The Times has (gleefully) reported this morning that:
An independent Scotland would have to move quickly to cut its deficit and face a choice between the UK or EU markets if there is a hard Brexit, an adviser to the SNP's growth commission has said.
They continue:
David Skilling said there was more the Scottish government could do now with existing powers to grow its economy, and in a new report cited data suggesting that the country was lagging behind similar-sized nations in exports, schools standards and economic growth.
And add:
A former adviser at the New Zealand treasury, Mr Skilling gave advice to the group that drew up the SNP's latest blueprint for independence, published last month. The document, which called for tight restrictions on public spending after leaving the UK, has split the pro-independence movement with many on the left saying it would result in a continuation of austerity policies pursued by the UK government.
Mr Skilling's radoning was that in theses situations:
It was clear that Scotland would have to set out credible plans to cut its deficit, estimated at 8.3 per cent of GDP, to reassure markets.
And I agree: that might be necessary if Scotland did, as the archly neoliberal thinks appropriate, fix its currency against sterling. Of course in that case Scotland would have no choice but spend all its earnings trying to maintain parity with the pound, crushing economic growth in the process.
But if Scotland had its own currency and let it float, as it would have to, Scotland could concentrate on delivering full employment instead.
I am nit saying the folly of the rUK would have no impact in that case; clearly it would. But Scotland would be able to mitigate it rather than be dragged down by it, as neoliberals desire.
It really is time for the neoliberal world view to be rejected by Scotland. Indeed, that is much of what independence would be about.
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Correct me if I’m wrong Richard, but if Scotland had a free floating currency, but a huge budget deficit, would that currency likely lose value quickly?
And if the currency starts losing it’s value quickly that will make us Scots poorer, as inflation goes up and our imports cost more.
Do you know it will have a huge budget deficit?
Why?
A trade deficit is a threat: but is a budget deficit really a cause when the reality is that these need never be funded with foreign currency borrowing?
In other words I do not agree with your hypothesises
I didn’t make a hypothesis for you to agree with or not. I just asked you if the new Scottish currency would likely weaken because Scotland runs a budget deficit.
We know that Scotland runs a large budget deficit, and would lose the money from the Barnett formula as well, so the 8% budget deficit sounds about right.
Have you got any evidence to show that they wouldn’t have a large budget deficit?
So I’m asking the question – would a new Scottish currency lose value?
I’m not sure why you jump from budget deficit to the trade deficit, but Scotland has a large one of those as well. But the trade deficit has nothing to do with funding the budget deficit.
GERS May nit be right
New revenues could be raised
There may well be growth
And if a government runs deficits in its own currency it is not clear what the impact on exchange rates is
Trade deficits do matter
So I discussed what matters
I think that’s what’s useful
OK. GERS may not be exact, but on balance it is likely to be close enough when it comes to the Scottish budget deficit, as covers how much Scotland spends and how much it receives in taxes and other funding. Which are known variables.
So the Scottish budget deficit is about 8% once Barnett money is removed.
There may well be growth and tax rises is the future, but an independent Scotland today would still have to deal with a very large budget deficit.
Scotland also has a large trade deficit. About 7%. You’re right in saying trade deficits matter. And Scotland has a massive one.
You are discussing what matters whilst not actually discussing it.
All I want to know is with large twin deficits (both budget and trade) what would likely happen to a new Scottish Currency?
Should be an easy enough question for an economist of your calibre.
Or are you avoiding giving an answer because it would be one you don’t want to give – that being a new Scottish currency would nosedive most likely, and we Scots would be the poorer for it.
I draw Ken’s comment to your attention
You simply cannot know your claim is true
And there is no trade deficit data at all – we have no idea what happens within the U.K.
So I am afraid you are making claims that are not supportable
I’m not making any claims. I am asking you a simple question.
If Scotland runs a budget deficit of 8% and a trade deficit of 7%, what is likely to happen to a new Scottish currency?
I’ll answer the data points in my answer to Ken.
Simple question. Please answer it.
I might as well answer the question as to who will win the Scottish Cup next year
At least there is a good chance of saying that is Celtic
But your question makes no sense
Jimmy,
How do you know that Scotland runs a budget deficit? GERS figures are not reliable and the majority of its constituent values are not probative actual figures with substantiable audit trail. The majority are estimates or allocations of UK figures (which themselves may not be 100% reliable) based on arbitrary means of allocation. GERS also claims to represent a Scottish financial performance in the UK status quo; it does not purport to represent an equivalent performance in conditions of an independent state. In other words it is unreliable in the status quo and entirely unrepresentative of an independent nation state scenario.
It has always puzzled me that the Scottish Government does not disown GERS results or at least have them audited, as the auditors would almost certainly have to qualify their report.
It is also puzzling that the Growth Commission used GERS as basis figures without highlighting their unreliability/unsuitability. However, it is a sad comment on the UK record-keeping that there are almost no reliable statistics for Scotland-only economic factors. The Scottish Government is currently recruiting statisticians to create relevant systems, but it will be some time before we see sufficient information emerge to enable soundly-based forecasting. Until then we are stuck with having a Scottish Government (regardless of its political hue) being held responsible for Scotland’s economic performance, but being denied the information essential to that task.
Thanks
You are entirely right
Ken,
You are making a straw man argument.
Firstly, there is data. It might not be 100% accurate, but no data is. That does not mean it is “wrong” and it doesn’t mean it isn’t useful either.
That does not mean it is totally wrong. It will have a margin for error, but that is it. Falling into the GERS denier trap is plain silly. Do you think that suddenly Scotland will appear with no budget deficit and no trade deficit because it collects marginally better data, or is an independent country?
Of course, budget deficit data is fairly accurate. Scottish public spending is primarily controlled in Scotland already (about 70%) so is relatively accurate already. Scottish revenues are also fairly well known. The approximations only come from shared line items. The GERS data also is fairly similar to ONS and independent estimates (like from the IMF, from example).
There is also fairly good trade data from Scotland (from Export Statistics Scotland, Scottish Government) published as part of the Scottish national Accounts.
Are you really going to tell me, with absolutely no evidence to the contrary, that GERS, ONS, OBR, IMF and various others have all go their data so horribly wrong that Scotland actually doesn’t have a budget deficit or a trade deficit at all? Errors of 8% of GDP?
And if the budget deficit is only 7% of GDP does it really change the problem?
Richard,
There is plenty of data out there – including trade data (showing a large deficit). That trade data also deals with trade between Scotland and the UK.
Ken
Might I invite you to reproduce your critique of GERS?
As I have said before, GERS is CRAP – that is a completely rubbish approximation
I continue to suggest that it is incapable of truly representing Scottish data
If the Scottish government was really interested in independence it should invest very heavily in better data
And no, there is no adequate trade data: it is a fact widely acknowledged because there is literally no way to measure it
Richard
Richard,
If GERS is wrong, you must also have an idea of how wrong it is. All macro economic data uses approximations. That doesn’t make it “wrong” or useless.
Are you really saying GERS is out by over 8% of Scottish GDP????
You say you are an economist, so you should know how economic data is collected and how that data is treated statistically – including the estimation of total error within it.
There is Scottish trade data. The Scottish government seem to be able to measure it, and find they have a 12bn pound trade deficit. Again, the data may not be perfect, but it is unlikely to be hugely out.
If you had bothered to look through the Scottish economic statistics, you would notice that older data gets revised and updated as more information comes through (which is the same way everyone else in the world deals with the same data). No revisions have been that large, which suggests the data is pretty good.
I am not going over old ground all over again
Nor am I much interested in ad hominem argument
I reiterate though, your argument assumes GERS is right and a perpetuation of the status quo when the aim is to make everyth8ng different
Given that your claims are illogical
Ignorance of Sectoral Balances Accounting lies at the heart of Neoliberal austerity ideology as this article 2015 by Bill Mitchell makes clear by implication and especially ignorance of the desire by all to save using financial assets that will help retain the value of those savings if not improve on them:-
http://bilbo.economicoutlook.net/blog/?p=32396
The SNP leadership badly need a seminar on Sectoral Balances Accounting!
I will offer it…..
Excellent! Your communication skills and knowledge base are very good and I’m sure you’ll emphasise that you’ll always be available for further mentoring because the subject is complex in depth and that you can always put them in touch with additional mentors for specific in-depth areas.
There is no guarantee I will succeed….
I suggest you talk to Kate Forbes
See her bio at
https://www.snp.org/kate_forbes
I’ll try
“….Scotland would have to set out credible plans to cut its deficit……….to reassure markets” erm why?
Taking a somewhat different angle: Scotland has the largest energy resource in Europe – wind – by a country mile. Collectively the Uk has an off-shore resource of +/- 500GW more than enough to provide electrical power – to the whole of Europe & then some. Scotland accounts for perhaps 350GW of this. Oddly, unlike oil or gas I don’t think the wind will “run out” any time soon.
Furthermore, off-shore wind done to scale no longer needs a subsidy – it has a positive rate of return circa 10% (possibly more – developers like Orsted tend to play their cards close to their chest on this point). There is also the prospect of direct reduction of iron ore using hydrogen (from renewable power). The Scandics are about to start a project – real soon on this one. By 2050 the EU demand for primary steel is likely to be around 20 million tonnes per year – needing circa 40GW of off-shore elec: oh look a new Scottish steel industry.
These are all business opportunities that dwarf the issue of “oh look Scotland needs to reduce is deficit” – if properly implemented (via an Industrial Strategy that was fit for purpose) Scotland could lay the foundations for long term prosperity & full employment. Where does the money come from? print or raise on the markets (like Orsted and other developers – they have zero problems doing this – even though they are … shock horro… state owned).
Agreed
Abso – bleedin’- lutely, Mike Parr.
And you don’t even mention, water, fishing, agriculture, silviculture, finance, whisky, tourism, education and ….and…. and….
Did you notice there is now an ‘official’ category of people in the independence discourse who are ‘GERS deniers’ ?
I don’t know who’s stirring-up the ‘Jimmys’, but they are doing a good job peddling their project fear BS.
These people can’t even imagine a future because they look only backwards.
They have memory (somewhat selective) but no imagination.
It’s rather like the objections presented in a discussion of UBI. There is a total failure to see that UBI would actually alter far more than just unemployment benefit payments. In fact it would alter virtually everything.
There’s none so blind…..