Tuesday, September 04, 2007

The Sad Tale of Dr Jones and Mister Brankin

Is Peter Jones losing it? In today’s Scotsman this formerly balanced reporter is trailing a new conspiracy theory as follows:

Is it part of the SNPs plan to deprive Scotland of the kind of big improvements that are eminently achievable now so that we become convinced that we must have independence in order to get them? In other words, is the SNP taking our toys away from us now and saying we’ll only get them back if we do as we’re told?
What has prompted this bizarre outburst is a “contradiction” which Mister Groaner Brankin has detected “at the heart of SNP’s programme”. He argues that because the SNP accepts the proposition that better transport infrastructure will improve Scotland's economic growth rate, it is acting in a contradictory (read "conspiratorial") manner in axing the Edinburgh Airport (vanity) rail project.

Upon interrogation on this by our redoubtable reporter, Enterprise Minister Jim Mather is quoted as having two responses explaining the Government’s position: first the Government needs control over income as well as expenditure if they are to embark on such huge capital spending programmes; second that the project is too risky under the current constitutional settlement. Mister Brankin finds neither explanation acceptable – on the basis that he sees no reason why this decision should have a “constitutional” dimension – and this leads him to his conspiracy theory as set out above.

Let’s just unpick the conundrum which leads him along the false trail towards his conspiracy story. Both of Jim Mather’s responses are easily understood in fairly basic economic terms;

(i) Controlling income as well as expenditure gives a government access to the full range of taxes (including - and this is crucial - future taxation) in order to fund capital spending programmes that are characterised by long pay-back periods (which is why the private sector won’t step in). Under the present fiscal arrangements the ‘block grant’ is set in London with scope for raising additional funds in Scotland solely via higher income tax (the ‘tartan tax’). Is Peter J suggesting that income tax in Scotland should be increased now to pay for a project for whom the main beneficiaries will be future generations? As matters stand the Scottish government’s task is to select spending priorities subject to the ceiling set by Whitehall. They cannot breach this ceiling – their budget has to balance. The Government has to select spending priorities within that ceiling, and the SNP made no secret of the fact that the rail project was not a priority. Other wealth-enhancing projects are of course being prioritised:

(ii) Under the current arrangements a Scottish government has no scope to raise revenue by borrowing (i.e. by issuing government debt). The bailiff’s golden rule when at the Treasury permits the UK government to borrow to finance capital spending (e.g. railway projects) – which it does – but not current spending. (Does PJ really believe that the 3 billion Euro he reports the Irish government will spend on a rail link to Dublin airport is coming out of the current spending account?) Scotland is unable to operate a golden rule, and so is further handicapped when it comes to funding expensive investment programmes, even where these are deemed desirable. Independence would enable a Scottish government to borrow in international capital markets and close this gap. In other words it can borrow now against higher revenues accruing in the future:

(iii) “Risk” is a complex issue, and every investment carries with it some element of risk. Indeed, it is the existence of risk that requires governments to step in and invest where the private sector will not – because a private company will be spreading the risk over a small number of current shareholders while a government can spread the risk over the current and (crucially) future tax payers as a whole. If there was no risk then there would be no obstacle to the rail link being provided privately (the channel tunnel is a good example of what I’m driving at!). When we consider “risk” in this way it is clear that the degree of “risk” attaching to capital investment spending by a government indeed is directly linked to the constitutional situation. At present the risk attaching to the rail link falls entirely on this government and this Scottish population. The government cannot borrow against benefits accruing from the project in the future. This changes fundamentally if Scotland was to become independent.

The type of conspiracy theory being pedalled by Peter Jones is feeble and reflects poorly on him. As someone who once worked for the Economist, one might have hoped he’d be better versed in elementary economics. But maybe Peter Jones is gone, and all we're left with is Mister Brankin? I really hope not...

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