Scotland's Macroeconomic framework
A Group of internationally renowned economists have presented to Scottish Ministers their first set of recommendations and proposals to deliver a framework for economic stability and sustainability in an independent Scotland.
The Fiscal Commission Working Group was established in March 2012 to provide impartial technical advice on the economic choices, challenges and opportunities for Scotland post-independence. It is chaired by Crawford Beveridge CBE and includes Professors Andrew Hughes Hallett, Sir Jim Mirrlees, Frances Ruane and Joseph Stiglitz.
The first report sets out a detailed range of comprehensive and considered proposals for currency arrangements, financial stability and fiscal policy.
The 200 page report puts forward a number of recommendations for the Scottish Government to consider. It is built upon the key principles that form the basis of a sound macroeconomic environment for modern economies. These include:
- Retaining Sterling as the currency for an independent Scotland in a formal monetary union with the rest of the UK.
- A shared model of Governance and accountability to coordinate Monetary and Financial stability across the Sterling Zone .
- Full fiscal and economic policy flexibility for Scotland to promote sustainable economic growth and meet the key challenges and opportunities facing Scotland in the years ahead.
- A stability fund to manage oil revenues and invest for the future.
Scottish Ministers will now consider the detail of these proposals in advance of the White Paper to be published in the Autumn of this year.
The report calls on the Scottish Government and the UK Government to begin discussions on the technicalities of such a proposition and argues that constructive engagement ahead of the referendum would benefit both countries.
Chair of the Fiscal Commission Crawford Beveridge said:
“Scotland has the clear potential to be a successful independent nation. A macroeconomic framework, that is based upon fiscal discipline and financial stability, is an important pre-requisite for prosperity, fairness, economic opportunity and security.
“The proposition the Fiscal Commission Working Group has put forward is a workable blend of autonomy, cohesion and continuity. It is a well engineered model designed for day one of independence.
“We have taken the status quo as a starting point, and ensured our proposals are robust, flexible and attractive to key partners in the rest of the UK and the EU, while at the same time providing significant policy autonomy to Scotland.
“The framework proposed would represent a substantial step-change in the economic powers of the Scottish Parliament and greatly increase the economic and social policy levers at the disposal of policymakers in Scotland.
“It would ultimately provide full control, in terms of economic sovereignty, to the people of Scotland.”
The report concludes that;
- Scotland has the clear potential to be a successful independent nation. Part of the series of steps toward independence would include the creation of a robust macroeconomic framework.
- Independence would mean that decisions and policies could be tailored to the specific needs and circumstances of the Scottish economy – both in the short-term and long-term, creating a clearly accountable link between the development of economic policies and the performance of the economy. With these new opportunities would also come new responsibilities.
- Under independence the Scottish Government would have a range of new policy levers to boost growth, address inequality and stabilise the economy including; taxation, capital borrowing, welfare and social security, regulation, competition law, immigration.
- There could be opportunities for example to support the overall business environment, by careful use of tax powers.
- Independence could in theory also allow opportunities to develop nuances within the system to support local competitive advantages.
- A number of resource rich countries and regions within countries have establish oil funds to assist in stabilising their economies, or to underpin long-term social provision. The Working Group believes that this would significantly enhance the economic protection currently available to the people of Scotland.
Focussing on the next steps Mr Beveridge added:
“The Working Group believes, post-independence, it would be in the clear economic interests – for trade, competition and financial stability – for the UK to respond positively to the overall structure of the framework proposed.
“We encourage the Scottish Government, the UK Government and other interested parties to engage productively on this proposition at the earliest opportunity to provide clarity on some of these key economic issues. This will allow the people of Scotland to make an informed choice in the referendum.”
On receiving the report on behalf of the Scottish Government, Finance Secretary John Swinney said:
"This important work by the Fiscal Commission Working Group proves the necessary preparations are taking place to ensure an independent Scotland is ready for the challenges ahead. This incredibly detailed paper is one of the most thorough assessments of Scotland’s economic position, challenges and opportunities and provides an important contribution to the debate on Scotland’s constitutional and economic future.
“The Government will consider carefully the recommendations of the report as we continue with the development of the White Paper. The Fiscal Commission Working Group will now turn its attention to the opportunities that independence will bring for the Scottish economy. I look forward to these further publications and recommendations.”