The Scottish Government has threatened to invoke formal dispute resolution procedures with the UK Government as the row over the Tories’ ?1 billion deal with the Democratic Unionist Party (DUP) intensified. Political leaders in Scotland and Wales reacted furiously to the agreement, which will see Northern Ireland benefit from additional cash while Theresa May will gain the support of DUP MPs in crucial votes at Westminster. Welsh First Minister Carwyn Jones has already described it as a “straight bung” to prop up a “faltering” Conservative minority government while his Scottish counterpart Nicola Sturgeon tweeted: “Any sense of fairness sacrificed on the altar of grubby DUP deal to let PM cling to power.”
Meanwhile, Scottish Finance Secretary Derek Mackay told MSPs at Holyrood the Conservatives were “ripping off Scotland to the tune of ?2.9 billion” and said it “feels like daylight robbery”.
Mr Mackay claimed it is “unacceptable” the funding for Northern Ireland will not be subject to the Barnett formula’s spending rules, which determine how resources are allocated to different parts of the UK. Increased spending on devolved issues, such as health and infrastructure, for one part of the country will usually result in additional money for other areas. Mr Mackay is demanding urgent talks with Liz Truss, Chief Secretary to the Treasury, and Welsh Finance Secretary Mark Drakeford in a bid to find a “satisfactory solution” that is “fair and reasonable to all”.
In a letter to Ms Truss, he stated: “As this is an issue of such significance to the Scottish Government, if we cannot agree we will look to pursue a more formal mechanism to resolve the situation by invoking the formal dispute resolution mechanism.”
Answering questions on the issue in the Scottish Parliament, Mr Mackay said he had first raised his concerns with Ms Truss a week ago – but said he had been given “no reassurances whatsoever” on potential funding for Scotland. He told MSPs: “If this matter cannot be resolved with HM Treasury, then we will invoke formal dispute resolution proceedings to ensure that this matter is resolved.
“The UK Government’s deal prioritises expenditure on Northern Ireland at the cost of all other parts of the UK and leaves Scotland almost ?3 billion worse off than it would be if funding had been allocated using the well-established arrangements.
“We don’t grudge Northern Ireland a penny – we just want fairness for every other part of the UK, not least in Scotland.
“The spending areas for additional funding for Northern Ireland are devolved areas – infrastructure, health including mental health, education, broadband, deprivation. All within the scope of Barnett.”
The agreement is a “clear breach of the statement of funding policy undermining devolution and undermining that deal that we had across the devolved administrations”, Mr Mackay insisted.
He added both Scotland and Wales had been “overlooked in this grubby deal with the DUP” as he accused the 13 Scottish Conservatives at Westminster of “selling Scotland down the river to the tune of ?2.9 billion”. He dismissed suggestions the funding for Northern Ireland was similar to city deals – to which the Barnett formula does not apply. Mr Mackay said: “Any suggestion that this funding arrangement is analogous to previous funding for city deals in Scotland is also wrong and not in any way comparable, as city deal funding is conditional on match funding from the Scottish Government’s own budgets and also requires contributions from local authorities and other regional partners in Scotland (again from their own budgets).
“There is no match funding expectation with the ?1 billion offered to Northern Ireland.”
The Scottish Government has previously invoked dispute resolution procedures with the UK Government during a row over whether Scotland should receive additional cash as a result of spending for the London 2012 Olympics.
Don t kick a man while he s down, they say. A pity we don t offer similar protection for economies. Britain never fully recovered from the global financial crisis, but now, as the latest patch of dismal business surveys makes clear, the country is being knocked back to the canvas by a Brexit shock. How should policymakers respond? Stimulus is the right answer. The slump in sterling since 23 June will, in time, push up prices by making imports more expensive, but the inflation rate is still well below the Bank of England s 2 per cent target and the public s expectations seem well anchored meaning there is little prospect of a damaging inflationary spiral.
Even if we do not relapse into outright recession, there is a strong danger of the UK growth rate falling below its potential, implying less employment, more constraints on wages and general economic wastage. We really don t need that when average real wages are still well below 2008 levels and so many people, despite the record employment, have fewer hours of work than they would like. So what sort of stimulus do we need? Monetary or fiscal?
The Bank of England can and probably will cut interest rates next month from their already extremely low level of 0.5 per cent in order to cushion the blow. But as the Bank s Governor, Mark Carney, made clear in a speech immediately after the vote result, monetary policy alone cannot be expected to ride to the rescue when borrowing costs are already so low. Fiscal policy needs to play its part too.
Theresa May’s Cabinet: Who’s in and who’s out?
Thanks largely to the former Chancellor George Osborne, we are currently in the midst of a significant demand squeeze. In the March Budget, Osborne laid out plans to cut the cyclically-adjusted budget deficit by just under 1 per cent a year in this current financial year and by a similar amount in the following two. That represented a pretty serious headwind to growth, even before the Brexit gale. It s time to suspend those plans to make major inroads unto the budget deficit something the new Government, mercifully, seems to have accepted. There is ample space for this policy shift.
The self-important credit rating agencies have downgraded the UK again in the wake of the Brexit vote but, in a vivid illustration of the economic irrelevance of these bodies, the UK s 10-year market borrowing rate has dipped below 1 per cent as nervous investors have still piled into safe haven assets such as UK Government bonds. Adjusted for inflation, it costs the British state less than nothing to borrow. But the case for fiscal stimulus goes beyond merely allowing the so-called automatic stabilisers of higher borrowing to kick in as the economy slows. We should have a discretionary stimulus on top to prop up demand. What form should it take?
In 2008, during the post-Lehman Brothers collapse recession, the Labour Government of Gordon Brown went for a temporary VAT cut to support aggregate expenditure. That helped. A much better move this time would be to ratchet up state infrastructure spending. Infrastructure spending has a bigger bang-for-buck economic impact than consumer tax cuts according to the rules of thumb used by the Treasury s very own watchdog, the Office for Budget Responsibility. The economic modellers at Oxford Economics estimate that this kind of discretionary fiscal boost could largely pay for itself by generating additional tax revenue and crowding in investment from nervous private firms.
The political ground has been well prepared. Two politicians who were, until very recently, in the Cabinet, Sajid Javid and Stephen Crabb, both last month advocated a big increase in state spending on rail electrification, social housing and faster broadband, among other things, to help Britain over the Brexit-vote economic hump. So what could possibly stand in the way of such a sensible and timely fiscal stimulus? The answer is: the Treasury. Behind the scenes, Treasury officials are likely to be steering the hand of the new Chancellor, Philip Hammond, away from the infrastructure lever. We know this because we ve heard it from the horse s mouth.
Angela Merkel insists Article 50 must be triggered before Brexit talks
In a remarkable speech in February, the outgoing chief secretary to the Treasury, Sir Nicholas Macpherson, scoffed at what he labelled the mythical shovel-ready infrastructure project, saying the inexorable growth in planning law and wider regulation had made it simply impossible to fire up such capital spending projects in times of economic stress. Yet the mythology here is of the Treasury s own making. The International Monetary Fund argued back in 2013 when the UK economy seemed to be slowing rapidly during the eurozone crisis that the Treasury should implement a carefully targeted infrastructure-based fiscal stimulus. The Treasury came out with exactly the same shovel-ready objection then. If there is nothing shovel-ready now, three years on from that IMF advice, it is because the Treasury has failed to get it ready; a rather gross dereliction of responsibility.
More likely it s simply an excuse for inaction, borne of an institutional aversion to discretionary increases in state capital spending. And it doesn t wash. The Treasury s own National Infrastructure Delivery Plan document, published in March, outlines almost half a trillion pounds worth of UK capital spending needs, comprising 600 separate projects. A planned electrification project for the Manchester to York railway had to be paused and then delayed last year, probably due to a lack of government funds. Why can t that project, to pluck one, be returned to its original timetable?
There is ample scope to extend existing spending plans to bolster the nation s flood defences (plans which already looked inadequate), and to ramp up the state s role in delivering new affordable houses to help solve the housing emergency. This is the right stimulus package for the post-Brexit Autumn Statement. If ideologically-hidebound Treasury civil servants insist on telling Hammond there is nothing shovel-ready the new Chancellor should make it clear to them they risk digging the grave of their own career prospects. No more excuses.
London s patchy broadband service was slammed by a committee of MPs as a major problem for businesses trying to grow in the capital. The Culture Select Committee said it was startling that millions of homes and businesses in the heart of London had no access to superfast download speeds. The attack came in a cross-party report that called for telecoms giant BT to be forced to split off its Openreach network arm unless it addresses significant under-investment and poor service.
It accused BT of failing to invest in Openreach by up to hundreds of millions of pounds a year to suit its own interests at the expense of its access infrastructure business . Warning of a growing digital divide between those who get good access and others blighted by snail-paced speeds, the committee said: The effect on those in rural areas has been much discussed, but it is startling that access to decent broadband remains a major problem for many small businesses especially in business parks, for homes on new estates across the country and also in city centres, including the heart of London. MPs on the committee said BT appeared to be investing in higher-risk, higher-return assets such as media properties instead of lower-risk services like Openreach.
They supported an Ofcom proposal for greater separation between BT and Openreach, but warned a full split should be ordered if BT failed to offer reforms and investment assurances necessary to satisfy our concerns . The report branded the London Underground probably the largest not-spot in the UK and the only one of the top 10 metro systems in the world that lacks a mobile infrastructure.
Given that London is a world-class city and tourist destination, there must be an expectation now that its principal transport routes have full mobile and internet connectivity, said the MPs. Labour MP Ian Lucas said the service reminded him of the days when homes and business had to wait weeks to get a phone line installed.
The system to date has worked very, very well for BT and Openreach, but less well for customers, in particular business customers on small industrial parks who have a desperate need for super-fast broadband, he said.
Rival companies such as Sky, Vodafone and TalkTalk have long called for a split between BT and Openreach. They pay to use the network and have previously complained over poor service and urged the group to replace its ageing network of copper wire. A spokesman for BT agreed that service levels needed to improve, but said a split would fatally undermine improvements by harming investment.
We are in discussions with Ofcom about increasing the autonomy of Openreach and are hopeful that a settlement is possible that will meet the concerns of the committee, he added.
Business leaders have repeatedly warned that London s broadband is holding back growth.
The capital last year came 26th in a league table of European capitals for broadband speeds, left behind by rivals such as Berlin, Dublin and Vienna.