Rachel Reeves’ ‘Treasury brain’ is ushering in new age of austerity just when UK must invest in its future

A series of factors which began to simmer through the election period has bubbled over, and there has been something of a welcome confluence of opinion from both the left and right regarding the neo-liberal, ‘balance sheet’ approach to fiscal policy shared by Labour and Conservative governments since Thatcher.

First, from the left came Professor Mariana Mazzucato’s viral appearance on Question Time, as she dissected Labour Chancellor Rachel Reeves’ decision to end the winter fuel allowance for most pensioners. Mazzucato’s point was a simple one: while cutting this allowance would appear as a much-needed saving in the Treasury’s red-bound budget book, the saving was illusory, as it would almost certainly ensure that further costs would be incurred down the line, probably by local government and health services dealing with those who had lost out.

Investing in housing and infrastructure

Then, from the right came a report, called Foundations, written by three policy experts who argued the stagnant state of the UK economy, that ultimately necessitates cuts, can be largely attributed to the way that investment focused on increasing productivity – such as in infrastructure and housing – has been completely overlooked by successive UK governments. And while some of their suggestions were not up my street, the data they shared to demonstrate the wretched state of the UK economy was compelling.

The solutions the left and right suggest are somewhat different, although they share some commonalities, but the fact that there is this convergence on diagnosing the issue is significant because it makes UK Government orthodoxy (red and blue) look shaky.

Many of the aspects on the Foundations paper could equally be applied to Scotland, especially considering the potential advantages we could have in implementing an investment and productivity-based economic strategy. The political and economic costs of such a strategy are lower here, and the potential agglomeration effects of the 3.5 million people in the Central Belt – in the top 20 European metro regions – with their knowledge industries and connectivity should play a more central role in economic planning.

Unionists should call SNP’s bluff

Projects like the Glasgow Metro should be recognised for the national economic priorities they are: targeted investments that will increase productivity and economic growth well into the future, while also cutting carbon emissions. While I and my fellow SNP members believe that this sort of long-term economic planning will be more advantageous with independence, it is also an opportunity for unionists to call our bluff, demonstrate that the UK Government understands this, and support planned, costed, long-term economic development.

Glasgow is also leading the country in developing climate finance options that seek to strike a fair balance between public and private sector investment: sharing risks and rewards and enabling the city to meet net-zero targets while ensuring a steady supply of warm, secure and affordable homes. But city leaders need to know that their long-term attitude is matched by similar ambition from Scottish and UK governments.

There can obviously be a charge of hypocrisy levelled at those advocating for the ‘Londonification’ of Scotland’s Central Belt, but I really don’t think that should be the case. The UK’s macroeconomic story over the past decades has been the worst of all worlds, with London prioritised to the detriment of other regions.

Improving the A9

Our challenge should be to replicate other models while maximising our own economic potential. Just because the UK has failed in its most basic duty to balance economic growth doesn’t mean we have to fail in Scotland.

There are a host of ways in which such a strategy could be implemented in rural areas to tackle depopulation and increase growth. Improvements to the A9 should be taken out of the realms of year-to-year spending and placed into the context of that sort of longer-term priority aimed at improving the quality of life for those who use it.

A strategic road and rail improvement strategy for rural Scotland should go alongside a concerted effort to build the houses that will ensure that rural living is affordable and practical for young people and families.

Scotland’s potential for these type of targeted investment strategies has already been recognised in a paper Professor Mazzucato wrote with Laurie Macfarlane of Future Economy Scotland, entitled ‘A Mission Oriented Industrial Strategy for Scotland’.

US and EU spending on net zero

The paper began with a sentiment that neatly encapsulates the moment we are in: “Scotland faces an enormous set of interlinked challenges: the need to revitalise the economy while also transitioning to net zero and tackling inequalities. These goals are not mutually exclusive: Scotland can build a stronger and more productive economy while also transitioning to net zero and creating a fairer society.”

I have written before in this column about the whole raft of industrial policies, from the US Inflation Reduction Act to the EU’s Green Deal that seek to bring together the thorny challenges of domestic prosperity, energy transition and over-reliance on autocratic regimes like China. I think the UK has been slow to react, partly because of Brexit and partly because our political culture elevates short-termism over long-term and strategic policy planning.

Unfortunately, it seems the new Labour government has failed in its first opportunity to avoid the sort of ‘Treasury brain’ thinking that has seen the UK slip to close to the bottom of OECD rankings on investment. Rachel Reeves’ obsession with a new round of austerity is coupled with a lack of understanding of the geopolitical imperative that lies behind ensuring the UK does not become any more unequal than it already is.

My party should seize the opportunity to learn from Labour’s mistakes and define itself as the party that will invest for Scotland’s long-term future.