Scottish politicians rarely need encouragement to boast about their moral virtue. Given the opportunity, our political class loves few things more keenly than the opportunity to bore on about how Scotland is a kinder, gentler, more moral place than you know where.
In recent years much of this self-satisfied preening has centred on what we are asked to believe is “Scotland’s unique social contract”. In return for modestly higher taxes, Scotland’s professional classes can at least comfort themselves with the thought that they are contributing to the greater good in ways that show them to be very fine folks indeed. Free prescriptions, free bus passes for the young and old, free university tuition and plenty of other, fine, free things are all a part of this “social contract”. It is what makes Scotland different; it is what makes Scotland special.
The problem is that we can’t quite go on like this. The last budget was an uncomfortable one and the next is unlikely to be very different. The Scottish government must, in broad terms, balance its books each year but as time rolls on, more spending commitments are added to its long list of top or essential priorities.
Scottish politicians wanted social security to be devolved, for instance, and while the mechanics of this transfer of responsibility have proved time-consuming and expensive, the real cost of this significant devolution of power will be paid in years to come. Scotland’s welfare system is to be more expansive and generous than what is available in England — otherwise, what might be the point of it? — and this necessarily means it will be increasingly expensive too. The Scottish Fiscal Commission forecasts that social security spending will increase from £4.2 billion in 2022-23 to £8 billion in 2028-29. Some of this increase will have to be funded by the Scottish government itself.
This is not all a bad thing. The introduction of the Scottish child payment may be Nicola Sturgeon’s most enduring legacy. The government boasts that 60,000 children might languish in relative poverty but for these cash transfers. Those figures are broadly comparable with what outside analysts conclude too. This is a genuine, and therefore rare, Scottish government success.
Advertisement
By the standards of the benefits system, the child payment is relatively easy to operate and unusually well targeted. It is the single most redistributive policy pursued in the devolution era, handing £26.70 a week per child to many poorer families. At an annual cost of £458 million it is not cheap but for its recipients it is close to priceless.
• The Times Scotland view on Humza Yousaf’s first year: Legacy Liabilities
As a means-tested benefit, though, the child payment confirms that universalism is not the shibboleth Scotland’s political class pretends it is. Once this is accepted, or, rather if this is accepted, other conversations may become possible.
Nor should we forget the broader context in which these choices are to be made. Scotland is the luckiest part of the United Kingdom; a wealthy nation funded as though it were a poor one.
In 2022-23 public expenditure per person was £2,217 higher in Scotland than in the UK as a whole. This is in large part the consequence of the Barnett formula which guarantees Scotland generous spending settlements. This also means that the Scottish government’s beloved “social contract” is chiefly funded by taxpayers in the south of England.
Advertisement
When the first minister states that he is “asking” those with the “broadest shoulders” to contribute more for the common good he is, at best, telling only half the story. First, requests may be refused: this is a demand backed by the force of the state; it is a requirement, not some kind of generous and voluntary act of charity. Second, Yousaf and his ministers skirt the reality that if it were not for Scotland’s generous funding arrangements taxes would have to be even higher in Scotland than is the case now.
Granted, the financial figure is complicated by oil revenues. 2022-23 was a buoyant year for North Sea revenue. Oil receipts amounted to £9.4 billion which may usefully be compared with income tax revenue of £16.6 billion. Consequently, and unusually, when a geographical share of oil revenues is allotted to Scotland, per capita revenue from Scotland was higher than in the UK as a whole.
Even so, these extra revenues amounted to £696 per capita. Strip them out and revenue in Scotland was £859 less per person than the UK average.
There is a truth to be drawn from this: when oil revenues are high Scotland effectively receives all that money via the block grant and Barnett consequentials; when oil revenues are low Scotland’s budget is unaffected. Oil money fluctuates but Scotland’s privileged financial position within the Union remains a constant.
This is why there would be no oil-driven independence windfall. The money is already accounted for in fat years but it would cease to exist in lean ones. Scotland is not too poor to be independent but it would be immediately and measurably poorer than now.
Advertisement
• Humza Yousaf defends free education as university places are cut
From this we may conclude that the “social contract” of which ministers are so fond is only sustainable because of the constitutional settlement they so thoroughly deplore.
It is the Union, and Scotland’s fortunate position within it, that makes free university tuition and a more generous welfare state possible. Every time you hear Yousaf or any other nationalist boast about this “social contract” you should note that this is an oblique tribute to the constitutional status quo that the nationalists say holds Scotland back.
Even so, the medium-to-long term sustainability of this model is very much in doubt. The mismatch between the government’s revenues and its spending ambitions means hard choices have to be made. The cost of generous welfare payments is the price of cuts to the housing budget; maintaining free tuition means cutting the number of student places the Scottish government is prepared to fund.
These may be sensible trade-offs or they may be the deplorable consequence of priorities misplaced elsewhere. Your mileage may vary on this. They cannot be avoided however. You cannot, in fact, have your cake and eat it.
Advertisement
Blathering on about the “social contract” cannot disguise or prevent the coming pinch points. There is a limit to how much higher taxes can be pushed without a negative consequence. If current spending priorities remain in place, other budgets will have to be cut. Hence the classic conservative conundrum the Scottish government faces: if things are to remain the same, they will have to change.
