What an interesting time to be in Scotland. I arrived just after the Scottish National Party's landslide victory in the polls, as the leaders of not one but three opposition parties toppled following their devastating defeat. I was in Edinburgh to address chartered financial analysts at the CFA Institute's annual conference--but first things first. Straight off the plane, I headed to Gullane No 2, for a serious discussion of economics and an incidental 18 holes with my co author Professor David Bell from the University of Stirling.
It was beautiful weather for a while, but inevitably I had to spend half an hour sheltering in a gorse bush as a rainstorm charged across the golf course. I was four holes up with six to go, but lost as my energy ebbed away--well, that's my excuse and I'm sticking to it. Fortunately, we forgot to talk about economics, even when ensconced in the bush.
Back in the city, though, there was no escape. The SNP leader, Alex Salmond, seems to have conducted a fine campaign, but his economic problems as First Minister are only just beginning. The unemployment rate in Scotland, which stands at 8.1 per cent, is already higher than the UK rate of 7.8 per cent. And in 2010, according to the Halifax, house prices rose in every part of Britain except Scotland, where they fell by 2.9 per cent compared to an overall increase of 2.7 per cent.
Adding up the bill
Among the numerous economic worries that Salmond will have to deal with is how to fund his party's promise to maintain free tuition for Scottish students at Scottish universities. His options include reducing the number of students, closing universities or doing a U-turn.
I still find it hard to understand why it is appropriate to make those who do not go to university pay for those who do, even though those who do are the ones who accrue almost all of the benefits. It seems simple to me: those who cannot afford to pay should be subsidised, but those who can afford to pay should do so.
A difficulty for Salmond is that, right now, Holyrood has no power to raise taxes or to borrow. He hopes that the Scotland Bill, still being debated at Westminster, will provide it with such powers--but that won't be an end to his problems. He is going to have to decide on a set of policies that will generate growth and jobs. A first step, if the bill finally delivers what Salmond wants (which seems likely following the landslide vote), would be to lower corporate tax rates in order to encourage investment and jobs, and to hope that revenues increase as a result.
It would also make sense, surely, for the Scottish government to borrow in order to fund investment projects such as offshore wind-power or even nuclear, though the latter looks controversial again, given the ongoing crisis at Japan's Fukushima nuclear plant. One sensible scheme would be to share the cost of an under sea cable to Iceland, which lies about 725 miles north of the Shetland Islands, to enable the Scots to tap into that country's vast and potentially cheap thermal-energy resources. This would likely be a hugely profitable investment, as the Scottish government will be able to borrow on world markets at historically low long-term rates of interest.
More controversial is the question over the oil and …