Saturday, May 18, 2024

Scottish first minister Yousaf needs a new economic strategy

Humza Yousaf is not a popular man. He might have won the final vote to be the new First Minister of Scotland, but only 50,000 people actually voted in the election, and of those, only 24,000 voted for him as their favourite candidate—that’s less than one-third of the Scottish National Party’s 72,000 members. Not a great start.

And for all the relentless hyping up of Nicola Sturgeon’s long reign as Scotland’s first minister, the government that Yousaf inherits is not very popular either. The latest Scottish Political Pulse survey conducted by pollster Ipsos shows that 50% of Scots think that “generally speaking things in Scotland are headed in the wrong direction.” Only 25% think it is headed in the right direction, the rest don’t know. That number rises slightly for SNP voters—to 37%—but even that is down from 44% earlier in the year.

The National Health Service (NHS) is a particular bugbear. Not a good look for Yousaf, who is currently in charge of health. On improving living standards, the numbers are equally awful (21% say good job, 45% say bad job), as are those for education and the economy. Sturgeon won’t be thrilled to be leaving these numbers behind—hers is a genuinely lousy legacy—and Yousaf won’t be thrilled to be starting out with such a whopping headwind.

The real surprise, though, is that there are still some who think Scotland has been run well. NHS waiting lists are at all time highs; Scotland has the highest level of drug deaths in Europe; one in five children still live in relative poverty; there has been no closing of the attainment gap; educational standards have fallen; and the economic future looks bleak.

Scottish gross domestic product is forecast to fall 1.2% this year and grow slowly over the long-term. Business activity fell in January for the sixth month in a row.

On current trends, say the Scottish Fiscal Commission, gross domestic product (GDP) growth in Scotland will come in at around 1.2% a year over the next 50 years; government spending will rise 123% even as GDP rises only 72%; the population will decline; and one in three Scots will be over 65 (it is one in five at the moment).

Sounds unsustainable? It is.

Members of Scotland’s ruling Scottish National Party (SNP) have been muttering about how financial wealth isn’t as important as good feelings: Think “well-being economy” instead of money. But this is economics for the naive. If well-being means not being poor, having a great health service and having a fabulous education system, Scotland will be needing conventional economic growth, too—the type that creates the wealth that provides for the sort of redistribution that the SNP appears to crave.

The problem is that Scotland under the SNP is not particularly business-friendly. The disaster that is its deposit return scheme and plan to ban alcohol advertising are just two example of the Scottish government being entirely uninterested in the needs of the private sector. Add in the hostility to North Sea oil and gas, the rent controls in the residential sector, the new licensing scheme for short-term lets and you can see why the private sector doesn’t feel very loved.

There are, says Liz Cameron of the Scottish Chambers of Commerce, serious problems in every sector. And without a successful and growing private sector creating a solid tax base, it is hard to see where the money for the fantasy well-being economy will come from. Only 1% of Scottish taxpayers are top-rate payers (a mere 31,000 people). In the UK as a whole, it is 2%. If Scotland wants to focus its tax take on ‘the rich’, it is going to need more rich.

It can do that in two ways. It can generate them at home—which would require a good education system and a business-friendly environment. Or it can lure them in. That requires a good education system and a business-friendly environment, as well as a wealth-friendly environment, something Scotland also doesn’t have. Earn £50,000 in Scotland, and you pay £1,550 more in income tax than anywhere else in the UK.

Yet, Yousaf has already said he fancies both a new tax band for those earning more than £43,000 and a wealth tax to further stoke the whole why-bother-earning-anything-if-it-all-goes-to-tax feel. This is not the kind of policy that encourages the well-off or the highly productive to move to Scotland. Nor does it incentivize those already here to stay.

For Scotland’s economy to improve, and for the SNP to deliver on any of the promises Sturgeon made and her continuity candidate Yousaf will presumably reiterate, some financial awareness is required. Humza Yousaf, unfortunately, shows few signs of it.

Merryn Somerset Webb is a senior columnist for Bloomberg Opinion, covering personal finance and investment.

 

 

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