Academics question report

Higgins: Scotland needs £6bn for Covid recovery

Benny Higgins

Benny Higgins: ‘few opportunities for policy autonomy’ (pic: Terry Murden)

Former banker Benny Higgins admitted Holyrood would need to raise up to £6 billion for Scotland’s economic recovery after publishing a report that drew heavily on Scotland’s dependency on Westminster.

Acknowledging that the Scottish government is “entirely dependent on UK spending decisions”, the report by a group of eight advisers led by the former Tesco Bank boss raised more questions about the ability of Holyrood to cut through tensions with the UK government.

“Even though Scotland now raises a large portion of its budget through Scottish income taxes there are limited opportunities for policy autonomy, given that UK tax policy decisions fall back onto Scotland through the block grant adjustments,” says the report.

“Moreover, the Scotland reserve and borrowing limits are extremely low in relation to the overall budget, limiting further any deviation from the UK’s budget stance.

“In a time when governments are providing unprecedented levels of support to their citizens, Scotland’s capital borrowing is to less than 0.3% of GDP.”

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The 77-page report, commissioned at the start of lockdown notes that there will need to be changes in the current fiscal framework in order to underpin the recovery.

It says “there needs to be a plan to unlock financial borrowing at the exceptionally low prevailing long term interest rates. We are agnostic on how the Scottish and UK Governments choose to achieve this outcome. A case of what matters most not being at the mercy of what matters less.

It adds: “The current UK fiscal policy framework was not designed for times of emergency.

“The carry-over and borrowing capacity for the devolved administrations was designed and calibrated for normal economic cycles. It was not designed to enable decisions based on a long-term ‘capital-based’ approach as described in this report.

The current UK fiscal policy framework was not designed for times of emergency

– Advisory Group report

“It would benefit both the UK and devolved governments to design a model for investment in the economic recovery period, which enabled an appropriate flexibility to allow different priorities to be pursued.

“There is also a strong case for the Scottish Government to have greater autonomy to use targeted fiscal measures to stimulate demand or incentivise behavioural change in the recovery period.”

Speaking at the daily briefing alongside the First Minister, Mr Higgins pointed to the £300 billion stimulus announced by Germany.

He said: “If Germany needs 4 per cent of its economic output to stimulate the economy, then you’d think that we’d need at least that,” he said.

“That’s £6bn and the current limit through the fiscal framework is £450m so there’s a long way to go from where we are to where we need to be.”

The report sets out 25 proposals to create new employment opportunities and growth, including a jobs guarantee for 16 to 25-year-olds lasting at least two years to avoid “long-term scarring” of a generation.

It also calls for a “significant increase” in infrastructure investment, particular in digital technologies, and targeted measures to support the hospitality and tourism industries.

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