THE catastrophic mini-Budget statement by the UK Chancellor has rightly been condemned by the financial markets, most economists, the media, ordinary people across Scotland, opposition political parties, even many Conservative politicians (excepting the little band of Scottish Tory parliamentarians predictably intent on furthering their selfish and divisive agenda within Scotland), and even the IMF.

This reflects almost universal abhorrence of the overt discrimination against the poorer sections of society (at least in the short term), and widespread scepticism about the likely effectiveness of the strategy to increase economic growth and the severe consequences of the pound’s depreciation on inflation plus the additional threat to the cost of living likely to result from further increases in interest rates by the Bank of England.

Could I, however, sound a cautionary note for those of us who support Scottish independence? It is important to be clear why the Chancellor’s statement was such a major error and not unthinkingly endorse all the criticisms which have been made.

The fundamental failure which “spooked” the markets was to present a series of headline tax cuts without reference to the overall future fiscal position of the UK as normally assessed by the independent Office for Budget Responsibility and without setting out any strategy for funding or accounting for the increased public-sector deficit. Indeed, far from considering an integrated approach, the UK Government has chosen to emphasise the supposedly independent role of the Bank of England introduced by the Labour government in 1997 to placate the anti-democratic agenda of the financial markets and to distance itself from the Bank in an attempt to shift the blame.

There is nothing inherently wrong in a government with its own independent currency running a significant public-sector deficit, despite erroneous claims to the contrary by orthodox economists, most of the media, and the general public who have been misled by “neo-liberal” ideology over many decades to regard such governments as needing to raise taxes in order to fund public expenditure much like individual households. But a currency-issuing government, working in conjunction with its own central bank, can create money and has many options to fund or account for increased money supply, including by borrowing from financial markets with or without involving the central bank purchasing bonds through quantitative easing.

This was done by the UK Government in response to the 2008 financial crash and the 2020/21 Covid crisis without causing a run on the pound. If implemented in the right way, it is possible to avoid interest payments or even “pay back the money”. A post-independence Scottish Government would almost certainly need to and should run a fiscal deficit as outlined in the report The Road to the Scottish Currency published in July by a Working Group of the Scottish Currency Group chaired by Dr Robbie Mochrie of Heriot-Watt University.

While there are constraints on the extent to which such an approach can be used without causing inflation, we should not join the chorus of complaints by “neo-liberal” economists and politicians on this particular issue. The balanced budget fallacy, now endorsed as the hallmark of “responsible economic policy” by the Starmer/Reeves Labour Party, will – if they gain power and adhere to it – inevitably lead to austerity, public expenditure cutbacks, and a failure to address pressing problems. There are plenty of other grounds on which to criticise the Kwarteng statement, but being willing to contemplate an increased public-sector deficit is not one of them.

John Randall
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