commission is entirely silent on that topic, and that's another tell as to what's really going on here.
With no apparent additional upside from independence but only sharp downsides Wilson has deliberately set up independence to fail and Devolution to succeed.
But that's only apparent when you peel the onion and view the propositions in parallel rather than as one long document.
Andrew Wilson is nothing short of a political genius, so much so that it will take most people several years for the implications of all of this to filter through.
In the meantime he has filleted the SNP of the extreme elements of the Yes! Movement, he has also potentially split the Unionist movement over Devolution Works, as I can see many arguments within that sector over the devolution of immigration.
In doing so he's potentially created a new Wilsonian consensus in Scotland around Devolution Works, it's a movement I would sign up to and his proposals for growth have my full support. In my view that coming together of radical devolution supporters within Labour and the Lib Dems and ultra- gradualists within the SNP would be a political force to be reckoned with and would enable to SNP to weather the storm of the disappointment of their most extreme supporters.
Hats off to you Mr Wilson, I should never have doubted you.
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APPENDIX
There are a few other items that arise from the report that are well worth noting but wouldn't make it into the body of this post.
Confirmed: GERS can be used to model an independent Scotland
Many in the Yes Movement have been panning GERS since it turned against them. Their line that it can't tell us anything about an independent Scotland was gently killed off by Wilson.
As engagingly tweeted by Iain MacWhirter the Kevin Hague school of thought has been entirely validated by the SNP Growth Commission.
As everyone who understands GERS knows it's the starting point for independence, take the position within the UK and then adjust it for the differences in spending and tax you would be likely to see.
That's exactly what Wilson did with a few slight of hand adjustments (more of that later under The bag or tricks).
We can dispense with the GERS deniers, they are now even more isolated.
Confirmed: Pensions in an independent Scotland are paid by Scotland only
I'm bored to tears arguing this point with nationalists but now I have another confirmation on pensions policy.
Again you have to know what you are looking for but it's clear in the data. Wilson has the confirmed it in his budget that the funding for all pensions (including those currently in payment) is funded entirely by the Scottish Government (so no transfer from rUK).
Furthermore in the asset and liability division section there is a recognition that pensions do not contain any assets to transfer so there is no mythical transfer of assets to cover previous debts.
So can we just stop all of the garbage about rUK paying any Scottish state pensions after independence.
The bag of tricks
Finally just a few notes on a few of the tricks the the Growth Commission pulled off when it comes to evaluating the fiscal position for an independent Scotland.
Missing Assets
In the asset and liability division the Commission look at the whole of government accounts to evaluation Scotland's population share of UK assets minus the assets they would naturally receive on a geographic basis. They use this to reduce the outstanding debts of Scotland by £26bn.
Just one tiny flaw, the exclude North Sea oil from state assets (they technically belong to the Crown which is why they aren't in the Whole of Government Accounts). When you apply the Commission's methodology and include North Sea Oil, Scotland should be taking on even more debt.
At best we can dispense with this £26bn "saving" and therefore the debt costs are light.
Debt servicing costs
The Commission admit that Scotland would pay higher interest rates on its borrowing. 1% higher in fact.
However when it comes to their debt arrangements with rUK they assume that Scotland will benefit from the lower rUK debt costs? This is a bizarre assumption and effectively assumes that rUK will do Scotland a favour and let them borrow from the UK at mates rates. This is an implicit assumption of a subsidy from the rUK and is completely unrealistic.
In and out
The commission attempt to adjust GERS for the effects of Scotland relocating some UK public spending into Scotland, money on civil servants at the Foreign Office etc relocating.
Some of this is fine but takes no effect of scale costs, for example we've seen the additional costs we're facing for welfare provision devolving only 15% of the budget.
However there is no reverse effect baked into the numbers with rUK civil servants (say DWP workers in Motherwell) relocating back to rUK. Perhaps the Commission think that rUK will do us a favour and keep those civil servants in Scotland, but I can't see why you can assume it's a one way street. Overall net Scotland is likely to lose out from that effect.
Transition effects
Finally there is nothing in the Commission independent Scotland figures to account for business relocation or capital flight. We know that this will happen due, at least to the effects of financial services relocating as well as the effects of a 5% reduction in GDP. Again this seriously flatters the figures.
