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Labour's Vision For Scotland is Grim

As the UK economy continues to lag behind the rest of Europe, dipping in and out of recession, people living in Scotland are crying for change. UK Labour are soaring ahead in the polls and are almost guaranteed to bring down 14 years of Conservative governments. As many will hail this as a soon-to-be political triumph, closer inspection of Labour's policies shows a drastic lack of imagination and the threat of continued economic instability.

What is Labour's vision?

Any hope of progressive policies to tackle the cost-of-living crisis coming from Labour has continuously been crushed by their own fiscal rules.

Labour had originally proposed spending £28 billion a year on a Green Transition for the economy, which was particularly important considering the UK government had missed almost every single climate change target over the last few years. Large public investment is in fashion and demanded if we are going to save both the climate's health and societal stability. This is a reality that even the Financial Times has accepted, writing: "Massive deficit spending will be necessary". Labour's original investment plan accepted the scale of the problem that is climate change.

Now the pledge to spend £28 billion a year has been scrapped. The Shadow Chancellor Rachel Reeves argues that instead she will look to the United States for her economic vision and will ramp up spending in the future. Yet this is a bizarre comparison, as the United States is spending huge sums of public money on infrastructure in order to bring down inflation (similar to the EU). Reeves has also given zero detail or suggestion as to when spending will ramp up. When asked by trade unions to promise no austerity, Labour has refused to give a clear answer.

Without the £28 billion annual spend, Labour's vision of a thriving renewable sector and jobs galore is simply not happening. And the entire point of the £28 billion annual investment is completely undermined by Labour's commitment to keep oil and gas production alive "for decades".

Labour have also U-turned on nationalising UK energy companies. Whilst UK energy companies have made record levels of profit, the IMF have found that these profits are the main driving forces behind the increasing cost-of-living. These record profits have been used for stock buybacks. This is when energy companies buy back their own stocks on financial markets, inflating their own earnings per metric and increasing the value of the stock they already own. In other words the huge profit margins are going into the pockets of the already super wealthy. This is already being done by SSE, British Gas, BP, Shell and others.

Through nationalisation public spending could be focused on building a resilient renewable energy model to cut down on bills and expand energy generation. Instead, Labour will set up a new energy company that will manage investments. A UK Labour government would essentially subsidise energy companies to help increase dividend and share returns for investors, and rely on good faith from energy companies to reduce the price of energy for households.

Even with Labour's fiscal rules, one might assume they would at the very least introduce progressive taxes to tackle social and economic inequality, or focus public spending on the UK's most vulnerable. Yet Starmer has repeatedly stated that Labour would not raise income tax on higher earners. It's not much better if you're a working class student, as Labour has also pledged to keep tuition fees, despite Starmer promising to scrap them. And for even younger people support is being pulled back, as Labour have also scrapped their pledge to introduce universal free child care. If you're a public worker demanding a fair pay rise above inflation, Starmer has once again said he would not raise wages. In fact Starmer will not accept the recommendations proposed by Pay Review Bodies. They have gone even further by attacking trade unions for simply asking for better conditions and have stated no Labour MPs should join striking workers.

What of windfall taxes? Whilst Labour have yet to reveal their full policy details on a windfall tax for energy companies, they have firmly ruled out placing them on banks through net interest income. Instead they will simply ask banks to "do the right thing".

Starmer also announced on the same day that a UK Labour government would keep the two-child benefit cap and the rape clause, policies that have put victims of rape through trauma and leaves low-income households thousands of pounds worse off every year.

Any hope for smoothly increasing the UK's supply of workers is also diminished, as Labour have also U-turned on freedom of movement. They have instead supported the introduction of a points-based immigration system, infamously supported by UKIP and Nigel Farage.

Labour's anti-immigration rhetoric has become increasingly right-wing as Starmer said the UK had "lost control" and that the we had to "end incentive" to encourage workers to the UK. One way of Starmer has discouraged people arriving in the UK is the threat of tagging migrants with GPs trackers.

Housing and mortgages are also in a dire state, with people living in Scotland paying on average an extra £381 a month on mortgage payments compared to 2021. In the face of out of control rental prices and dire housing supply Labour have said they will not implement rental controls - another policy U-turn. They could instead introduce a rent freeze, but Labour have also refused to commit to it and instead suggest the decision should be up to local councils. If you're living in a Conservative council, the chances of a rent freeze would be zilch. The chances are about the same for Labour councils, going by their current policy trajectory.

A UK Labour government could instruct the Bank of England to reduce interest rates (since the central bank is not independent), thus giving financial relief to mortgage holders. Yet Labour have refused to do so. Instead of pressing Kair Starmer to use the UK's full fiscal and monetary powers to reduce interest rates, Scottish Labour have instead passed on the costs to the Scottish government who have limited fiscal powers and absolutely zero monetary powers.

The Scottish government's budget is already reduced by £1 billion in real terms due to inflation and have spent just under £1 billion in record level pay rises to public sector workers. The Scottish government also spends just under £600 million every year to mitigate harmful UK government policies. The idea that the Scottish government should increase its mitigation costs, instead of Labour instructing the central bank to reduce interest rates, is bewildering.

Increasing the powers of the Scottish parliament may enable other political parties such as the Scottish Greens, the Scottish National Party or even Scottish Labour to propose progressive policies (as they have already done with the rent freeze). However, not only does Gordon Brown's paper on federalism not outline a single new power for the Scottish parliament, but Labour have clearly stated that no new benefits would be devolved to Holyrood.

What is the rest of Europe doing?

Whilst no single country has had the perfect response to the crisis, many have implemented direct policy actions to protect wider society from corporate greed and mismanagement.

The French government successfully fully nationalised the country's biggest energy supplier, Electricite de France. This resulted in energy prices being capped at just 4%.

Below is France's energy inflation.

This was also followed with the government pressuring big businesses to end their profit exploitations and cut their food prices between 2% to 10%. On top of this, France's lowest earners, just under 6 million households, received a one-off €100 payment and fuel prices received a 15 cents per litre discount. The French government is also currently debating the details of a windfall tax.

Spain has approved two windfall taxes and a wealth tax. The first windfall tax is focused on high profits on energy companies and the second on banks for their net interest income. Spain's "Solidarity Wealth Tax" is focussed on the super rich with assets exceeding €3 million. On top of this, Spain has paid a one-off €200 for low-income households, cut VAT on energy bills, capped rental bills and aim to reduce energy bills by around 40%. Spain's inflation rate has continued to decline.

In The Netherlands the transmission of gas and electricity is publicly controlled, but retail prices are largely set by markets with strict regulations. In response to the crisis, the Netherland is proposing a windfall tax on high energy profits, whilst capping energy prices at 2022 levels. The government has also increased wages, lowered the basic rate of income tax whilst maintaining higher rates, cutting VAT on energy bills and increasing benefits (e.g. child benefit, student grants and child credit).The overall result is declining inflation.

Germany is a similar story. It has applied a windfall tax, capped electricity and gas prices for households, individuals have received a one-off €300 for support, a further €100 for each child and another €100 to anybody receiving state benefits. The result has been a gradual decline in inflation.

One country that has stood out in particular is Japan, with low inflation levels between 3-4%.

Why is this the case? One factor is that Japanese companies are not passing on costs to consumers.

Another factor is Japan keeping interest rates at 0% and firms increasing wages by around 4%. Further, there are strict regulations on gas and electricity prices.

Can we do better?

Scotland needs progressive change and it needs to happen now. Modern Money Scotland has proposed multiple policies that can be enabled to solve the cost-of-living crisis, which can be best achieved with the full powers of independence.

1) A Living Wage

The UK Government’s current minimum wage is £10.18 an hour, but this is below the real living wage which is calculated at £10.90 an hour. After a decade of both stagnant and falling wages, a real living wage or above would add millions of pounds back into the economy, allowing for increased economic stability and job creation.

2) A Job Guarantee

Rather than tolerating unemployment, the Job Guarantee would make the government the employer of last resort, offering socially inclusive work and wages to those who seek it. Such a programme would be based on a worker’s democracy model, so that the employment offered would be led by local communities and funded by national government. Further, the Job Guarantee is key to creating price stability, increased productivity, and targeting high inflation.

You can read our in-depth proposal for a Job Guarantee by clicking here.

3) Public Ownership/Price Regulations

An independent Scotland should prevent excessive price increases from big business and wealthy individuals. Whilst prices are increasing on basic necessities such as food, housing, and energy, big businesses have more than doubled their profit margins. The government can either place downward pressure on suppliers, place price-regulations across the board or bring vitally important sectors into public ownership.

4) Progressive Taxation

Rather than allow the top 5% to increase their shares and assets, further increasing prices for lower-income households, higher taxes would reduce their demand. The excessive wealth built up by the top 5% has allowed them to manipulate and directly control the “free” market to their benefit, but with progressive tax brackets that power is significantly reduced. An example of this is the STUC's proposal for a wealth tax, which would see economic returns up to £3.3 billion under devolution and replace the regressive council tax system.

5) Foreign Investment Review Board (FIRB).

Wealthy investors and buyers from outside Scotland have a large capacity to purchase domestic resources to use them as speculative vehicles, corporate sector leverage, or lobbying power to manipulate the political process. A FIRB would inspect these investments and only greenlight them if they would go on to benefit domestic communities. If an investment would deny the domestic population affordable housing, then a FIRB would prevent such an investment from occurring.

6) Inflation Reduction Committee at the Central Bank

This committee would produce evidence-based policy analysis as to how spending and lending in different sectors of the economy would impact inflation levels and demand. In turn, this would inform our parliament as to the real impacts of spending, rather than sticking to the austerity narrative that scaremongers about the size of our country’s government deficit.

7) Embrace Scotland's Renewable Potential

Per head of population, Scotland is one of the most resource rich nations in the Western world. Not only do we have the resources to significantly reduce energy bills, but also radically transform the structure of our current economic model to be far more localised, democratic and healthy. We go into deeper detail in our earlier article, which you can read by clicking here.

Scotland is ready for independence.


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