A Financial Flatspin

“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett

(This blog post previously appeared in Common Weal’s weekly newsletter. Sign up for the newsletter here.)

An extremely disturbing report was published this week looking into life expectancy in Scotland and the UK. It found that the consistent gains in life expectancy that we have experienced for much of the 20th century and into the first decade of the 21st has stalled and has even started to decline for some groups – especially the poorest and most deprived. This stall was abrupt and started in 2012 and has had the effect of knocking around 16 months of life off of the average Scot compared to pre-2012 trends.

image_2022-06-11_203636097

(Image Source: GCPH)

 This was not due to a “natural limit” of life expectancy being reached (though such a limit does almost certainly exist) nor have neighbouring countries experienced this stall to anywhere the same degree. The stall is not due to Covid, nor any other endemic illness. Drug-related deaths in Scotland are rising and this is having a measurable impact on average life expectancy but life expectancy has also stalled for non-drug users so this cannot explain everything either. Nor is it due to obesity or even due to climate change (though the former had more of an impact than the latter). All of these factors and more could be isolated, accounted for and controlled for in the study. Once this was done, there remained still an additional adverse impact on our life expectancy.

The conclusion of the report is that there is one stark cause above all of the other factors that has resulted in our lives being, on average, shorter than they otherwise would have been. In 2010 the UK Government began a massive socio-economic experiment called Austerity. This, the report finds, has been the primary cause above all others for the harm done to our health and wellbeing. It has sucked vital resources out of public services and starved households of the resources required to replace them. Poverty and deprivation – deliberately applied by political choice – has killed people earlier than they otherwise would have died.

It is in this context that we must view the other major reports published this week – the Scottish Government’s Resource Spending Review and Capital Spending Review. These financial reviews lay out the plans for devolved government spending over the next four or five years up till the end of this Parliament. The choices being made are grim.

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(Image Source: Scottish Government)

The health and social security needs in Scotland are rising due to the Austerity imposed on everyone in the UK for more than a decade, but also due to increased devolution in this sector and the upcoming choice to build a National Care Service (keep an eye on Common Weal in coming weeks as we scrutinise the upcoming NCS Bill and campaign to ensure we get a care service worthy of its name)

Cabinet Secretary for Finance, Kate Forbes has chosen to address these pressures effectively by allowing health and social security spending to increase in line with projected increases in the budget but freezing everything outwith those two departments. After inflation, this is likely to mean a real-terms cut in services outwith health and social security of something like around 10% over the next five years. And, of course, these real terms cuts won’t be faced evenly across departments as there are distinct priorities within them (I’ll leave it to others to decide if their own priorities match the Scottish Government’s).

image_2022-06-11_204229797(Image Source: SPICe)

One example being an apparent shift of money out of Historic Environment Scotland and into External Affairs (both remits within Angus Robertson’s Constitution, External Affairs and Culture Portfolio). Also in that particular portfolio is an additional £20 million earmarked for an independence referendum in 2023 – not that this should be taken as a sign of a fully detailed campaign budget. It looks very much like they’ve simply taken the roughly £16 million the Scottish Government spent on indyref1 and uprated it by inflation. It is less clear where that money has been redirected from – expect pro-Union gnashing of teeth regardless.

I can see why the Scottish Government has done this. We’re still within the worst global pandemic in a century and the negative health impacts of that pandemic have been stark and high profile (again, all eyes on the public inquiry into the Scottish Government’s handling of the pandemic – we’ll be feeding our own expertise into that wherever we can) and we’ve been doing it within the climate of the abovementioned catastrophic Austerity experiment. Acute health and social security spending helps people now who increasingly desperately need help now. But I am really worried about the longer term implications of this.

Cuts to everything outwith healthcare (again, ignore the political rhetoric to the contrary on this – flattened cash budgets during times of positive inflation equates to a real-terms spending cut and nothing less) might not have a negative effect immediately but those effects will come. Cuts to policing, justice, and things like legal aid now make it much harder to protect people and to ensures that the victims of crime receive just restitution, the perpetrators of crime receive just rehabilitation and that no-one is the victim of a misapplication or a miscarriage of the law (if you haven’t already, please seek out the work of The Secret Barrister on the failures to all three being experienced in the English justice system right now). If we cut housing budgets – especially building standards and regulations – now, we condemn people to decades of living in inadequate housing and make it a lot harder to adapt our existing inadequate housing to meet the oncoming challenges of the climate emergency. Cuts to early learning and childcare means kids not receiving perhaps the most important care and education they will ever receive as it is here that such services set people off on a path that will, in many cases, define their lifetime.

The issue with all of these cuts – with the entire Austerity Experiment, really – is that it will take time for the effects of them to feed through into public view. The UK Conservatives started the experiment almost as soon as they got into power in 2010 but it wasn’t until 2012 that life expectancy started to roll over and flatten and it wasn’t until 2022 that the researchers who conducted the study at the top of this article could say with certainty that Austerity was the cause.

Similarly with this spending review. It may take many years for the impacts of cuts to childcare or justice feed into actual, measurable harms. It may well be that the Scottish Government is gambling that this is the case – either to try to buy time for a better solution or, perhaps more cynically, to push the problem across the horizon of the 2026 elections and into a budget review that may well be, as Douglas Adams so memorably put it, Somebody Else’s Problem.

But what is the solution to the flat spin that Scottish public spending is now in? The answer is probably what is not in the Capital Spending Review. We must break the flat spin by building and investing in people. Scotland’s capital spending – and thus it’s ability to build new infrastructure rather than simply maintain what exists – is critically constrained by devolution and by political ideology. Many politicians – Forbes included – are terrified of “deficit spending” even despite living in a period of unprecedented deficits built up to counter Covid. Scotland cleaves strictly to a “balanced budget” even where some borrowing powers do exist for the Scottish Government. Not enough power. Not nearly enough to deal with the problems we’re facing. But it does remain a power not being used at all. Scottish local authorities have more ability to borrow in this way and could do so, though their powers are also constrained – especially if they seek to borrow without the support of Scottish and UK Government ministers. The Scottish National Investment Bank too lacks the powers it needs to borrow in its own right – though it is making progress towards gaining those powers even if there are warning signs about its strategic direction there too.

All three taken together still might not be enough in themselves to solve these problems but they point towards the solution and could be directed to make as much progress in that regard as they can. I would avoid some forms of investment such as the boasts of ever-increasing Foreign Direct Investment. The inevitable consequence of inward investment is outward movement of profits and the asset-stripping of our nation. We need an analysis of what investments will have the most impact and where they must go and when they can be expected to pay off. We desperately need more powers to borrow for capital investment too and it looks likely that the only way that is going to happen is through Scottish independence. Indeed, it’s looking increasingly likely that the first several decades of that independence will be almost solely about repairing the holes in our former UK roof while trying to hold back the tide of rising sea levels. The next few years may be our last, best hope to gain the powers to do either.

This will be a difficult job for politicians as they will always have their eye on that fast-approaching electoral horizon. Short-termism is an unfortunate and inevitable consequence of democracy that way (not that I’m arguing for an alternative form of governance) but there is a warning there too. Putting off tomorrow’s problem and fixing today’s might well win you the next election. Doing only this means that when you finally reach Somebody Else’s Problem…that somebody might be you.

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