In this extract from his speech delivered at the LSE, First Minister of Scotland Humza Yousaf argues that a dangerous consensus between the Conservatives and Labour is to blame for the UK’s wounded economy. Scottish independence would not only benefit Scotland but ultimately the rest of the UK by shaking up the Westminster consensus.

It is the UK’s relations with Europe and Brexit of course which in many respects form the backdrop to my remarks today. But I will start off with another “B word” – last week’s Budget. It is the Scottish Government’s view that the UK Government’s budget is one that sacrifices public services such as the NHS in favour of unsustainable tax cuts, a tax cut worth £1500 to MPs, if taken alongside the NIC cut announced in the Autumn.

In its coverage, the Financial Times warned of a “brutal fiscal reckoning” for whoever forms the next UK Government. The speculation, and then reaction, around changes to tax in particular, mask the deep-rooted – or to mix my metaphors –hard-wired problems with the UK economic model.

Ed Balls, the former Labour Cabinet minister and adviser to Gordon Brown, who is now joining an increasing list of podcast hosts, summed up the key issue recently when he wrote: “why doesn’t the British economy grow anymore?” Brexit and austerity seem good candidates to answer Ed Balls’ question. But it is my contention that the problems with the UK economy go much further, and deeper, than recent poor, even catastrophically poor, decisions such as leaving the EU.

Consensus and consistency should be good things for business. In theory they provide stability. But not if the consensus is taking the country in the wrong direction.

The Westminster consensus

As I have already mentioned, the UK economy is characterised by low growth. It fell into recession last year. Real wages have been stagnant. Inequality is high. Productivity growth – the key driver of living standards – has been poor. Business investment is low. Public capital investment has also been both low and volatile. And, as so many have highlighted, the UK displays a remarkable and persistent level of geographic inequality, with an unhealthy and unstable reliance on this great city of London.

This all supports the conclusion of analysis published in the Financial Times, which described the UK as a poor society with pockets of rich people. It has even been argued that UK economic performance has been so poor it has decoupled from the economic development path of other wealthy countries. Indeed, the Shadow Chancellor has said she will inherit the worst economic situation of any incoming UK government since the Second World War.

This is a far cry from the future that was promised to Scotland by those who opposed independence in 2014. Back then it was the alleged strength of the UK economy that was trumpeted. Ten years on and the talk instead from those same people is of UK economic carnage.

So the problem is this: a UK economy that has failed the people it is meant to support. What then about the solution? This is where the Westminster response to the problem falls woefully short. If we accept the analysis that this is the worst economic situation since 1945 we might expect a serious, transformative policy programme in response.

But despite some fierce political rhetoric, what we have now, even in the face of such a dire economic diagnosis, is in effect a Westminster “no change” consensus. Consensus and consistency should be good things for business. In theory they provide stability. But not if the consensus is taking the country in the wrong direction. Keeping on a steady course to hit the iceberg isn’t exactly the way to provide stability.

In Scotland, in contrast with the view at Westminster, I believe there is broad agreement that Brexit has damaged the economy and public services and that it should be reversed.

The Scottish Consensus

There is also, I believe, a consensus north of the border. But it is a very different one to that which we see at Westminster. That means two fundamentally different futures are on offer to people in Scotland. And that in turn begs the question of who gets to decide that future. Should it be decided by people in Scotland or by the UK Government at Westminster?

So let me compare the Westminster no change consensus, with the change agenda I believe most people in Scotland favour. Amongst Westminster based parties, there is a consensus that the UK should stay out of both the EU and the huge European Single Market – whatever the cost. The National Institute for Economic and Social Research suggests that compared to EU membership, the UK economy was 2.5 per cent smaller in 2023, and it expects that figure to rise to 5.7 per cent in little more than 10 years’ time.

That means £69 billion could have been wiped from national income in 2023, which equates to £28 billion of tax revenue A population share for Scotland is £2.3 billion. At present around 60% per cent of spending in Scotland is on devolved services. So with the same level of borrowing and taxation, that means without Brexit devolved spending power for vital public services such as the NHS could have been £1.6 billion higher than today.

At Westminster there is agreement that tax rates on high earners should not be raised to help pay for public services.

In other words, we have suffered an estimated cut of £1.6 billion that could have been available to invest in Scottish public services because of a Brexit people in Scotland overwhelmingly rejected. Looking to the future, The Office for Budget Responsibility say they expect the UK’s potential GDP to fall by 4 per cent in the long run because of Brexit.

As Professor Anton Muscatelli, the economist and principal of the University of Glasgow said, such a GDP reduction has “a massive impact on either funding public services or cutting taxes, depending on your political inclination”. So in Scotland, in contrast with the view at Westminster, I believe there is broad agreement that Brexit has damaged the economy and public services and that it should be reversed.

But the differences between the Westminster and Scottish consensus goes further than Brexit. At Westminster there appears to be agreement that public investment will have to fall as a percentage of national income over the next Parliament.

The Scottish Government wants to increase public investment. Of course, increasing public spending can also stimulate the economy. Whether that is in capital infrastructure which creates jobs, or investing in free childcare which helps parents, mainly women, get back into work.

At Westminster there is little to no appetite to tackle inequality. There is agreement that the two-child benefit cap should continue. In Scotland we want it scrapped. If it was scrapped this one measure alone is estimated to lift 250,000 children out of poverty overnight across the UK – according to the Child Poverty Action Group.

By voting for positive change, we in Scotland will have voted for something which leads to a fairer, more productive economy for the rest of the UK.

At Westminster there is agreement that tax rates on high earners should not be raised to help pay for public services. In Scotland we have put in place a more progressive tax system, which unashamedly asks those who earn more to pay more in order to invest in public services. And in a highly symbolic but instructive move there is now agreement between Tories and Labour that the cap on bankers’ bonuses should be lifted.

Because of this no change cosy Westminster consensus, the UK is going to remain a low growth, low productivity, low living standards, high inequality economy with an over-concentration of wealth in this fine city I’m speaking to you in today.

Given the state of the UK economy and the impact on living standards the economic argument in favour of independence has never been stronger. At the heart of that argument is the idea that decisions about Scotland should be made in Scotland.

If Scotland were to become independent that would be precisely the kind of jolt needed for a serious re-examination of that prevailing Brexit-based, damaging consensus that is being pursued by Westminster at such a cost.

By voting for positive change, we in Scotland will have voted for something which leads to a fairer, more productive economy for the rest of the UK.

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

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