Whitonomics - Issue 2 July 2014 | Page 15

FEATURE P.13 The Nordic Model and  Scottish Independence The Nordic Model used to be synonymous with high government spending and a large progressive income tax. However, the Scandinavian governments have been effective in reducing their fiscal deficit and maintaining their high standard of health and education. With the Nordic Model, Sweden’s national debt has fallen from 67% to just below 40% of GDP. The benefit of a lower national debt is that there will be lower interest payments when financing the budget deficit (through loans or government bonds). By failing to protect workers and provide employment: austerity measures in the UK have failed, resulting in an increase in the number of people claiming Job Seeker’s Allowance and thus increasing the budget deficit. The planned restoration of the 50p tax rate (by Labour) for earners over £150,000 would have substantial benefits for the economy as it will reduce the national debt (£10bn more government revenue) and can be redistributed to those who need it. Redistribution of income should improve the economy as working class people have a greater Marginal Propensity to Consume (MPC), so are more likely to spend money when they receive it, which is great for the economy. which means ‘neither too much nor too little, but just about right in the middle’. In the UK, we are fundamentally greedier, or ‘capitalist’ one might say. Proposing a steep progressive income tax in the UK, may have negative impacts in the UK, such as more tax evasion. Scottish Nordic Reform?  Government Pension Fund to become the largest sovereign wealth fund in the world at $664 billion and continues to grow. This amounts to $132,800 per person. These policies should be influential in how Scotland should control its £1.5 trillion oil reserves and improve pensions in Scotland. With the upcoming referendum in Scotland, the Nordic Model becomes increasingly important to guide Scotland to prosperity after it gains independence. The SNP promises to invest £690 million over three years on only health, education and homes. This will follow the path of the Nordic Model, increasing labour productivity, which will attract foreign investment creating jobs. All of these nations are comparable to Scotland – they all have small populations spread across large territories, long coast lines and a traditional dependence on maritime Income inequality in Scotland will be activities e.g. fishing. reduced by abolishing student fees Breaking away from a political union and restoring grants for over 20,000 would allow specific policies made students from low income houseby the Scots, and for the Scots. At a holds. This will improve social mobilmicro-economic level specialisa- ity in Scotland. tion is key to increasing productivity and reducing bureaucracy is imThe UK should use the Nordic Mod- portant in order to improve efficienel as a basis of reform. However, cy. we must note the cultural differ- Norway’s sustainable extraction of ences between the UK and Scandi- oil from the North Sea occurs due to navia – Scandinavian people do not its large corporation tax for foreign live beyond their means and have a investment, preventing the Tragedy sense of collectivism. In Sweden, a of the Commons from occurring. common term used is ‘lagom’ Effective management allowed its With people dying at this ٕ