In a revealing interview, William sat down with Gary Gillespie, the Scottish Government’s Chief Economist.
They dissected the intricacies and challenges of Scotland’s economy, especially in the context of its quest for independence and fiscal autonomy.
Their conversation, sprawling over various economic tenets—from government spending and taxation to the creation of money and the implications of a new currency—offered deep insights into the operational dynamics and strategic considerations of Scotland’s economy.
William: “Let’s start with a basic yet pivotal question: do taxes pay for government spending at the UK level, and how does this relationship differ at the Scottish government level?”
Gary Gillespie: “At the UK level, the government does borrow, indicating that taxes do not fully cover spending. Scotland, with a budget of about £51 billion for 2023-24, must balance its budget annually, highlighting a stark contrast in fiscal operations due to its limited borrowing powers.”
The conversation quickly veered into the theoretical foundations of economics, with William probing into the definition of money and its creation, a domain where Gillespie shed light on the predominantly bank-driven creation of money, a nuanced process far removed from the simplistic loanable funds model.
William: “Moving onto a more complex terrain, how is the base interest rate set in the UK?”
Gary Gillespie: “The Bank of England, independent and with a mandate from the UK Treasury, set the interest rates to meet its inflation target, influenced by economic conditions and external factors.”
This led to a philosophical debate on whether the UK government operates like a household. Gillespie responded negatively, emphasising the unique fiscal dynamics governments engage with, especially in terms of borrowing for long-term investments.
The conversation took a practical turn as William inquired about the day-to-day economic management in Scotland, given its lack of control over key economic powers such as currency, consumer protection, and financial services, all of which are reserved powers.
Gary Gillespie: “While macroeconomic powers are limited, Scotland wields significant microeconomic levers like skills, innovation, and infrastructure investment. We’re quite active in local economic development, sectoral support, and enterprise facilitation.”
William, touching on the controversial topic of creating a new currency for an independent Scotland, sought Gillespie’s insights on the process.
Gary Gillespie: “The Government’s Economic Prospectus laid out a phased approach towards introducing a Scottish currency post-independence, stressing an orderly transition from sterling.”
Addressing the fiscal scrutiny from various quarters, including the Scottish Fiscal Commission’s critique on underutilized tax powers, Gillespie highlighted the government’s analytical approach towards policy formation and tax forecasting, underscoring the collaborative yet independent role of the Scottish Fiscal Commission in forecasting devolved revenues.
On the potential reevaluation of GDP as an economic measure, Gillespie acknowledged the limitations of GDP in capturing well-being and informed William of the Scottish Government’s initiative towards a more inclusive well-being economy monitor.
Gary Gillespie: “GDP isn’t a measure of well-being. Our well-being economy monitor, with its 15 indicators ranging from gender pay gap to carbon emissions, offers a broader understanding of our economic health.”
In a candid moment, William and Gillespie shared their personal journeys into economics. Both expressed a passion for understanding economic phenomena, albeit from different academic and philosophical standpoints.
The discussion closed on the note of Government Expenditure and Revenue Scotland (GERS), with Gillespie defending its methodology and purpose while acknowledging the public and expert calls for a more robust fiscal analytical framework.
Gary Gillespie: “GERS provides a notional deficit within the UK’s context, essential for understanding Scotland’s fiscal position. It’s a statistical tool, not a political one, although there’s always room for evolving our economic analytical frameworks.”
This interview with Gary Gillespie not only illuminated the complexities and nuances of Scotland’s economic framework but also highlighted the thoughtful considerations and challenges faced by its economists in navigating the contours of fiscal autonomy and national economic planning.
Watch the full interview here:
