Economic Commentary by George Kervevan

Why did the SNP win the Holyrood election so convincingly? Unionist commentators are trying to persuade us it was all the result of the collapse in the Lib Dem vote and Iain Gray’s lack of charisma. However, there is now strong evidence in the economic data for Scotland that voters were responding positively to the SNP’s performance in managing the economy. In other words, there is an economic “feel good” effect at work north of the border.

If so, it suggests that the electorate may be convinced to back independence come the referendum, on the solid ground that freedom from London rule is good for the jobs and economic growth.

Take last week’s job figures published by the UK Office of National Statistics (ONS). They cover changes in the labour market till March 2011. According to the ONS, unemployment in Scotland is now 7.7 per cent – equal to the UK average but lower than England. In fact, Scottish unemployment is now lower than six of the nine English regions.

It is 9.1 per cent in London and a staggering 10.4 per cent in the English North East (an argument for English devolution if ever there was one).

The change in the labour market between the first quarter of 2011 and the last quarter of 2010 is also significant. In Scotland, unemployment fell by 0.3 per cent in this period but rose in two English regions: the North East and the North West.

However, the real test of the labour market comes in the actual employment lever; i.e. the proportion of the population in work. In March, the employment level in Scotland (71.2 per cent) was higher than in England (70.9), Wales (68.5), Northern Ireland (67.0) or the UK as a whole (70.7).

Only five of the 27 EU member states have a higher employment rate than Scotland. They are Germany, the Netherlands and three countries of similar size to Scotland – Austria, Sweden and Denmark. If Scotland were the 28th member state, English newspapers would be asking the Tory-Lib Dem Coalition at Westminster to visit John Swinney for advice.

Economists have a way of calculating the impact of economic performance on public opinion. It’s called the “misery index”. It was invented by an American economist named Arthur Okun.  To calculate the misery index of a given society, you merely add together the rate of inflation with the rate of unemployment.

The UK has an MI of 12.2, composed of 4.5 per cent CPI inflation (in April) plus 7.7 per cent unemployment. We’ve not been this economically miserable since 1994 and the recession when John Major was Prime Minister (and Ken Clarke Chancellor).

What about Scotland? We know that Scottish unemployment stands at 7.7 per cent. But no separate, official price index is calculated for Scotland. However, there is some research that helps, conducted by the Scottish Agricultural College.

SAC researchers say that the average Scottish consumer price inflation is 0.23 percentage points less than that of the UK. How come? Because Scots spend their money on a different basket of goods than other parts of the UK.

According to the SAC economists, Scots consumers spend less on health, education, and housing – categories that explain the lower inflation – but more on clothing and alcoholic drinks, though much the same on food.

Scottish CPI inflation is 0.23 points less than the UK average, i.e. 4.27. Added to local unemployment of 7.7 per cent, we get an MI for Scotland of 11.97. That is less than the UK MI of 12.2, or England’s 12.3.

Of course, an MI of 11.97 is not as good as it should be, but given the limited economic tools that John Swinney has at hand, he has done well at a time of global downturn. His reward was the vote for the SNP on May 5. Think how much better he could do with control over corporation tax, excise tax and the revenues from the Crown Estates.