Having economists in politics isn’t always such a bad idea

In Gerry Hassan’s column on Tuesday, there was an argument that the SNP will need to become more effective once there is a Labour government at Westminster. Characterising the SNP as a social democratic party, he also lamented the failure of such parties to develop a creative alternative to the conservative doctrines which have dominated Western European political discourse since the 1980s.

For politicians to do this seems very difficult. They are generally too busy solving practical problems to find the time to provide the intellectual basis for such a political movement. In writing about economics, I try to keep one eye on the implications for policy in Scotland after independence.

That brings me quite neatly to Professor Hassan’s doubts about whether Rachel Reeves could ever be an effective chancellor of the exchequer in a Labour government because she once worked as an economist in the Bank of England.

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There is nothing new about political observers having doubts about economists in politics. David Ricardo, possibly the only MP to have been richer than Rishi Sunak, turned to both economics and politics on retiring from his work in the City of London. His wealth allowed him to buy an Irish seat in the unreformed Parliament of 1818. In the House, he was initially heard with respect, but was then quickly denounced as a “theorist” who sounded like he had “just arrived from another planet”.

Professor Hassan doesn’t go quite that far in dismissing Reeves as being in thrall to “neoliberalism.”. Where he sees unnecessary caution, with my rather different biases, I see a sound understanding of both the capabilities and the limitations of economic policy.

Specifically, I see a determination to ensure that the achievement of long-run objectives will not be undermined by promising more than can safely be delivered.

In a week during which a former prime minister claimed she was driven from office by the champagne socialists of the financial markets (and the IMF), a reputation for economic competence is surely the minimum that the Labour Party, and indeed the SNP, might require.

The most effective chancellors of the exchequer provide other government ministers with the foundations on which substantial reforms can be built. Some of that work will involve reforming the tax system, simplifying it to increase the amount collected, while spreading the burden by limiting exemptions, and ensuring tax demands are equitable.

Coming up with a list of desirable reforms is very easy. Building the political coalition needed to implement them is much more difficult. Making expenditure rather than income the basis of taxation would provide incentives for saving and investment, while having the potential to eliminate the extremely favourable treatment of capital gains.

In Scotland, where the government already has the capacity to manage the revenue powers of local government, much could be achieved through the introduction of a land value tax.

Another side to the work of a good finance minister involves standing up to colleagues who want to spend just a little bit more money – in the UK, a job which is generally delegated to the chief secretary to the Treasury. Of course, government departments always want to spend more money. The NHS needs investment. Its staff need to be paid better.

We could do with more invention and innovation as part of a plan to revive economic growth after the self-harm of Brexit. The government can help to underwrite that, absorbing huge uncertainty at which even venture capitalists would baulk.

With labour productivity falling, we need to invest in education and skills. The Prime Minister wants all students to carry on studying maths until they are 18. Without a large increase in the number of skilled teachers, that won’t happen.

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The Home Office wants to deter people coming over in small boats by sending as many as possible to Rwanda. The Ukraine War will lead to a re-assessment of the necessary role and capabilities of our armed forces.

We may disagree with the political priorities of the current government. But its Chief Secretary, John Glen, will repeatedly have the same conversation with his colleagues as all his predecessors, pointing out that just because we can do something doesn’t mean that we should do it.

Government, ultimately, is about priorities and choices. We ask our politicians to steer a passage through a sea of uncertainty. We elect them because the stories that they tell about how they will do that seem convincing to enough people at that time.

In office, we let them respond to rapidly changing circumstances, reserving the right to elect others when we lose trust in their abilities.

There is much more to discuss, perhaps most importantly the question of what the role of the public sector should be. In England, the NHS is slowly being turned into a purchaser of services from private companies. The natural endpoint of such a process would be for it to become a publicly owned insurer, constantly negotiating with providers.

In this context, the private sector is everything outside government. So, one social democratic story would be to stipulate that only certain types of organisation – such as trade unions, charitable trusts, and religious foundations could become health providers for the NHS.