Whitehall bias and underperformance – another reason for independence

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  By Jim Cuthbert and Margaret Cuthbert

When the Treasury produced a major report in May claiming that every Scot would be £1,400 better off under the union, this received wall-to-wall coverage in the media.  But was it in any way accurate? This is what we set out to examine in a report published by “Options for Scotland” on 14th August, (available on our website www.cuthbert1.pwp.blueyonder.co.uk ).

What we found was that the Treasury report is both technically flawed and biased.  Here, we first of all explain why we come to that conclusion, and then we go on to look at what this illustrates about the present state of the UK civil service.

We begin by looking at technical aspects.  A big problem is that the Treasury model does not account for various known features which will inevitably affect the future they are trying to predict.

For example:

• When the Treasury are analysing what would happen under continuation of the union, they pay no account to the effects of the Barnett formula. However, on the Treasury’s own relatively optimistic assumptions about UK growth, the formula would produce a squeeze on Scottish government funding.
• They assume that the extra costs associated with Scotland’s relatively ageing population are met within the UK’s funding model for the devolved Scottish government, whereas there is no mechanism for making provision for a significant element of the extra costs.
• They fail to allow for the implications of quantitative easing.

The fact that the Treasury do not model the way the Scottish government is funded under the union, allied to their failure to look at variant scenarios for UK public expenditure growth, means that the Treasury entirely miss the lose/lose situation which Scotland is in under continuation of the union. On the one hand, if the Treasury’s optimistic growth scenario is realised, then there will be a Barnett squeeze.

But on the other hand, in the very likely case of continued austerity, then the Barnett formula would mechanistically deliver increasing levels of per capita expenditure on devolved services to Scotland relative to England: in the face of universal austerity in the UK, this would make the continuation of Barnett politically impossible. (And the recently released poll evidence on English political hostility to Scotland illustrates how it would be impossible to maintain Barnett in these circumstances). Either way, therefore, Scotland loses.

Moving on, the Treasury calculations also fail to allow for the adverse effects which are, in effect, baked into the UK baseline from which the Treasury attempts to measure its “union dividend”. These negatives include:

• The very serious risks of a UK financial crisis.
• Having successive Conservative governments which Scotland has not voted for.
• Illegal wars.
• Trident.
• The adverse effects of Scotland’s lack of direct representation in international bodies like the EU and the UN.
• The inefficiencies in the operation of reserved functions in the UK, which means that Scotland has at times to seek permission to allocate part of its own budget to overcome deficiencies, and is on occasion even penalised for so doing – as happened with attendance allowance when the Scottish government introduced free personal care.
• The fact that Scotland has to take on board, without any option, divisive UK policies in areas like social security.
In effect, the Treasury approach is fundamentally and implicitly union-centric.

And last, but not least, is the question of the assumptions that the Treasury made about the independence scenario – in areas like start-up costs, oil, and debt. These assumptions have, rightly, been strongly challenged by others: see for example oil expert Donald MacKay in the Sunday Times on 6th July. While it is not the primary purpose of our paper to go into these areas in detail, there are good grounds for believing that the Treasury has chosen to be unduly pessimistic.

Overall, where does our critique leave the “union dividend”? Is it just a question of reducing the Treasury’s assessed dividend in relation to those technical mistakes that we have identified and which can be quantified?  Absolutely not.  What we argue is that the whole concept of a single figure “union dividend” is nonsense and must be abandoned.

The decision that the Scottish people will take on independence involves many factors.  To try to boil that decision down to a single monetary amount is basically meaningless: and when the method adopted essentially assumes away all the risks and costs attaching to staying in the union the result is not merely meaningless, it is intrinsically biased.

When the Treasury produced their results, their use of children’s lego men to explain their findings to the simple minded Scots was widely, and rightly, seen as insulting.  In fact, the real insult was not in the use of lego men to present the results: but in the fact that the Treasury adopted a flawed and biased methodology in the first place.

So the Treasury has produced a shoddy and biased piece of work on the referendum.  Should we be surprised?  Certainly not: for one thing, consider the advice from the Permanent Secretary in another Whitehall department, DWP, to his civil servants: namely, “it is legitimate and necessary for UK civil servants to support the Government in this objective”, (where the objective is to maintain the union).

This is virtually a direct order from the senior civil service to abandon normal standards when acting in defence of the union.  In this climate, it may not appear surprising that a shoddy and biased report emerges from the Treasury.

But if we vote NO, can we then expect higher standards of probity and integrity to resume in Whitehall departments?

This matters, of course, because under a continuing union these departments will still be responsible for little matters like steering the UK economy, overseeing the benefits system, and war and peace.  Unfortunately, recent evidence indicates that the poor standards evidenced in the Treasury’s union dividend report are not, in fact, an aberration from what we have generally come to expect from Whitehall.

Consider the Treasury’s complete failure to see the approach of the financial crisis which started in 2008: consider DWP’s cruelly shambolic, and probably doomed, attempt to reform the benefits system: and consider how the intelligence and diplomatic services allowed themselves to be subverted in the run up to the Iraq war.

The reasons for the long term decline in the quality of the UK civil service are complex: and, like so much that has gone wrong in the UK, go back in many respects to the politicisation of the senior civil service which took place under Thatcher and the Conservatives.

But the fact remains that the UK now has a thoroughly compromised civil service. “Stay in the UK and enjoy a third world level of incompetent and politicised civil service” is perhaps not the most compelling reason for voting YES in the referendum: but it is nevertheless a significant secondary reason.