Thursday, December 30, 2010

Scottish Government Attacked by Iain McMillan - Again

A piece I did for Newsnet Scotland:

by Alex Porter, Economy Editor

Seasonal messages are popular with public figures. The President of the USA has a Christmas message. In the UK the Queen and in Scotland the First Minister both have seasonal messages and so apparently does Iain McMillan of CBI Scotland.

In his New Year message the Confederation of British Industry (CBI) Scotland director says SNP Ministers have implemented "too many policies that are likely to hinder business and the economy and for which the Scottish Government deserves to be sharply criticised".

The Economic Case

The first of the SNP's sins and one of Iain's recurring themes is 'cancelled transport projects'. Does this criticism ring true? The SNP have ploughed money into various transport projects such as the completion of the M74, completing the M80 to motorway standard, the Forth replacement crossing project and the completion of the Airdrie to Bathgate rail link which is the largest railway development in Scotland in a century. Let's also not forget the Edinburgh trams project foisted on the capital by the unionist parties opposition bloc vote at Holyrood at considerable cost to the taxpayer and now considerable pain.

However, aside from misrepresenting the Scottish Government, what of the economic merits of such transport projects? Britain's total debt including household debt is 466% of GDP. This is the second worst in the world behind Japan. However Japan has a manufactuing base and its debts, unlike the UK's, are largely owned by its own citizens.

Britain is argued by many international investors to be the most endangered economy in the developed world. In November, UK borrowing reached a staggering and unprecedented £23.3bn. As the UK government can't meet its debt payments it, along with the Bank of England, is simply printing money and so is technically bankrupt. You'd imagine that business leaders would be advising the government to save its money. Not Iain McMillan. Presented with his now regular Scottish media platform this hard-nosed capitalist is arguing for keynsian-style economic stimulus.

Given that the UK is in the midst of an economic crisis which is well beyond a mere recession where less people are going to work, less business trips are being made and there's a dip in tourism, the burden on the transport system is sharply diminished. You would expect that against this backdrop, 'business leaders' such as McMillan would applaud the SNP government for not spending money to buy votes - which is one of the reasons that Western economies are in the mess they are.

Not Iain who has embraced Scottish Labour's transport hobby horse with relish. Would the contracts for said transport projects go to consortia Iain lobbies on behalf of per chance? Is Iain McMillan part of the economic disease which is eating away at the Western economies - croney capitalism?

For some reason big business wants socialism for itself but not for the working population. The poor and the working population get the capitalist medicine. They have to live with the economic consequences of their circumstances - pull their socks up or perish by the wayside. Big business doesn't have to fight to survive however. Business Oligarchs such as those who Iain represents want state benefit hand-outs in the form of bailouts and government contracts. You see, they have rights and privileges that the rest of us mere mortals don't.

As the UK's public finances are in such a parlous state, Scotland's block grant is to be slashed to the tune of £1.3 billion. The Scottish government is critical of the UK government's austerity measures. They are right to be. There is absolutely no evidence that they will do anything but undermine economic performance. The evidence of Latvia, Argentina, Greece and now Ireland points to economic mayhem as a conequence of austerity.

You can look at the problem in two ways. Firstly, government spending is spiralling out of control and secondly, government tax receipts have collapsed.

Austerity will reduce spending but it will almost certainly reduce income too. The question is by how much? Cutting public sector jobs and benefit allowances will cause a dramatic reduction in the population's expendible income meaning less VAT revenues for the government and triggering a fall in retail sector jobs which in turn will spark a steep rise in overall social security expenditure. These job cuts will also see more mortgage payment defaults meaning downward pressures on house prices. As interest payments go up as forecast, this process will multiply causing people to spend less as they strive to keep a roof over their heads.

For his clients Iain McMillan wants stimulus and juicy government contracts. For you and me he advocates austerity cuts. When not talking on behalf of the large business interests he represents Keynes is suddenly not Iain's cup of tea:

"John Swinney continues to berate the UK government for spending cuts, but the UK government's approach is supported by us in the CBI."


The outcome of austerity is at best uncertain but to be as a sound economic strategy it must first pass the test of being equitable. Is it?

The UK is in its death throws because of the fraud which is endemic across the financial sector. Who is to suffer? Not the banks - they get bailouts. Not big business - they get government contracts if lobbyists such as Iain get their way. No, the ordinary working citizen should be forced to cough up again and again and again.

Who else does McMillan represent? Oh yes, supermarkets.

In his November Budget John Swinney said that from next year retail properties with a rateable value of more than £750,000 would pay a higher business supplement - an increase he hopes will raise an additional £30 million in 2011-12. McMillan is a bit perturbed by this explaining that Swinney's policy "discriminates" against supermarkets "risking increased prices for consumers, fewer jobs and less investment in that sector".

Let's think about this for a second. Small retailers and indeed farmers all over Scotland have been put out of business by the predatory tactics of supermarkets. This has caused enormous damage to communities. How so? Simple economics: I spend a pound in the barbers across the road, the barber spends a pound in the butchers, the butcher spends a pound in the bar and so on. It's called money velocity. This keeps a community wealthy.

When the supermarket swaggers into town the money that goes into their tills goes immediately into the Swiss bank accounts of their shareholders and the community they 'serve' becomes blighted by social exclusion and alienation. Before there were skilled jobs running shops, keeping books and inventories, working with suppliers and with the local community but after, all you can do is push shopping trolleys around, sign on the dole or emigrate. Is this the kind of sound economic policy a government should pursue on behalf of the nation it represents?

That is the kind of Scotland Iain McMillan's 'leadership' will take us to. Unemployed and/or unskilled, bare minimum of public services and impoverished, barren and debt-laiden communities marked by supermarkets, betting shops and charity outlets. Those Iain represents will be as neo-feudal lords and the gap between the rich and poor akin to Victorian Britain.

While the SNP are going to make it more difficult for supermarkets to, according to well-rehearsed business plans, savage community retailers and farmers across the land they have also abolished business rates for many thousands of small business - the back bone of all communities and economies. None of this was mentioned in McMillan's New Year message and by extension those in the Scottish media who parroted the message.

The Agenda

Does McMillan's agenda go beyond representing big business interests many of whom are headquartered furth of Scotland?

Well, Iain is not happy that the SNP government spent £1 million on its National Conversation on the constitution. Yes, £1 million is a lot of money for individual taxpayers but not a lot in terms of government spending. The AV referendum that no-one is interested in will cost £millions, the trial of Tommy Sheridan cost £5 million, the wars £billions, the bailouts £trillions but £1 million spent on consulting the population about its national constitution exercises Iain quite a bit.

Iain McMillan, Director CBI ScotlandPerhaps that's because Iain McMillan (pictured) was on the Calman Commission which cost many £millions. The Calman Commission was also a discussion about the constitution but was one comprising the unionist parties which set it up after the election of the SNP government in 2007. Observers note that its function was to contain the new SNP government's drive towards economic independence. One of the ideas rejected out of hand by this unionist commission was full fiscal autonomy. The reason was not that it wouldn't have helped Scotland, it was rejected because it might have harmed the Union.

But how has the Calman Commission proposals been received in Scotland? Eminent economists have described it as transferring "not nearly enough" economic powers and as "dangerously flawed" and "unworkable". Indeed only last month a group of prominent Scottish businessmen and women and academics took out adverts in Scottish newspapers calling for Scotland to be given more powers than Calman proposed.

Furthermore the Scottish Parliament's Scotland Bill Committee, which is supposed to scrutinise the powers, is chaired by Wendy Alexander who, as leader of the Labour group in Holyrood, resigned amid accusations of financial corruption in 2008.

The recent Scottish Social Attitudes Survey 2010 shows that the electorate wants the Scottish parliament to have significantly more powers, including 57 percent favouring full tax powers and 62 percent wanting Scotland to have control over benefit payments. Calman falls well short of that desire. Scotland's prestigious Council of Economic Advisors has argued in favour of economic independence so that Scotland can be sheltered from the dire state that the UK economy is in whilst keeping the surplus that is currently shown in Scotland national accounts (GERS) to benefit businesses and Scottish institutions like the university sector.

This polling evidence and case cuts no ice with Iain McMillan. To understand why, we must keep in mind that many of the interests that he represents are not headquartered in Scotland - they simply have Scottish 'operations'.

A number of years ago McMillan was slapped down by his own membership for his aggressive anti-SNP rhetoric in the lead up to elections in Scotland. Many of his Scottish members are supportive of the SNP and felt misrepresented by their Director General.

What do others think and what are we to make of Iain McMillan then? His economics shifts between 'keynesian' subsidies for his clients and austerity for the general public. He misrepresents his own members and involves himself in constitutional politics, being found often in the company of leading unionists some of whom are tainted with allegations of corruption.

Do his public messages on behalf of the CBI, and which are regularly covered in the pro-unionistScotsman newspaper as "Leading business figures launch a scathing attack" on the "SNP's record" tell us anything useful about Scotland's economy or the Scottish government's economic record?

Perhaps as a contrarian indicator. Other than that all we can really decipher is that Scotland's economy seems to be of secondary importance to Iain, well behind the narrow business interests he represents and way behind his political agenda.

4 comments:

Mr. Mxyzptlk said...

Alex


one must take seriously what the 'eminent and prestigious'
Iain McMillan of CBI Scotland says about the snp party in power.

Bob said...

Alex. In one of your previous articles you said " To make matters worse putting tens of thousands of public sector workers on the dole will mean less income tax revenues"
Maybe we should put everyone on the state payroll. 100% employment and lots of tax revenues. Sorted ! Oh no hang on.....
The reality is that the public sector should be cut to the bone. Every state job needs the support of 10 private jobs. The private sector is being hammered while thousands of non jobs are still being created. Councils are incompetent and yet pay their top executives twice what the PM gets ( ok cast iron is a cock but he's still the PM). Give the money to the wealth creators and not the wealth detroyers in council offices around the country. Scrap VAT, scrap income tax for low earners and hold it at 10% for higher earners. It would be a start anyway.

Alex Porter said...

Hi Bob,
Much as though I like small government I don't go along with the 10:1 ratio.

The most important thing is sounds money, stop the wars, renegotiate PFI, scrap trident, reconstruct the financial sector. Once its all fixed simplify government but make it well financed..

Given the system we have if you chuck these people out of work to save money you have to calculate not what you save in salary but what you loose in other costs. Right now is the wrong time to change the economy like that. You make big changes when the economy is in good shape.

There is clear evidence that certain services work well in the public sector. While I agree that we should simplify local government I think we should finance it well. The most important thing is to disconnect business from government as much as possible as that causes corruption..

Bob said...

Alex. Yes we could pretty much halve our debt by stopping overseas aid, scrapping Trident, scrapping any more PFI, pulling out of Afganistan etc.
The 10 private sector workers required to support a public sector worker is probably an underestimate.
Once you consider the costs of pension, national insurance and pay then it's probably more than 10 times the average tax of a private sector worker to cover the cost of one public sector worker.
3 private sector workers are required just to cover one OAP's costs.