David Torrance: Brexit silver lining only depends on how brave our leaders are

In Brussels late last week, the SNP’s Westminster leader Ian Blackford challenged Hammond not only to end austerity but deliver a Budget statement based on “continued membership of the single market”. Now this made for a good press release, but stuck to the script that Scotland shouldn’t be “dragged” out of the European Union against its will.

Now laying aside the simplistic assumption that Hammond can somehow wave a magic wand and change tack on both austerity and Brexit, it doesn’t seem to chime with the mood music in Edinburgh. While back in September, Nicola Sturgeon voiced her (understandable) frustration with Theresa May, last week the First Minister praised a “constructive and cordial meeting” at Number 10.

Sturgeon also said that while the Scottish Government opposed Brexit, it understood that withdrawal legislation was “necessary”, thus it wanted to “find agreement” in the coming weeks. The tone from Downing Street is also markedly more emollient.

It seems clear, therefore, that decisions regarding Brexit are being taken by the First Minister, John Swinney and Mike Russell in Edinburgh, where the thinking on Brexit has moved on from Ian Blackford’s more uncompromising rhetoric. Now, obviously, the Scottish Government suddenly alters its line about retaining access to the EU single market, but it’s clearly gearing up for some sort of compromise.

In a recent article, and one clearly intended to be noticed, the Scottish Tory MSP Adam Tomkins presented his party as an honest broker between the UK and Scottish Governments, calling on “both sides” to find a way of delivering Brexit “in a way that respects devolution”. It’s curious that Ruth Davidson called out the Prime Minister for a Tweet appearing to cast Scotland as an independent entity when her constitutional spokesman did much the same thing.

Tomkins focused on the need for “common frameworks” to protect the UK’s “internal market”, predicting that agreement between Edinburgh and London on that point would provide a “basis on which consent” could be given by the devolved administrations to Brexit legislation. The devil would be in the detail, but he was cleverly casting both governments as sensible and constructive, thus if the SNP ends up playing funny buggers further down the line, then they – rather than the Tories – will end up looking like they’re acting in bad faith.

But however important agreement on the EU Withdrawal Bill might be, economic policy post-Brexit is the longer-term – and arguably more important – concern. In Edinburgh last week was the former Treasury permanent secretary Sir Nicholas Macpherson, who gave a little-noticed speech at the David Hume Institute (DHI) on that very subject.

His working assumption was that the UK would leave the EU together with its customs union and single market, something that’d inevitably “create challenges” for “all the countries of the UK”, impacting upon living standards as well as trade. But if the governments in London and Edinburgh, added Macpherson, could put in place the right economic policies and stick to them, “not just for a year but for a decade or two”, he reckoned it’d be possible to “limit any permanent damage”.

A relatively hard Brexit, predicted Sir Nick, had both positives and negatives, although by around 2030 he guessed the UK would find a “new equilibrium”. Economic growth would continue, albeit more slowly, although even under a best-case scenario, revenue would be significantly down.

And importantly, after Brexit the financial markets are likely to pay “greater attention” to whether the UK Government has a credible economic policy (which brings us back to Wednesday’s Budget), thus Sir Nick said the goal ought to be greater investment and less consumption, paying much more attention to supply side policy. Not just the usual talk of a new “industrial strategy”, he warned, but something requiring “persistence, consistency, consensus and hard work”.

Given that many supply side instruments are currently devolved, Macpherson urged the Scottish Government to adopt different policies and priorities, particularly when it comes to skills, devolving decision-making to a local level rather than imposing it from Edinburgh. He also argued against increasing the tax burden any further, which obviously doesn’t sit well with the SNP’s current plans.

Surprisingly, Macpherson (who ran the Treasury during the independence referendum) also said recent events provided a “golden opportunity” for proponents of independence to “reappraise” their economic prospectus, something that in his view ought to include a separate currency floating freely against Sterling and the Euro and a balanced budget. Now, said Sir Nick, was the time to start setting out how the (at present notional) deficit might be closed.

Perhaps unwittingly, this brought to mind the SNP’s Growth Commission guru Andrew Wilson (who was in attendance at the DHI event). Unlike many Gers (Government Expenditure and Revenue Scotland) deniers, he acknowledges the sizeable gap between Scotland’s revenue and spending and, with his business background, realises any credible economic vision will need to take account of that harsh reality. Wilson is currently finishing his draft report, which – contrary to previous indications – will be published at the same time it’s handed to the SNP leader.

So, we’re in for an interesting few weeks, not only Wednesday’s UK Budget but the Scottish Government’s spending plans too, while the SNP might finally lay the groundwork for an economic strategy consisting of more than just wishful thinking. There might exist, as Sir Nicholas Macpherson put it at the DHI, a Brexit “silver lining”, but a lot rests upon how brave our leaders in Edinburgh and London are willing to be.