Scottish Independence: A “Yes” vote threatens Celtic Welfare Socialism

According to Scottish Labour and the Better Together campaign, everyone north of the border gets around £1,200 per year in welfare transfers and extra public spending compared to the rest of those living in the UK—and it’s all funded by those living south of the border…

In a speech in Glasgow, 10th August 2014, reported on by The Herald, the Scottish Labour Leader, Johann Lamont, argued that:

“Alex Salmond may rave against austerity but he knows a new, additional wave of austerity would come after independence. The independent experts tell us we face spending cuts or tax rises to maintain what we have now.

“That means cuts to our NHS, our schools, our pensions and our social security. And as that new wave hits, Alex Salmond offers no hope for ordinary people, just tax cuts for the bankers and the rich.

“This can be avoided with a No vote. And I believe when the battle to stop the abolition of the United Kingdom is won, we can focus on the real priorities of the people of Scotland and the battle to abolish poverty can begin again.”

This theme is taken up with a vengeance by Better Together, which notes that:

… the nationalists’ plans to break up the UK puts at risk funding for the public services we cherish – our schools and hospitals, our pensions and welfare state.

Today public spending in Scotland is £1,200 per person higher in Scotland than in other parts of the UK. That’s a positive benefit that we get from being part of the UK.

Why put that at risk?

Indeed.

Better Together then clearly articulates the fiscal economics upon which the Scots’ Celtic Welfare Socialism rests:

The reason we can protect our public services in Scotland is that as part of the UK we pool and share our resources across a population of 63 million rather than just 5 million.

It means we have a broader, bigger tax base to pay for our public services.

In other words, the relative largesse of the Scottish welfare state that is so often trumpeted by the Left is a largesse funded by transfers from taxpayers elsewhere in the Union.  The referendum has begun to turn the spotlight on to public spending and entitlements north of the border; Scotland must stop living beyond its means – and that means either cutting spending and/or raising taxes…  Better Together quotes the Institute for Fiscal Studies which reports:

An independent Scotland would require a significant cut in spending or increase in taxes, over and above that already announced by the UK government, in order to put their long-term public finances onto a sustainable footing. The scale of this fiscal tightening is likely to be greater than that required for the UK as a whole.

I’d hazard a guess that Scotland is likely to be in the wrong place on the Laffer Curve: raising tax rates will likely reduce tax revenues (due to capital flight and labour migration), further exacerbating Scotland’s fiscal problems.

Further, it would seem reasonably plausible that, after “Celtic Welfare Socialism” has been tried and has failed, Scotland’s growing fiscal imbalance would see it forced to both reduce public spending and cut taxes, moving Scotland along the Laffer Curve and towards higher tax revenues.

Scottish Labour and Better Together seem to be try to cast the “No” campaign as a defence of existing transfer payments from the rest of the UK—yet, at best, this will merely delay the day of economic reckoning for Celtic Welfare Socialism:

A “Yes” vote and independence will force Scotland more immediately to face up to economic reality; it’ll have to quickly balance its books or suffer ruination.

But a “No” vote will also cause the Scots fiscal problems.  For, by accentuating the transfer payments that Scotland receives, Scottish Labour and Better Together are prompting the rest of the the UK to ask what they get from the Union or, at the very least, to ask whether the current tax arrangements are fair to all.