After the war, we must win the economic peace – Donald Cameron MSP
Times like these are perfect for revealing one’s true nature. For instance, glass “half-full” or glass “half-empty”?
I’m usually the former, so when it comes to considering where next for our economy when we eventually emerge from the shadows of this terrible disease, my natural optimism comes to the fore. Indeed, it was boosted after speaking to a friend who lived in Hong Kong during SARS: he remarked that the Far East economy had in fact bounced back much more quickly and vibrantly than anyone expected, despite the naysayers.
Even if the recovery is quite swift after the crisis, this will still be the most dramatic hit to growth in the UK for 80 years, with long-term effects that will strike deeper and harder than anything we experienced in the wake of the financial crisis of 2008. Plainly, much depends on how long the global lockdown lasts, but in the UK there is no doubt we’re in for a recession with a big surge in the national debt, and forecasts of a substantial drop in GDP.
Closer to home, the Fraser of Allander Institute last week estimated that, if restrictions continue for a three-month period, Scottish GDP could contract by around 25%. A quarter of the nation’s wealth gone. That would be nothing short of brutal for jobs, growth, and prosperity. And it’s hard to see the economics of devolved government returning to normal any time soon.
The Scottish Budget, passed just over a month ago, is already redundant. We’re going to see a reduction in income tax receipts and a spike in welfare spending, against a fiscal backdrop which was challenging even prior to the virus. One thing to watch (with specific impact for future Scottish Budgets) is the comparison between how Scotland fares in contrast to the rest of the UK, and to specific regions within the UK, such as the South-East. In any event, the standard forecasts for economic growth (both by the OBR and the Scottish Fiscal Commission) will require significant revision which in turn will affect both the block grant and the adjustments made to that grant under the fiscal framework. Indeed, the crisis may entirely overtake both the current fiscal framework and the next one, due to be negotiated next year.
Much else has been swept away. Just as we wondered at a Labour government bailing out the financial system 12 years ago, so the fact that a Conservative government has enacted an economic rescue, by injecting billions into preserving both the national economy and its workforce, is also astonishing. The old, clichéd arguments we used to have about austerity, state intervention, nationalisation, and NHS investment sound dated, if not obsolete. The rhetoric around tax and spend we’ve got so used to hearing over the past decade at both Holyrood and Westminster is finished. This is a new world symphony, not merely variations on a theme.
Beyond these general observations, it’s a mug’s game to try and make any kind of specific prediction about what will happen to the economy.
Far better to try to think what should happen.
First, we need to concentrate on the local economy and smaller business far more than we do at present. Representing a huge rural area, my inbox has been swamped by small businesses who are bearing the brunt of all this: the little hotels and B&Bs, the town retailers, the family firms, the self-employed. It’s a salutary reminder that the real engines of the economy are these small and medium enterprises. They have suffered most and that’s where long-term help needs to be directed, and quickly.
Promoting economic growth at the local and national level will become the primary, essential objective. Scotland already lags the rest of the UK in terms of growth and the urgency with which this requires to be addressed will be accentuated. The skills agenda has to be a part of it as well. We have seen a huge dip in demand in most sectors, but a huge increase in others – at least temporarily. The importance of essential transferrable skills is plain to see. That’s why lifelong, flexible working needs to be the next stage in the evolution of our skills system. It’s directly applicable to the current crisis.
With all that, comes political pressure to ‘level up’ more generally – a narrative which will continue after this crisis subsides. In many ways, the reckoning that never quite happened in 2008-9 will come to pass. Governments will have to step in to help people or will suffer a backlash: a broad but nimble statism will now be expected by the public. In terms of the private sector, people will remember the companies who conducted themselves well during the crisis. And companies that behave unethically or fail to pay their civic dues in the future, will neither be forgiven nor forgotten. The “responsible capitalism” agenda should rightly see a renewed impetus: firms which prioritise fair work, and place their staff and customers before the bottom line, will benefit. That doesn’t require a radical reorganisation of the economy, but it does require agility and imagination by policy-makers in Scotland and the UK, where government has an obvious role to play.
Above all, we need to think about economic recovery now rather than wait till the worst of the crisis is over. We have to get on and win the peace, as well as win the war.
There will doubtless continue to be dark times ahead where companies fail and livelihoods are threatened. But in relation to the economy, somehow, I hope we begin to do things better once we get through this.
So yes, glass half-full.
Donald Cameron is Shadow Cabinet Secretary for Finance and Conservative MSP for Highlands and Islands region