The UK economy is showing signs of a slowdown after the UK voted to leave the EU
SCOTTISH think tanks have called for the UK Government to devolve further powers to the Scottish Parliament to enable it to deal with a post-Brexit economic slowdown.
The influential thank tanks Reform Scotland and Common Weal, despite representing opposing policy positions in many areas, both concur that the devolution of further powers is necessary to allow Scotland to respond to changed economic prospects.
The calls come after indications that uncertainty around the UK’s vote to leave the European Union on 23 June may be tipping the country’s economy into a slowdown.
Ben Wray, head of policy for the Common Weal think tank, told CommonSpace that the health of the Scottish economy hinged on the Scottish Government’s ability to borrow for investment.
He said: “The Scottish Government is restricted in this respect by limited borrowing powers – it should go back to the Treasury and demand a major increase in its ability to borrow money.”
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On 10 August the Scottish Government announced a £100m stimulus to maintain growth in the Scottish economy.
Wray welcomed the move, but said that it was not enough to deal with the difficulties in several areas of the Scottish economy, including oil and gas, construction and manufacturing, all of which showed signs of weakening even before the UK’s shock vote to leave the EU.
He said: “It would be naive to believe that this in itself will be sufficient – £100m is a very small sum compared to the Scottish economy as a whole. What is needed is a new mechanism that will allow the Scottish Government to borrow substantial sums to invest.
“At a time of historically low interest rates it’s never been cheaper for government to borrow money.”
In July, the UK’s service sector shrank faster than at any time since 2009, in the heart of the last recession. Scottish retailers have also claimed they have taken a hit, with a drop in footfall on Scottish highstreets in the middle of the summer shopping season.
Speaking to CommonSpace, a spokesperson for the leading Reform Scotland thinktank said: “Half of the revenue raised in Scotland from VAT is supposed to be assigned to Scotland following the passing of the Scotland Act 2016.
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“However, Brexit means that there is now no reason why this tax could not be fully devolved, which would in turn give real control over a second major tax to the Scottish Parliament. The more taxes that Scotland controls, the more it has an ability to influence and affect economic growth.”
The spokesperson also said that Scotland required greater tax powers for long run economic decisions beyond the need to respond to the UK’s EU exit.
He said: “Reform Scotland believes that the Scottish Parliament needs far more tax powers in order to stimulate economic growth, regardless of any potential post-Brexit slowdown.”
The Scottish economy has been showing signs of weak growth throughout 2016.
The economics foundation the Fraser of Allander Institute published a report on 3 June claiming that personal debt fuelled consumer spending was the only factor keeping the UK out of recession at the beginning of the year.
Professor of enterprise policy at Herriot-Watt University Mike Danson told CommonSpace that the Scottish Government may have to improvise with measures including requiring public procurement to employ local Scottish firms and labour, and creating more public sector jobs to deal with a slowdown.
He said: “With limited devolved powers, uncertain short and medium term economic environment, and a need to address falling business and consumer confidence, there is a need for some immediate and clever measures.”
Wray agreed that the Scottish Government may not be able to wait for the UK Government to agree new powers, and may have to act alone to introduce measures to protect Scotland’s economy.
He said: “In lieu of further devolution, the finance and economy ministers must get creative: could they establish a Scottish National Investment Bank?
“Could they work in partnership with local authorities to support the creation of municipal bonds? Scottish Pension funds – which sit on billions and are currently desperate for profitable and safe places to put their money – would find such public investment opportunities very appealing.”
The UK Government’s Scotland office was contacted to respond to the think tank’s comments, but had not responded by time of publication.
Picture courtesy of Owen Robertson
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