Strengthening the Union

Paul Sweeney Excerpts

Monday 23rd July 2018 Commons Chamber

[Lesley Laird]

The SNP’s document speaks for itself; not only that, but there are many commentators who have something to say about it, too. I also note that the SNP failed to consult trade unions on its document—I am sure the hon. Gentleman is extremely disappointed about that.

[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

My hon. Friend has made a pertinent point about the economic benefits of the Union to the Scottish economy. Perhaps that was why the SNP ran fleeting from the full fiscal autonomy proposal for the independence referendum—because it entailed significant turbo-charged austerity. Does my hon. Friend also agree that the growth commission’s fiscal and monetary proposals would result in an extra £40 billion of foreign exchange reserves having to be raised, which would entail turbo-charged austerity for the Scottish economy?

[Lesley Laird]

My hon. Friend raises a very good point. Economic analysis makes clear that the sums that the SNP proposes to inflict on the Scottish people simply do not add up.

The nationalists promised a Scotland growth commission, but it was a cuts commission. As confirmed by the Institute for Fiscal Studies, the cuts commission would lead to further public spending cuts, with the plans looking remarkably like an extension of the current policy in the UK. The cuts commission claims to offer a

“clear sighted analysis of the prospectus for independence”,

but it is a prospectus based on a hard decade of public spending contraction, comparable only to the cuts implemented by George Osborne. Then we have the proposal of a £5 billion annual solidarity payment to the UK Treasury, which is not far off the Scottish Government’s combined budget for education and justice.

That is a prospectus for independence built not on sovereignty regained, but more accurately on sovereignty lost over policy relating to interest rates, mortgage rates, exchange rates, inflation, money supply and corporation tax. It is based on an economic model that relies heavily on foreign direct investment, large multinational corporations and labour market flexicurity, with no plan to develop the proper industrial strategy needed to provide the high-quality, well-paid jobs that our people desperately require. No wonder the First Minister’s commission consulted 20 business organisations but not a single trade union. That is not the kind of future the people of Scotland want. The people of Scotland want the growth problems in our NHS, education, housing and the economy fixed.

Let me be clear: only Labour, just like always, has a plan to provide the investment that will fix the countless problems created by the Tories and that have seamlessly been implemented by the SNP in Edinburgh. It is Labour that will ensure that the fabric of the UK is strong once again, by investing in a society that works for the many, not the few. It is Labour that will protect people in the workplace and create the opportunities needed for young people. People will not get that from the Tories, whose policies have led to an increase in precarious work and zero-hours contracts.

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[Danielle Rowley (Midlothian) (Lab)]

I am upset to be called after the hon. Member for Moray (Douglas Ross) because as a result I was not included in his greatest hits, but there we are.

Over the past weeks, months and years, we have seen the Union becoming weakened or threatened. Some say events such as the Scottish independence referendum, the EU referendum and the subsequent mishandling of the Brexit negotiations have all taken their toll, but underpinning those events is the ongoing wrecking of our communities and people’s trust in politics by this Tory Government. We need to learn from these recent examples when the Union has been at risk, but we also need to evaluate why people decided to vote in their masses for such drastic measures and such changes to the Union.

Constituents who voted for Scotland to leave the UK and for Britain to leave the EU tell me they did so because they wanted change. They are fed up with this broken system that sees the privileged few at the top and then the many, the masses, being told that we all need to bear the brunt—we need to tighten our purse-strings. We are struggling to get by. We are saving up for nice things, but then having to spend savings on essentials instead. People are seeing their local services decimated and their streets full of rubbish, with their councils unable to afford regular bin collections. No wonder people want change.

But we cannot accept the Tory approach of sweeping all of that under the carpet and bleating on about the power of the Union while working people reluctantly turn to food banks to feed their families. But we also cannot accept the SNP approach that we have seen of peddling the lie that everything would be better after independence, while simultaneously hiding austerity in its so-called growth commission.

The Union across our nations is of course a result of hundreds of years of co-operation and decisions taken at a political level. But it is also essentially something that exists in the hearts and minds of people across the UK. For many people, being a part of the Union fills them with pride and in some cases provides them with an identity. However, sadly, in Scotland today, how we talk about our identity has changed. It is a sad fact that, as has been highlighted, some people feel forced to choose between their Scottish and British identities. None the less, there are various events that cut across the nationalistic identities, and I want to share my view of my identity.

I am from Dalkeith in Midlothian, a mining town, and just last weekend I made my way to the “big meeting” which, to explain to other Members, is the Durham Miners’ Gala. For almost 150 years, people from across the UK have made the cultural pilgrimage to Durham to celebrate our shared history and the work we are carrying out in the trade unions and the Labour party to make people’s lives better across the UK. The people who gather there have a shared identity and culture that remains unbroken within mining communities such as mine. I would feel at home in any mining community across the country; whether in Wales, the north-east or Midlothian, I could go into a miners’ club and feel at home and they would literally have the same wallpaper. But of course this identity is not unique to mining communities. My identity is class rather than nationality based, but I absolutely respect every identity that people choose. People have shared identities that come from varied communities, the NHS, common interests and sectors, family heritage and political will.

Recently, people came together in their thousands to promote British values of tolerance and equality. Members from across this House may have joined the thousands of people across the UK who protested against the values and ideas espoused by President of the United States, Donald Trump. We as a country showed that we reject his politics of misogyny and we stand up to hatred. Such demonstrations were held across the UK.

It is for those reasons, and more, that I believe that there is a commonality and a shared identity that exists across the United Kingdom, but regardless of where in the UK people are and where they live, this is being eroded by the damaging and often heartless policies of the current Government. I want to give a few brief examples.

We have a Government who are content with cutting taxes for millionaires, while at the same time cutting benefits paid to the most vulnerable in our society. Across local authorities affected by the roll-out of universal credit, we see soaring shortfalls in councils’ rental income. In my own constituency of Midlothian, rent arrears are up by more than a fifth, with temporary accommodation arrears a staggering 278% higher since UC full service began. Every penny that is lost to local authorities in rent arears represents a person pushed further into debt by this Government and their policies.

[Mr Sweeney]

My hon. Friend is making a powerful speech about the fact that solidarity transcends borders and is grounded in class politics. Does she also agree that the hostile environment policy in this country is another thing that we need to tackle collectively as one people? My constituent, Giorgi Kakava, who is in the Gallery today, is an example of someone affected by that policy, which we must challenge if all the people of the United Kingdom are to have a secure future.

[Danielle Rowley]

I absolutely agree with my hon. Friend, and I wonder what the Windrush generation feel about their British identity.

I know that this debate is on the Union, but I feel that it was important to mention those points because many people who come into my office are in need of food bank referrals or of assistance with correcting mistakes in their universal credit payments. They will be seeking a political alternative to the harsh policies affecting their lives, and that is what makes them seek change. I hope that Members across the House, especially those in the Government, will recognise the real and serious threats that these policies are posing to the Union.

For many people, the answer is to rip up the Union and go it alone, but I do not believe that that should happen. We saw that during the Scottish independence referendum, and I fear that the Government have not yet learned from that or from the European Union referendum. If they are serious about strengthening the Union, they should stop their damaging policies and instead look at new ways of strengthening and improving the Union, such as adopting a model of federalism and devolving decision making to local level.

A Labour Government would establish a constitutional convention, as described by my hon. Friend the Member for Edinburgh South (Ian Murray) , to challenge where power and sovereignty lie in politics, the economy, the justice system and our communities. We want to extend democracy locally, regionally and nationally, exploring the option of a more federalised country. We need a relationship of equals with devolved Administrations throughout the UK. In this regard we differ from the SNP, which has sought the path of centralisation to strengthen the powers and influence of the Scottish Parliament, often at the expense of local government.

So how do we strengthen the Union? We can do it by treating people right across the UK as humans and with dignity; by ensuring that we have equality of opportunity in every community in the UK; by giving workers in Scotland, England, Northern Ireland and Wales a proper wage of £10 an hour and secure work; by valuing all our workers and giving them real protections and good wages; by providing reliable and dignified support for those who cannot work; and by showing respect for our devolved nations, with well funded local councils.

I would like to give the House a quick anecdote. In 2014, I made a film during the referendum campaign, and I was privileged to come here to Parliament to interview the man I am now honoured to call my hon. Friend the Member for Bolsover (Mr Skinner). He gave me a lesson in collectivism. He told me that, in his life and looking through history, he had found that the challenges of capitalism had never been defeated by running away or by separating off and turning our back on things; instead, they had been defeated by coming together and collectively challenging the issues. So, yes, let us be ambitious and let us scream for change and an end to this top-down, unequal and unfair system, but let us choose the best way to reform our society and keep our Union strong at the same time. That is achievable, but it is clear to me—and it is becoming clearer to people up and down the UK—that the only way to do that is to deliver a Labour Government.

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[Mr Paul Sweeney (Glasgow North East) (Lab/Co-op)]

It is a pleasure to contribute to what has so far been a somewhat enlightening debate.

The starting point of my analysis in this debate, as a democratic socialist, is: what structures of governance are best situated to deliver maximum economic benefit to working people in delivering the highest possible quality of life and public services and amenities to serve their interests? That underpins my thinking. When I think of the benefits of the Union, I think back to my own grandparents and my grandfather fighting with the Royal Artillery, making common cause with people from across the United Kingdom to defeat fascism in Europe.

That common cause transcended into the spirit of 1945 and that 1945 election, which delivered the first majority Labour Government, who fundamentally transformed this country, delivering the welfare state and the pillars that underpin modern civilisation in this country. That is why I never had any doubt about joining the Labour party at the age of 16. I knew that, although it might not have delivered only good, it had delivered everything that had been good in this country in the preceding 70 years. I had no doubt that every great societal achievement and all progress this country had achieved had been delivered by the solidarity of working people acting in the labour and trade union movement. I never had any doubt either that the United Kingdom served their interests when the British state was mobilised in their service. Indeed, when I look at Scotland today, I think of the benefits that we have achieved. If nothing else holds true, Scotland benefits every year from £9 billion that it would not otherwise have to invest in the provision of public services that ensure that quality of life for people in Scotland is better than it otherwise would be. That is equivalent to £1,470 per person in Scotland every year. For as long as that figure is correct, there can be no socialist analysis for unpicking and destroying a Union that delivers that economic and social benefit for the people of Scotland.

The SNP’s analysis is so awry when it comes to dealing with that reality that it has run away from the idea of full fiscal autonomy because the transfer is undisputable. Looking at its latest analysis in the so-called growth commission report, we see that it tries to compare Scotland with other advanced economies. Speaking about the target of reducing the fiscal deficit in Scotland to under 3% of GDP within five to 10 years, Scottish Trends’ John McLaren says that

“it clearly involves a tighter fiscal strategy over this period than is likely for the rest of the UK. The Office for Budget Responsibility (OBR), currently expects the UK to have a deficit equivalent to 2.3% of GDP in 2021-22 and falling, which should allow for an easing in public expenditure settlements over time. Meanwhile Scotland will be moving from a deficit equivalent to nearly 6% of GDP towards a 3% target. It doesn’t take a mathematical genius to work out the implications.”

As long as those implications may threaten the interests of working people in Scotland, I am opposed to the notion of separation and am committed to the idea of the Union.

The growth commission assumes that an independent Scotland would achieve a GDP per capita growth rate that is 0.7% greater than it would be if it remained in the UK. However, the justification for that figure is extremely tenuous, relying on territories or countries such as Hong Kong and Singapore in the comparison set, despite explicitly rejecting their low-tax, high-income-inequality economic models. Remove Hong Kong and Singapore from the comparable countries’ growth rate analysis and 0.7% becomes 0.26%. If that were the case, instead of the 25 years that the growth commission assumes that it would take to generate £9 billion of revenue to close the gap with the UK, it would take 67 years. However, £9 billion is of course less than the £10.3 billion effective fiscal transfer that Scotland received from the rest of the UK in 2016-17, which we would of course lose on day one of independence. To test that assumption further, if we look back at the independence White Paper, the equivalent figure used then was in fact only 0.12% per annum. On that basis, it would take over 140 years to close the gap with the UK. Why on earth would anyone vote for that?

If we look at the performance of the three countries that the growth commission explicitly cites as being those it seeks to learn in particular from—Denmark, Finland and New Zealand—then, using the growth commission’s own data source, the superior growth rate becomes an immaterial 0.06%. It is becoming apparent that the comparisons are utterly fanciful. On that basis it would take nearly 300 years to close the gap with the UK—the entire length of time that the United Kingdom has existed—which is utterly absurd and demonstrates that the growth commission is bereft of any intellectual rigour.

Then there is the albatross of the currency. In designing a currency regime or mechanism for an independent country, it is critical that the regime offers the country a credible means of adjusting disequilibria—deficits and surpluses—on its balance of payments. If it does not, it is doomed to fail in the absence of a risk-sharing agreement or transfer mechanism, and we have seen that play out in Europe when Greece and Ireland suffered heavy internal devaluations and mega-austerity. That is an important lesson in the economic history of currency regimes. In thinking about the appropriate currency regime for an independent Scotland, it is crucial to have the adjustment question at the back of our mind at all times.

If Scotland were to become an independent country, it would become a net exporter of hydrocarbons. It is well known in currency economics that the crucial role of oil price changes in affecting the competitiveness of the non-oil sector must be addressed in designing a currency regime for a country with a diversified non-oil export sector and an oil sector. Otherwise, the non-oil sector gets crowded out, which has implications for jobs, output and the sustainability of the balance of payments and interest rates. It is the classic Dutch disease phenomenon. However, all the literature on the currency issue that has been generated since the referendum, including the Scottish Government’s growth commission report, does not even address that particular issue.

Regardless of the currency regime that an independent Scotland might choose, it would need a market-credible pool of foreign exchange reserves to run a currency regime. From the evidence of similar sized economies, that would amount to £40 billion, which is around one third of Scotland’s annual GDP and not a sum that a newly separate Scotland could borrow on international financial markets. The only way that such an amount could be accumulated is through running budgetary surpluses for a number of years, but an austerity programme would need to be run in any case in order to establish the “hard currency” effect, so the reserve accumulation issue can be seen as reinforcing that effect.

The growth commission’s alternative to the 2014 White Paper’s formal currency union would be to adopt the pound, much as Panama adopts the dollar, Montenegro adopts the euro and so on. That is a currency substitution system, but such a system is viewed as inherently unstable by economists because it is subject to the whims of individuals’ expectations and the effects that these can have on demand for money, which can lead to changes in supply through the balance of payments. There would be no effective control over the money supply in Scotland and no lender of last resort function because changes in the current account of the balance of payments would directly affect the money supply in the Scottish economy. For example, a surplus on the current balance would increase the quantity of sterling in the economy, which would have inflationary implications. Conversely, a current account deficit would draw money out of the economy with deflationary implications.

To deal with such flows, a separate monetary authority would need to be set up to smooth those effects, but the evidence from similar-sized economies to Scotland, such as the Nordic countries, is that foreign exchange reserves of upwards of £40 billion are needed to achieve that. If the monetary authority were prepared to offer deposit insurance of £120 billion of retail deposit accounts in Scotland, it would need to accumulate foreign exchange reserves of £160 billion, which is greater than the entire Scottish GDP. Those are extraordinary figures.

Where would the money come from, given that the balance of payments of an independent Scotland would have a deficit of between 2% to 5% of GDP? It would need in the region of £6 billion to £7 billion just to cover those international obligations. The only way those sums could be achieved would be through a massive austerity programme. For context, the Scottish NHS budget every year is just £13 billion. We can wipe that out right away. The proposal is simply not a sustainable proposition that anyone of a socialist background could endorse.

All the points I have made focus purely on the monetary implications, but let us look at the competitiveness of the non-oil export sector with the effect of the oil price changes. That would massively impact on the competitiveness of the Scottish economy, entailing mass industrial closures of a scale we saw through the 1980s. Indeed, any alternative, such as a form of sterlingisation with a currency board, would need the currency to be backed 100% by foreign exchange reserves, which again is an unsustainable position. Such systems require considerable amounts of foreign exchange—both cash and reserves—to back deposit accounts. The Hong Kong experience shows that £200 billion of reserves are required to run a currency board. Those massive sums of money in turn require policies of fiscal austerity, balance of payments surpluses and no lender of last resort function. Again, the loss of competitiveness issue would not be addressed in that set-up. It is simply not viable as a currency option unless the Scottish Government are intent on handing over large sums of Scottish taxpayers’ money to hedge funds and speculators.

Interrogating the Scottish growth commission’s proposals demonstrates that they cannot offer a socialist solution to separation. That is why the growth commission has achieved only one thing: it has demonstrated that the huge benefits we derive from being part of the fiscal, monetary and political union are as relevant and integral to quality of life in Scotland today as they have ever have been. That is why we continue to argue as the socialist Labour party that we must marshal the forces of the British state to deliver the best quality of outcomes for the people of Scotland by utilising its fiscal and monetary powers to deliver world-class public services for the people of Scotland. We stand by that commitment today, as we did in 1945 when this party built the national health service and the welfare state.

[Stewart Malcolm McDonald (Glasgow South) (SNP)]

It is interesting to follow the shadow Minister. He has been a Member of the House for a year and personally I get on with him incredibly well outside the Chamber, but he is a shadow Scotland Office Minister and, in the 10-minute speech he just gave on strengthening the Union, he did not put forward one single policy on how he sees the Union being strengthened. Instead, we were treated to a 10-minute anti-independence diatribe.

[Mr Sweeney]

rose—

[Stewart Malcolm McDonald]

I will give way to the hon. Gentleman shortly, but I want to get into the crux of what I am going to say first. I will be generous to the Minister who will be summing up, the Under-Secretary of State for Defence, the hon. Member for Pudsey (Stuart Andrew). I congratulate him on his appointment to the defence procurement portfolio. He has been a kind and honourable Member in the time I have been here and, as my party’s defence spokesperson, I certainly wish him well. However, I am afraid to say that the opening speech by the Minister for the constitution, the hon. Member for Norwich North (Chloe Smith), was something else. I do not think I have heard a speech delivered through such rose-tinted, “Land of Hope and Glory” lenses, despite several Members being strong in the running to beat her on that. It shows such an incredible lack of self-awareness to bring forward a debate on strengthening the Union the day before the UK Government take the Scottish Parliament to the UK Supreme Court. But a lack of self-awareness is only one of the things that plagues politics in this place. I will come back to the others later, but I said I would give way to the hon. Gentleman.

[Mr Sweeney]

I thank my fellow Glasgow Member for giving way. I have to put to him that the fundamental ethos of my argument was based on the idea that the British state can marshal far greater fiscal and monetary benefits for the quality of life of the people of Scotland. That underpins what I was arguing for, in the spirit of 1945. Does he agree that that is a fair analysis?

[Stewart Malcolm McDonald]

I agree that the hon. Gentleman believes that to be the case. I am afraid I do not believe that to be the case. Like him, I see too many injustices delivered by the British state through the welfare system, the rape clause and the provisions that affect the WASPI women—I am sure he meets many of them in his constituency—so I do not buy his argument. I just think it is a shame he has become so convinced by it.