Softening the Economic Blow of Brexit on Scotland
It was good to see the First Minister unveil a package of economic stimuli for Scotland last week, in contrast to the response – or lack thereof – by the UK Government to economic uncertainty in the wake of June's vote to leave the European Union (EU).
Ms Sturgeon announced an extra £100m this year to speed up the delivery of health and infrastructure projects – something the Chief Executive of the Scottish Chambers of Commerce called “a great example of the Scottish Government using devolved powers to deliver a timely boost to the Scottish Economy."
Concerns regarding the UK economy were brought into sharp focus recently when the Bank of England halved the base rate to 0.25% - a record-breaking low. This is to encourage companies to borrow and invest.
As expected, the rate reduction will inevitably lead high-street lenders to slash interest on savings, frustrating people who saved for a rainy day.
High street lenders have already reacted and cut savings rates. Conversely, and perhaps unsurprisingly, banks have been slower to pass on interest rate cuts to borrowers, particularly mortgages, with RBS and Lloyds, both still part-owned by the tax-payer, appearing reticent about doing the right thing by their customers due to worries about profitability.
In truth, there is only so much the Bank of England can do, having tried various monetary policy levers since the 2008 financial crash; for example, through restraining interest rates; and injecting an eye-watering amount of cash into the economy through quantitative easing. What it cannot do is intervene in fiscal policy, for example, by cutting VAT and business rates, or taking advantage of its own low interest rates to invest in long-term capital projects. That would be a UK Government matter but since long before the EU referendum, it has rejected this strategy.
Such has been the lack of action by the Tory Government that the First Minister urged it to announce its own stimulus package without further delay. The SNP Government not only acted to boost confidence and stimulate economic activity, Ms Sturgeon also announced the formation of a new Business Information Service to provide dedicated assistance to businesses affected by the likely impact of Brexit.
Concerns are also growing about Westminster inaction in relation to EU Structural Funds. These grants amount to more than £5,000 million for 2014-2020, and include the Common Agricultural Policy and European Social Fund.
Recently the UK Government finally broke its silence on whether this funding will be matched once the UK has exited the European Union and it will, until 2020, perhaps only a year or two after Brexit. This leaves groups ranging from scientists to farmers who rely on such funds feeling uncertain about their future.
More needs to be done by the UK Government to reverse the current economic turmoil. For Scotland, the lack of UK-wide action is particularly critical as we face the real prospect of being dragged out of Europe by a Tory Government which has never had Scotland’s best interests at its heart.