Summary
This is a long post that addresses one of the most sensitive issues in the Scottish independence debate, which is how much Scotland might owe London for the national debt of the existing UK if it were to become independent, and what interest might be due on it.
It is usually claimed by Unionists and those opposed to independence that Scotland could not afford whatever debt might be due, or the interest on it. In summary in this post I argue seven things.
First, the debt owing must be adjusted for QE.
Second, it must be adjusted for oil surpluses.
Third, it must be adjusted so that interest is only charged on the debt having allowed for these issues, after which it seems likely that the rest of the UK will owe Scotland, and Scotland will have no debt.
Fourth, come what may, Scotland has no legal obligation to pay any debt at all, and London has already conceded this.
Fifth, in that case all that can be due is a compensation payment, and legally a recipient of a compensation payment is not allowed to profit from it. London could not do that then. And since almost no UK debt is ever repaid Scotland cannot owe anything at all until any of that debt is actually ever repaid, and then only proportionately so. For all practical purposes this means Scotland will probably never have to make a capital repayment to the UK, whatever notional sum might be agreed to be owing.
And, sixth, since any interest due is also a compensation payment nothing more than current long term interest rates (which are 0.6% at most) can be due and this could never, whatever might be negotiated, ever reasonably give rise to an interest liability of more than 1% of an independent Scottish government's budget, with the actual sum likely to be vastly lower than that.
Whilst, seventh, whatever is owing must be agreed to be due in Scottish pounds, fixed at independence.
The result is that this debt debate effectively becomes a non-issue when discussing independence.
At which point I would add a note to commentators. Please do feel free to debate numbers, including those on oil, but also please note that whatever is suggested to be apportionable to Scotland nothing is going to be paid with regard to the quantum of the debt because the rest of the UK is not going to be repaying its own debt, probably forever, so Scotland has no reason to compensate it for doing so. And that only leaves the interest rate and currency payable to really argue over, and I have already presented what is the worst case scenario on interest, whilst I would suggest the currency issue non-negotiable.
___________
Introduction
I am aware of much debate of late on the scale of the debt that Scotland would have to inherit if it became a country independent of England. The issue usually runs along the Unionist political divide. Unionists are usually those who were adamant that Scotland must take its share of the debt, and that it could not afford it. Others, more independence inclined, are not convinced. So let me offer some rational comment on this situation. To do so let me specify the issues to be decided upon here.
The first is whether Scotland might be liable for the debt?
The second is how much debt is there?
Third, the question is what part of that total might be attributable to Scotland?
Fourth is the question of when any repayment might be due?
Fifth is the question of what interest might be due if the debt is not repayable now.
I will deal with each of these in turn.
1. Would Scotland be liable for English debt if it became independent?
It is an odd claim that is made by Unionists that Scotland is liable for debt due by the UK. The oddness comes from the fact that this recognises that Scotland's sovereignty is real and divisible from the UK as a whole. It is therefore in existence now. If so, the point has been conceded that Scotland is already an economic as well as national entity separate from the UK, and has been during the existence of UK.
This then concedes a second argument, which is that English identity is also separate, divisible from the UK and continuing as well. This must be so. The very fact that there are two separate countries (of which England is the representative of one) that might assume this debt is, in that case, common ground.
There should also be common ground on another issue. And that is that there is actually already agreement that Scotland will have no liability for any of the debt of England, Wales or Northern Ireland (although for all practical purposes, this is English debt) if it chooses to become independent. We know this because the UK government issued a publication on this issue in 2014 under the title[1]:
UK debt and the Scotland independence referendum
In this the UK government, based in London, said:
In the event of Scottish independence from the United Kingdom (UK), the continuing UK Government would in all circumstances honour the contractual terms of the debt issued by the UK Government. An independent Scottish state would become responsible for a fair and proportionate share of the UK's current liabilities, but a share of the outstanding stock of debt instruments that have been issued by the UK would not be transferred to Scotland. For example, there would be no change in counterparty for holders of UK gilts. Instead, an independent Scotland would need to raise funds in order to reimburse the continuing UK for this share.
They added:
An entirely separate contract between the continuing UK Government and an independent Scottish state's Government would need to be established. The respective shares of debt and the terms of repayment would be subject to negotiation.
In addition they said:
In the event of independence, the full spectrum of assets and liabilities — past, future and contingent — would need to be considered in negotiations between the continuing UK and Scottish Governments, on a case-by-case basis. This means that the negotiations would need to cover the arrangements for all forms of debt covered in this note, not just gilts and Treasury.
I think this really rather helpful because much of it summarises what appears to be legally, practically and politically both true, and necessary. In the process it resolves the first question. The UK government has said Scotland will not be liable for debts managed by London before independence. Instead anything owing is entirely down to negotiation. The idea that in that case Scotland has some fixed share of UK debt that it must assume can be dismissed: this claim has no legal or factual basis.
2. How much debt is there?
I have noted what the UK government has said about debt. It is also appropriate to note that by implication their note suggests that Treasury Bills and gilts are not the only issues to be considered, but let's assume that they are in the first instance as that is what is usually called ‘debt'. I will come back to the only other issues of significance later in this note.
It so happens that we have quite a good basis for determining how much UK debt there is. The government has just published its March 2019 Whole of Government Accounts[2]. They say that the UK debt is as follows:
Some might be rather surprised by these figures. We're told that UK debt now equates to GDP, although since both figures are represented by pretty poor estimates during the coronavirus crisis it's hard to be sure what that means. Thankfully, the House of Commons Library says two things that provide some clarity to assist interpretation of this issue in a publication[3] from June 2020 that referred to government debt as at March 2020. One was that the gross debt was £1,806bn at that date, and the second was that it increased by £56bn during the year then ended, implying it was £1,750 a year beforehand. Many would, in that case be surprised to note that they say otherwise, since they suggest the debt to be £1,773 billion in March 2019. I will simply use the anomaly to note that this is a recurring issue when discussing national debt figures: they're extraordinarily hard to pin down, let alone make sense of. Approximations are always the order of the day.
What we can be sure of is that £1,773bn is not the same as the £1,240 billion of gilts and Treasury bills reported as outstanding at 31 March 2019 as per the Whole of Government Accounts (I have excluded the savings accounts balance at National Savings and Investments from consideration as part of debt, since it is clearly something quite different). There is an explanation though: the Whole of Government Accounts are stated net of quantitative easing (QE), because those accounts correctly reflect the fact that a government cannot owe itself money and so debt that has been subject to government repurchase through the QE process has to be shown as cancelled. And if the UK government hasn't got that liability at this moment then nor has Scotland got any obligation with regard to it either. I sincerely hope that this is not a point of contention, since factually it is beyond debate.
This just needs the question to be asked as to what has happened since March 2019? Two things. The first is that there was a deficit if supposedly £56 billion to March 2020. This was not covered by QE. So what is called debt bet of QE must have risen to near enough £1.3 trillion at 31 March 2020. And then there has been Covid 19. But what we do know is that every single penny of UK government spending on coronavirus has so far been covered by QE. That means that the UK national debt has not risen as a result. In which case it is still at about £1.3 trillion for the purposes of this discussion. This then determines our start point. A share if £1.3 trillion is, at this moment, what we're talking about. Any greater sum would be wholly inappropriate as a basis for negotiation.
3. How much debt might be attributable to Scotland?
That then brings me to the third issue, which is when things get more interesting. How much of this so-called debt is due by Scotland? Those of simple minds simply suggest that the liability be split on the basis of the respective populations of the countries So if the UK has a population of about 66.8 million according to the Office for National Statistics at present, and Scotland makes up 5.46 million of that total then those pursuing this argument would say Scotland owes £106 billion. I do not agree.
My argument is that such a simple calculation would be wrong in almost any circumstance. The population could, and should, be weighted. That might be by age, for example: I would argue an older population should not be required to assume so much debt. It could be weighted by wealth as well: why should a poorer population be expected to assume as large a part of the debt as a richer one? Apportionment on the basis of average income would obviously be another factor since debt outstanding does represent tax uncollected despite government spending having arisen, and we supposedly have a progressive tax system, meaning that the richer country should be liable for more of the debt as a result. GDP could be another basis, excepting the fact that there is no reliable estimate for Scottish GDP. I am not doing those calculations here. I am just suggesting they could be done: I do not think there is the remotest chance that a simple apportionment could get accepted as fair.
Then there is the more important question as to whether Scotland has actually generated this debt. Let's be blunt about what this question means. The question comes down to oil. Given the phenomenal contribution North Sea oil made to the UK as a whole, which it can reasonable be argued was squandered outside Scotland, does Scotland have any liability for the debt, come what may? I am aware that Business for Scotland argue very strongly that it does not. It argues Scotland is owed money[4].
I am equally aware that Channel 4's Factcheck found the case hard to call, albeit it could not find a case for money being owed for the oil years[5] (let's call them 1980 to 2014).
I do however think that Channel 4 ignored something Business for Scotland did not when undertaking their estimate. This is that if there was no deficit in that period Scotland should not have been charged any part of the interest paid to service that deficit in that period. What is however very clear is that such interest costs were apportioned to Scotland in GERS, the already doubtfully calculated and dubiously named Government Expenditure and Revenue Statement for Scotland. Business for Scotland suggests that £126 billion of interest has been charged to Scotland through that statement. I share it's doubt that very much of that should have been included in the account when it did not arise in Scotland.
However, if Channel 4 are right and no debt arose between 1980 and 2014, and this ‘no debt' approximation might be the best estimate that can be achieved for this period, then interest charges during that time cannot be eliminated again. But that still leaves the possibility that an adjustment is required. Interest has been charged to Scotland since 2014. The UK as a whole had an interest charge from April 2014 to March 2020 of about £260 billion (based on HM Treasury budget estimates). Of this sum approximately 8%, or £21 billion, will have been allocated to Scotland through GERS. That, however, is inappropriate. If there was net debt of no more than £98bn that could have even been used as a basis of apportionment to Scotland up to 2014 (see sources noted below) then the interest charges made to Scotland since 2014 are based on a cumulative debt that Scotland could simply not have owed. I have not worked through a detailed calculation of how much of the debt charge from 2014 on should have been cancelled as a result, but I suggest that it is likely that 75% of it should be eliminated from any apportionment to Scotland when this is taken into account i.e. any debt apportionment for 2014 onwards should be reduced by about £15 billion for this reason.
Let's pull this together then. Using House of Commons Library data, and not allowing for inflation (and it's arguable whether that is relevant, but overall I suggest not as most of UK debt is not index linked) then UK debt in 1980 was £98bn. In 2014 it was £1,442bn. I argue the latter figure does not need QE adjustment since that QE adjustment still exists, and the debt and QE are independent factors. The amount of gross debt that falls out of consideration in that case is £1,344bn. The net debt to take out of consideration is then the gross current debt of £1,806bn less the debt to which Scotland could not have contributed of £1,344bn, leaving debt of £462 billion for apportionment at most, from which the £506 billion QE adjustment previously noted must be deducted, leaving a gross apportionable sum for Scotland of £44bn being owed to it. This means that on a pure population apportioned basis (which I am using solely for example, and not because it is necessarily appropriate) a net sum of just under £4 billion is owed to Scotland, to which the interest charge adjustment already noted should be added, leaving Scotland being owed maybe £19 billion in all.
4. When might any repayment be due?
I would also suggest that this is by no means the end of the argument, either. Let me pursue this point in another quite different way. Suppose for a moment that none of these adjustments for oil were agreed. I can see no equitable reason why they should not be, but let us just suppose an impasse was reached on them. And let us suppose a crude population weighted debt apportionment was accepted, which I would suggest no Scottish negotiator would go near as a basis of settlement, but again, let us again just suppose. And then note that the UK statement on debt issued in 2014 says:
Instead, an independent Scotland would need to raise funds in order to reimburse the continuing UK for this share.
This is, to be very polite, nonsense. The reality is that, as the note says, legally Scotland does not owe the debt that England would have to assume on Scotland becoming independent. So, what Scotland would be making payment of to England would be a compensation payment for the cost of that debt since the UK government has already conceded Scotland cannot legally owe this money. And when it comes to compensation payments there is a very simple legal principle that comes into play, and that is that the aggrieved party (i.e. the one who is being compensated) may not profit from the compensation payment; the aim is that they simply be left no worse off than they might have been but for the compensation being due.
This is very important in this case, for two reasons. The first is that England cannot ask Scotland to repay to it a debt when it has no intention of actually repaying. As my research has shown[6], since World War 2 there has been total government borrowing of £1,744bn. And there have been net repayments of that borrowing of £37.6 billion, none of which have been made in the last nineteen years. To put it another way, repayment of government debt was always rare, and has now ceased. And if the UK government is not repaying debt then there is no reason why Scotland should compensate it for the cost of repaying debt it has no intention of redeeming. In other words, even if a debt was due now nothing at all with regard to the capital sum owing would actually be repayable by Scotland. I cannot state it more bluntly than that. Even if it could be shown there was a nominal liability for a share of debt - and it is not at all clear that is the case - precisely because it is a compensation payment that is due and there is nothing to compensate England for if - as seems inevitable - it has no intention of repaying any of the capital sum due on its national debt to those to whom it is notionally owed the Scotland has no capital debt repayment to make, at all.
5. What interest rate is owing?
That still leaves the issue of interest rates though. After all, if the debt is not to be repaid what matters is the interest due on it.
Yet again, it is worth noting that England may not profit from this compensation payment from Scotland. And recall that this is not existing debt that is being discussed. It is a new obligation being created, if that were to prove to be necessary. And it is going to be long term debt because the UK debt to which it is related is not being repaid, and nor is it likely to be. Right now[7] the UK is borrowing long term (30 years or more) at 0.6%. That is the maximum rate Scotland might owe then.
6. Conclusions
These arguments lead to at least three conclusions.
The first is that Scotland does not have any obligation to compensate England any part of the so-called UK national debt as agent for the rest of the UK because no part of that debt can at present be attributed to Scotland.
The second conclusion is that even if Scotland did have a notional liability owing to the rest of the UK the capital balance on the loan would not need repayment because there is no indication that the remaining UK will be repaying any of its debt, and therefore there is no reason for Scotland to make payment to the rest of the UK for something that they will not be doing.
Third, even if debt was due right now it would be the case that around £19bn was due to Scotland.
And fourth, if interest is due it would be at a maximum of 0.6% per annum.
Pulling these conclusions together does however lead to the necessary statement to be made that as 0.6% of near enough nothing (in these terms) is not a lot. In that case this rate is slightly academic. But even if it was (quite absurdly) agreed that Scotland owed the maximum possible liability of £106bn the interest due would be just over £600 million a year. This is not insignificant, but then, it is not due either. But if it was, this sum has to be kept in proportion. This sum would be less than one percent of a likely total Scottish government budget and this is an exceptionally low interest cost., not least compared to the UKL over recent years where in percentage terms have been very much more than that. However looked at then, this is not going to make or break an independent Scotland. And that means that debt is not in that case going to be a big deal in the independence debate, however it is looked at.
And I make one final point. Anything owing would be negotiated. Nothing relates to existing debt. So Scotland would be at complete liberty to demand that any favour it grants (for favour it would be) would have to be payable in Scottish pounds. Nothing else would do, and nothing else would be acceptable. Scotland would not want to start its independent existence owing debt in a foreign currency, and must not do so.
________
A PDF version of a version of this blog is available here.
________
[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/270643/uk_debt_and_the_Scotland_independence_referendum.pdf
[2] https://www.gov.uk/government/publications/whole-of-government-accounts-2019-to-2020-guidance-for-preparers
[3] https://commonslibrary.parliament.uk/research-briefings/sn05745/
[4] https://www.businessforscotland.com/revealed-the-accounting-trick-that-hides-scotlands-wealth/
[5] https://www.channel4.com/news/factcheck/factcheck-has-scotland-subsidised-the-rest-of-the-uk
[6] https://www.taxresearch.org.uk/Blog/2020/05/14/the-tories-are-the-biggest-government-borrowers-since-1946/
[7] https://www.dmo.gov.uk/media/16571/jan-mar20.pdf
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Thanks Richard. A lot of work gone in there. Bookmarked into my ‘independence’ folder and ready for the Twittersphere the next time someone bleats we have to pay a portion of UK debt. Thing is, in my estimation, the same bleaters will never have the puff to read it all, so will continue in their ignorance and campaign. “rolls eyes”
Agreed, unfortunately
I find it bizarre that having asserted itself so aggressively over Scotland, England would then see that its obligation to fund the workings of Scotland as its ‘Government’ as a debt on Scotland when, all I see, is a responsibility and means to govern adequately. If you want to be an imperialist, it costs you! Savvy?
Goodness me, what a load of codswallop. It’s portrayed as if we did Scotland a favour!! But it actually just sounds like sour grapes to me.
Scotland did not make England waltz in, beat it up and then Govern it. England made a conscious decision to do so. I’d be more interested in what flowed out of Scotland to England to be honest.
As I’ve said before, the Ghost of Longshanks still stalks Westminster.
“Scotland did not make England waltz in, beat it up and then Govern it. ”
Actually it did. There was no ‘beating up’, just a deal cut by Scotland’s tiny electorate that technically eliminated both the English and Scottish Parliaments and established a new British one that looked suspiciously like the old English one, except for some Scottish MPs and Peers of the Scottish aristocracy (the vast majority of Scots, even many Presbyterian, active supporters of the Glorious Revolution were suspicious – but critically the Kirk backed it, and the people were not consulted). Union just didn’t go on to deliver in the way anyone expected; but what probably kept the Union from falling apart was the Empire, which Scotland cannot pretend it was not almost the leading participant and advocate in driving forward. In time the majority of Scots accepted the advantages of Empire were important to the economy; and economics became all consuming. The end of empire ended the ‘raison d’être’ for Union, and Brexit may have finished it off. Scotland is small, but not small enough for a British insular Union.
Here is the real irony. Everyone thinks Scotland was broke after the Darien disaster (now there is a really interesting sub-text there, but not quite the one most people assume) and therefore had to do the Union deal; this is a really bad argument. It was a lot more complicated (but no ‘punch-ups’ or invasions involved; England was as anxious about a threat from a Scottish Jacobite revival as Scotland was of English hegemony). Scotland was broke, but it wasn’t bust; because it had no debt. The deal in 1707 actually required England to pay Scotland a sum of money (quite a lot in cash – which arrived in Edinburgh under armed escort in big chests – I think they still have the chests): to compensate Scotland for taking on England’s national debt. The payment was termed ‘the Equivalent’ (it was calculated principally by a Scots mathematician in Oxford, David Gregory (1659-1708)); almost half of it went to the small group of Scots voters, landowners and aristocracy that cut the Union deal (as compensation for their losses in Darien, connived at by the King, the Westminster Parliament and East India Company, who blocked capital raising in London because some big English investors wanted a viable competitor to the East India Company monopoly, and a Scottish Parliament company with its own monopoly was the answer; there was a lot of skulduggery and stupidity involved all round). The reality is nothing like the simple sketches of history that become conventionally understood. History is a lot more interesting, and more relevant.
‘… the Empire, which Scotland cannot pretend it was not almost the leading participant and advocate in driving forward.’
What makes you say that?
Where to start.
1) The US tobacco plantations. After 1707 Scotland came to run the US tobacco industry through the development of a business model where they controlled the finance and shipment of the US tobacco crop to the UK. It was run by a wealthy group of merchants known as ‘The Tobacco Lords’. It was the reason so many Scots opposed US independence (although men like John Wotherspoon and Alexander Hamilton took leading roles). The plantation owners were delighted to tear up their debt contracts on US independence in 1776. See TM Devine, ‘The Tobacco Lords’ (1990).
2) The Scots played a, or even ‘the’ leading role in the sugar plantations of the Caribbean, not least in Jamaica. Glasgow University, in acknowledging that it benefitted from the fruits of slavery has established links with West Indies Universities.
3) Hong Kong. Virtually a Scots colony. Jardine Mathieson, the prime member of the “Princely Hongs” was founded by two Scots who ran the opium trade. Britain, including its government in the 19th century were involved in drugs trafficking to China. We fought the ‘Opium Wars’ to force China to accept it in the 1840s. We were world leading drug traffickers. There was a Whitehall department (George Orwell’s father worked for it). The teacher and mentor of Pu YI, the last Emperor of China, Sir Reginald Fleming Johnston (probably working for the Intelligence Services) was a Scot. He owned a small island in the Hebrides, and flew the flag of Manchukuo (Pu Yi’s last redoubt before the fdinal collapse of the Qing dynasty), until he died.
4) The Scots took leading parts in the development of (and independence of) Australia, Canada, the development of Africa (including David Livingstone’s fight against slavery) and many, many other colonies. To keep this short let me give the example of Canada. The influence of Scottish settlers was enormous, the Hudson’s Bay Company was effectively run by Scots; but looking just at leaders in its development and independence: Alexander Mackenzie (explorer); Alexander Mackenzie (politician); William Lyon Mackenzie (politican); Sir Richard McBride (politician).
5) India. I could be here all day. Warren Hastings is remembered best for his impeachment but in India his administration depended on what he termed his ‘Scots Guardians’: Mountstuart Elphinstone (brilliant administrator and historian – he promoted education in India against official resistance); Sir Thomas Munro (began in East India Company [EIC], he was a soldier and administrator who played a huge role in Britain’s control of India). Sir Alex Gilmour and Sir Alex Grant of Dalvey were major EIC stockholders and many Scots became involved in the commercial and military operations. Henry Dundas became President of the India Board in 1784, and left his mark on Indian administration. Disastrously, James Mill was allowed to develop policy for India in the mid 19th century, without ever visiting India. I should not forget Sir John Macpherson, an Indian administrator whose scholarly insights in Indian culture have been dismissed, and disparaged compared with the Sanskrit scholarship of Sir William Jones, but it begins to appear that their friendship was intellectually a two-way street.
I could go on, and on; I have merely scratched the surface – lightly. See TM Devine also for ‘Scotland’s Empire’ (2003), for a brief survey up to 1815.
Thanks
I wondered why you called Scotland: ‘almost the leading participant and advocate in driving forward’ (the empire) – I had realised Scotsmen were participants but not almost the leading participant.
I shall follow up the reference you gave.
P.S.
Thank you for a really informative post.
Did you actually get any sleep last night?
That one was, unusually, written over several days
I don’t usually do that, but not every post can be written in a few minutes
A thorough piece of research, but
Should we not be beating the MMT drum & saying as there is virtually no chance of it ever being requested for repayment
Who cares ?
Isn’t that implicit?
And please remember, sometimes a balance has to be found
The division of assets would also be a factor.
Trident and Trident replacement, Astute Class submarines, two Aircraft Carriers and their planes, the Royal Navy Fleet, The Army bases and equipment, the RAF bases and equipment, Gibraltar, the Falklands etc etc.
HS2, Crossrail, the Channel tunnel, Thames Barrier, M25 etc etc
Does Westminster simply assume it retains all assets while claiming shared debt?
The money borrowed on which interest is “allocated” to Scotland in GERs was not spent in Scotland.
The Norwegian Wealth Fund gives a very clear figure for the funds denied Scotland.
The Records Office in Edinburgh records annual figures for Scottish wealth being sent to London “In Support of the Empire”. This is often in the range 30 to 50 %.
The glutton had a meal, he had 4 courses and a bottle of expensive wine. I ate my sandwich with a glass of water. He suggested a shared split bill. He took my cash and used his credit card to pay. He now demands I pay interest monthly because he hasn’t paid his card balance off. He is asking for a share of the interest on all the card charges and not just the meal we “shared”.
Does Scotland want the U.K. military assets?
I am sure it does not want to be an imperial power
It just needs the assets in a Scotland, surely? The settlement I suggest covers that
Julia, you don’t want to go there. Just apply International Law and the fact the UK has already declared (in 2014) that it would be the Continuing State. That means they get all the assets (embassies, Falklands, UN seat, etc) and ALL the liabilities (National Debt, state pension, international obligations). Scotland gets what is located in Scotland (and not moveable such as a submarine or aircraft). As soon as you ask for any of the assets then you also get the liabilities and the UK liabilities are bigger than the assets. Richard is correct in what he says but my opening position would simply be the above – in International Law it is all rUK debt. If rUK decided it was not the continuing state it would be different as the assets and liabilities would have to be divided. There is zero chance of the UK deciding that, as no continuing state would mean the end of the UN Security Council seat which would become vacant and get allocated to another country.
Agreed
It’s all very well people in Scotland getting worked up about their democratic rights but given most of them are clueless how democracy inter-meshes with a monetary economy, particularly how the medium of exchange is created for that economy, then independence isn’t going to turn out very well. This ought to be readily apparent just by looking at how things are going in the Union as a whole given the cluelessness, the undermining of the NHS through ten years of austerity to take but one example. It isn’t readily apparent though is it?
This the “too stupid” argument, frequently seen with its bedfellows, “too wee and too poor”. Frankly, I would prefer our own Scottish version of stupidity, which was we can vote for and get, rather than the English version which we don’t vote for but always get. NI and Wales might prefer the same. Also, I’m astonished that other parts of England don’t feel the same, or if they do, don’t do anything about it.
The problem isn’t Scotland, but is England, as Anthony Barnett explained in “The Lure of Greatness”.
Who knows how it will turn out. Making predictions is very difficult, particularly about the future. But I’m pretty certain that our “cluelessness” won’t result in a virulent hard right collection of nutcases in charge. I’d be happy with that as a start with the hope that more “clued-up” voices such as Tim’s, Angus MacNeil, Common Weal and others of that ilk will come to the fore.
Thanks Graham for providing a response to Ms Schofield’s patronising contribution. Personally, I’m so fed up with this kind of guff that remaining ‘polite’ is a challenge!
I have not noticed a patronising contribution
Well. I did raise an eyebrow, both eyebrows truth be told, at Helen’s comment. To write that as a comment on an article about debt and Scotland’s possible contribution on gaining independence is,,, strange. And, yes, patronising. Let’s translate it – how it sounds in the colonised mind – an explanation of why it is patronising:
—-
Translation: It’s all very well those upstart Scots think they have the same rights as other human beings, but given that they are subhuman and incapable of understanding even the most basic of things a superior English 5-year old child can understand about democracy, something we of the most superior heritage invented you know so we understand it in our bones, and how it meshes with a monetary economy, and of course they can’t know because they do not have the breeding or ability and need to be looked after like children, so their laughable squeaks where they claim to want independence are pathetic and obviously a fantasy borne of addled brains isn’t going to turn out well. If they weren’t so inherently inferior they would realise that because the union is so badly run they would always manage to do it worse, and I have the right to give an example of austerity politics by the union government and how it has been applied to NHS England – but I won’t mention (shhhh, can’t say(England)) that there are 4 separate NHS’s and that Scotland has been running theirs fine on a shoestring budget for the last decade and has not seen the same disasters as NHS England mainly because I have no interest in anything else but my own country and theirs must be inferior as they are inherently so, so there is no reason for me to check any facts.
——
Something along those lines anyway. Sorry to Helen! I use her comment as an example, not her herself. One thing that has become very common these days – the repeated, and sometimes torturous, avoidance of using ‘England’, I find this fascinating, it’s always Britain or the uk, or British, particularly when it pertains to something ‘bad’ in England. We were always used to it on the news and in the media, but it’s now the way real people talk and express themselves. Weird.
Anyway – to answer Helens actual comment – I don’t think how the union is run is any reflection on how Scotland might be run. I am not sure in what way Scotland is so uniquely different from the other 60(?) countries that have gained independence from Britain. There are actually 4 separate NHS’s and we don’t know which one you mean in your example. And, are Scots more clueless than everyone else, or just as much so?
But you might not want to publish this comment Richard – I am being somewhat facetious. But hopefully, um, educational,,, as well?
Contrary
I think you have seriously misread Helen’s comment
Helen is a long-standing, well respected and thoughtful commentator here
I read her comment as being simple observation that Scotland has to understand money to make independence work
As a matter of fact most in the Scottish political scene do not do so – rather like in the rest of the Union. That was fair comparison
Reading in the context of her wider comments 0 and there have been hundreds – I think you and Graham have seriously misread her
Richard
Yes, I know, I was chastising myself while writing and definitely deserve your chastisement – I know Helen didn’t mean her comment in the way I interpreted it there, but I decided to submit the description to try and explain how commenting from one perspective without being aware of the background affecting the subject being commented on can come across much differently than was intended. ,,,That was awkwardly put.
From a Scottish perspective, we get a lot of patronising put-downs all the time; a general dismissal, that anything Scottish should be worth anyone’s notice – so categorically lumping Scottish things into everything that is bad about the English system and assuming that everything here is the same as there is something we are used to hearing – but to comment so strongly on our ignorance at the same time as showing ignorance of the broader issues makes it sound like it was designed to insult, not inform. I know it wasn’t intended in that way, because I do read her comments, but as a stand-alone, it did not come across well.
I’ve had real difficulty here trying to explain in a way that you can understand, and doubt I have managed, but I think it’s a good exercise to try and look at things from many different perspectives. I think both you and Graham are correct – but from different perspectives. (and I’ll stop digging the hole now 😉 )
Here’s a useful and simplified angle of attack on the subject of the government’s National Debt or National Deficit:-
http://neweconomicperspectives.org/2010/04/what-is-responsible-fiscal-policy.html
Who’d believe it’s ten years old and still a majority of voters in the UK don’t understand the interdependency of democracy with their monetary economy even in Scotland!
Thanks Richard for all the work you have put in to this. I am sure it will be studied and appreciated by many of us in the times ahead.
Well said Graham Hewitt, I fully agree.
Excellent, thanks for this Richard. I nearly glazed over and got lost amongst the convoluted morass of ‘2. How much debt is there?’ mind you, even though you did simplify it. It’s good to have these kinds of articles – it means people take a bit of interest and then might ask questions, and I can get an opening to talk about macro-economic things (the only bit I can really follow with any certainty,,, well, some certainty) without being dismissed out of hand. And I have been asked some questions after posting the link today, so that’s good. Spreading the Gooooood Word of MMT.
It can be hard work though, can’t it, answering questions from people that didn’t bother reading the relevant article? ,,, though I admit to only reading your conclusion before linking to it elsewhere myself 😀
I can’t think of any other ways of getting folk to take enough interest to learn about MMT – I see it as a fundamental and necessary step that people, the plebiscite, understand enough to be able to put pressure on our representatives to learn/understand/be honest about economical matters – and I see it as very important for the people of Scotland. We won’t have existing structures like the Bank of England or the Treasury, with people in place that know how the economy actually works with systems already in place, when we get independence, so I believe we need a savvy enough political team to know what’s needed to be put in place. And to get that savvy political team, we need a very demanding, well educated, populace. Well, it’s a plan, sort of. If Tim Rideout wants to be in charge, I’ll let him, then I don’t need to bother haranguing folk 😉
🙂
Can you publish your calculations please.
The Business for Scotland source which you are citing and seem to be using is based on calculations the author refuses to publish, so it’s impossible to verify.
I presume you’ve checked them over before citing them as a reliable source.
I did not have to rely on them as you will nite if you read the whole thing
I have read them.
Just to be clear then you haven’t looked at the calculations from business for Scotland, but you are happy citing them in your blog.
Now can you show you workings, should be easy to add them to a google sheet.
I did not use the data in reaching my conclusions
I mentioned the argument had been made and quoted via channel 4 a Scottish government source
Every working I have made is explained
There is nothing to add
Thanks for confirming that you didn’t use the B4S calculations. You might want to make that clear in your blog as it’s not apparent from it.
I disagree, but let’s leave it at that
I read this with great interest. I am an artist, I am not an economist but have always had an interest in economic theory and how the cogs turn when, back in the 80s, I realised I could not argue a case for more (say) NHS funding if I did not have a basic understanding of the process.
For years I have tried to explain to friends that any debt apportioned to Scotland would be on the table together with assets and liabilities for a negotiated secession settlement. Pointing out that it would be a brave man who predicted the outcome but always with the caveat that I believed Scots would be pleasantly surprised regarding debt.
I have recently read Stephanie Kelton’s “The Deficit Myth” and now, reading this article – which I will need to read a few more times – and some great comments – with Tim Rideout being particularly enlightening – I feel happy to review and refresh my stance but maintain my eternal optimism and faith in Scotland as a nation. Your efforts are appreciated.
I agree with ‘Contrary’.
This is a work by a man whose financial and economic knowledge and understanding are difficult for a non-expert to follow even if it is written in a straightforward manner, intended to yield its meaning quickly. To someone like me it will require more than one reading.
I downloaded the article and read it as a Word document. The only bit I feel I understand completely at the moment is the idea that if the UK has abandoned repaying the National Debt then it would be absurd for a future independent Scottish government to ‘contribute’ to the ‘repayment’. (If I understand that coreectly.)
I’m not entirely certain that the Unionist-inclined claim that a putative future independent Scotland would inherit responsibility for UK debt: ‘recognises that Scotland’s sovereignty is real and … is therefore in existence now.’ and that this: ‘concedes a second argument, which is that English identity is also separate, divisible from the UK and continuing as well’. The independent Scotland and rump UK the Unionist-inclined talk of, are theoretical and in the future, and their sovereignty within the UK exists already.
What does the phrase in brackets mean in the following sentence: ‘The very fact that there are two separate countries (of which England is the representative of one) that might assume this debt is, in that case, common ground.’?
I shall go back over your essay tomorrow and elicit some more of its meaning.
Thank you for writing it.
Sorry if it’s not clear
I admit, it was me developing what I think to be an important idea
The bit in brackets simply means England is the representative of the rest of the UK
Lawrence,
There is so much background thinking and knowledge behind what makes Richard correct in his postulations here that it is very difficult to express why something is right without explaining that (and getting distracted away from the subject) – I only understand bits, but I find it enough to catch on well enough.
I think Richard’s video that explains what government debt actually is really useful in this case to put many of the parts in this article into context – you need to keep an open mind because it is only part of the story and doesn’t quite marry up with what politicians and media try to tell us, here is a link to his (very short!) video, please try it out and then re-read this article, the context should help:
https://www.taxresearch.org.uk/Blog/2020/07/24/why-we-need-a-national-debt-a-video-explanation/
Thanks
[…] admit that yesterday’s blog on Scottish debt was unusual in two ways. First, it was long. Second, it was developed over the […]
[…] first is that it is no more than. £1.3 trillion at present. I explain how this is calculated here.  The figure is UK audited debt at 31 March 2019 adjusted for QE and an increased deficit since […]
Richard, it strikes me the argument is flawed on a couple of counts. The UK debts are not monolithic, but consist of a series of bonds that will come up for repayment, the repayments being funded by a combination of money printing, new debts, and the tax base of the UK itself.
The point is that existing UK debts most certainly will be repaid and if there is any obligation to consider these jointly (be it legal, moral or just pragmatically as a new state wishing to establish its credibility with financial markets), the specific existing debts matter, not the future ones the rUK will incur to fund part of the repayment of principal. Looking only at the future net indebtedness position ignores the fact that those gilts to be issued post separation will definitely only be the obligations of the rUK alone.
That last part of the debt repayment sources, the tax base, will be narrowed as I am sure you will appreciate, to the tune of about £60-65bn p.a. if Scotland becomes independent. To ignore that this damages the successor states debt servicing capacity seems unsustainable, and it is this damage that there is some obligation to compensate, although by what amount does seem open to negotiation.
I was expecting this comment
I do not agree that UK debt is not monolithic
Nor do I accept that it is repaid
All that happens is that debt regularly rolls over to change it terms – duration and interest rate
That’s little more than a bank changing a deposit interest rate
It’s absurd to claim that Scotland would have to fund these redemptions when the DMO works on the assumption of rollover knowing it will happen
Your argument is formalistic when what is required is a reflection of the substance of the relationship – which is what I reflect in the suggestions I have made, and also reflects the reality of the political narrative
Finally, I have clearly addressed your last point. First, I have addressed this point. Second, I have shown the cost is vastly less than supposed and may not even exist.
The substance is exactly what I’m getting at though – your argument is in part that Scotland can walk away from any form of obligation to contribute to historic debts because they won’t be on a net basis repaid. That doesn’t make them costless, and it doesn’t mean the rUK isnt worse off having the continuing obligation without the full continuing resources. So the rUK is in a very clear sense worse off without Scottish tax revenues as a source of debt servicing capacity.
For what it’s worth, Jim and Margaret Cuthbert have done more reliable and transparent work on calculating an adjusted Scottish fiscal balance than that provided in the link to Business for Scotland.
http://www.jamcuthbert.co.uk/papers%201/cumulative%20fiscal%20balance%20note%205%205%202014.doc
They provided the figure used by the SNP to suggest that Scotland had subsidised the UK to the tune of £145bn by the time of the referendum. Updating their figures on the same methodology brings this down to £65bn as of last year as accumulated deficits since their last update erode the notional wealth fund.
This shows that the accumulated subsidy/wealth fund argument is one that is lessening in potency by the year, and one which anyway depends on accepting a range of assumptions that don’t reflect constitutional arrangements either now or in the past, in substance or in form.
I noted the Business for Scotland work – I did not use it
The Cuthbert analysis ends in a similar broad place to me, albeit mainly for different reasons
But you are missing the point
As a matter of fact Scotland owes nothing – that is the only legal possible basis. Your claims re legal and constitutional arrangements are wrong then. i have given my source and the reasoning is widely accepted
Scotland could agree a compensation payment
But if the UK has nothing it requires compensation for on debt repayment – and in net terms it is not repaying debt – then nothing is owing
And Scotland cannot compensate rUK for more than it need pay in interest, which is the prevailing rate
That is what I am saying
You are ignoring that argument and offering claims which legally the rUK has already accepted cannot exist. I am not sure why
Perhaps it’s better to focus on common ground.
I do not think that there is a need to repay principal and so reduce national debt in aggregate. Also, I am making no argument whatsoever that a newly independent Scotland has any direct legal responsibility for UK debts. A sensible settlement would indeed be to compensate the UK for servicing Scotland’s share of accumulated past debts. If your argument started with that so far we would have no difference at all.
The debatable part would be Scotland’s fair share of historic debts, and it seems that relying on the fact they won’t be repaid risks muddying the waters considerably, when there is a very obvious respect in which separation imposes a greater obligation on the surviving creditor, one that will likely feature significantly in any negotiation. The inherent logic of apportioning historic oil revenues to Scotland uses a great deal of hindsight. At the time, there were very limited calls for independence at least if the ballot box is anything to go by (noting the SNPs loss of seats at the election immediately preceding your starting point for analysis), and by the time they have grown considerably in strength, the fiscal position is much worse. Had their been a majority for independence that was suppressed, it might be different, but the fiscal arrangements were to all intents and purposes consensual at the time.
I admit I think that makes little difference
Remember, Scotland will be in the driving seat here
England is not – unless it abandons the claim to be the successor state
Scotland’s ‘driving seat’ as you’ve already admitted relies on UDI as the only route to independence.
That’s a recipe for chaos, civil war and economic ruin.
No it doesn’t
It relies on the recognition of democratic realities
I know you might struggle with that
We will have to agree to disagree there.
The idea that the we would give the Scottish government a mandate to negotiate an exit from the UK that includes that kind of scorched earth diplomacy, ruining any chance of sharing institutions that would be vital during a transition period, is not going to fly. Last time around all it took what uncertainty over the currency for Salmond to be embarrassed by Darling at the lecturn. All the UK government has to do is say there is no way they would work with a new, intransigent Scottish state on issues like tax collection before the waters would be muddied enough to put people off. So the next White Paper won’t include anything that is so bellicose, it’ll focus on appealing to as many moderates as possible so as to seem reasonable. The more people look at these otherwise arcane issues, the more turned off they’ll be, as they usually are with these matters in any conversation!
I think you’re living in your dreams
Not least because people can see what the Tories gave done to the pound now
And you do rather ignore – somewhat absurdly – that all I have done is to refer to a published U.K. government position
The problem here is for you to say why the rUK would change its position, which is already stated and the only viable legal option
“No it doesn’t
It relies on the recognition of democratic realities
I know you might struggle with that”
Richard, short of UDI you only leave the UK by an Act of Parliament. Can you explain how this UDI works and happens peacefully and without enormous economic disruption to Scotland. How does it happen? Does the Scottish Parliament declare independence and start collecting taxes from Scottish residents and firms? How is this enforced, how does it practically happen?
As ever you haven’t thought this through, this is basic level political reality, evidently its something you really struggle with.
Neil
I know your reputation, and your bias. You display the reason for the reputation, and the bias here.
It is, I regret, political reality that is passing you by. Try this from John Curtice in The National
https://www.thenational.scot/news/18614299.john-curtice-snp-majority-make-tory-position-indyref2-untenable/
“THE UK Government’s opposition to a second independence referendum will become untenable if the SNP win a majority at next year’s Holyrood elections, Professor Sir John Curtice has suggested.
The polling expert said that Boris Johnson cannot “bind” the Scottish electorate, who have the “right to be fickle”. “
As an arch unionists it is apparent that you think London holds all the cards and can ignore whatever happens in Scotland
Realpolitik says otherwise
If a country decides to be come self determining that is what it does
A wise imperial power (and you and your like are playing the imperialist role) appreciates that
There is no talk of UDI or the like – although the risk will be real – and instead there is consensus
And that’s consensus will include a resolution on debt
But there the non-repayment will be part of the deal – for precisely the reasons I have given, and I have already estimated the maximum interest deal
That makes what I am suggesting the likely outcome
You don’t like it
But imperialists never like losing their power
Your bias is equally know Richard.
You have presented a lot of distraction in the last comment, but none of which takes away from the political reality of the position you present. Short of UDI (which you are apparently disowning now, having previously cited Kosovo) the only way independence happens is by Act of the UK Parliament.
You now seem to agree with that with regard some “resolution debt”. I agree entirely, as I’ve already said debt will need to be agreed before any Act goes through the UK Parliament.
Now the reasons why your blog, and that of Business for Scotland, which you cite, is flawed and won’t get more than a 10 minute airing in such negotiations is that it is contradictory.
You claim that Scotland shouldn’t have a population share of debt due to an analysis of the data starting in 1980.
However the flaw is that the starting point of 1980 should also be subject to the same treatment, if you want to be taken seriously. Therefore Scotland in 1980 should be allocated a higher than population share of UK debt to account of the higher historic contribution to that debt which Scotland has caused.
My own calculations (which unlike you I publish) demonstrate that your numbers are incredibly sensitive to that initial debt allocation to Scotland.
You could, of course, resolve much of this by publishing your own calculations and letting others evaluate your methodology and your justification for the initial conditions you have assumed in 1980. But you haven’t. I think that speaks volumes about your case.
Politically and financially you just haven’t considered this in sufficient detail, but that is a theme for which you have a long history.
Neil
Your grasp of politics is clearly very poor
No London government will risk UDI in Scotland, I suggest. The Act will come, mas John Curtis said. but you ignored that argument
And as for my data, I have stated all my sources
And I have made my arguments clear and you have not engaged with them
Maybe you can’t?
I suggest you learn a lot more about how the world works before returning because you really are making a bit of a fool of yourself here by literally having no argument at all
Richard
Sadly for you my grasp of politics is far better than yours. As demonstrated here.
Your Curtis quote is in respect of an independence referendum, not the process of independence which is what I was talking about. This is specifically why I called it out as deflection, it now seems it’s not deflection but ignorance on your part.
For example it’s entirely within the powers of the Scottish Government to call an independence referendum right now, it always has been. This fact is stated clearly on the Scottish Government website which if you had a basic grasp of politics you would know.
The UK will pass a Free Scotland Act in the event of independence being agreed, but that would be conditional on agreement and that of debt.
I have specifically engaged with your arguments, I’ve demonstrated not only where there is a political flaw but where your calculations contain a fundamental error based on your own principles.
You on the other hand have refused to engage with them nor have you actually shown any of your calculations, whilst you say you haven’t done any detailed calculations (and this line has got you into a few embarrassing situations in the past) you do claim “it is likely that 75% of it should be eliminated”.
How did you calculate that? Was it a broad brush, a hope and hit? Was there any reliance on the Business for Scotland calculations which you admit you have never reviewed or even looked at.
Whatever the basis it’s been enough for you to make several substantial claims about Scotland’s debt position. Normally one would actually do the work before making such claims.
As I’ve pointed out (despite you trying to claim I haven’t engaged) it’s your lack of detailed calculations and analysis that means that you have missed the fundamental error and contradiction in your analysis. Had you done this you would have been fully aware of the path dependency of the final outcome and the dependence on the initial debt allocation something which according to your principles could not be a population share allocation.
I suggest you actually do the detailed calculations, get the up to date source material and show your modelling because you are literally demonstrating you don’t understand the issue at all.
However I have a theory as to what this is really about. We all know you lost and upset your nationalist following by aggressively attacking the SNP’s currency position, you clearly needed to do something to bring them back and win favour with them once more. What better way than to fire off an ill informed blog to say Scotland will somehow have optionality on debt. It might save your crowdsourced blog but it does nothing for your reputation.
Everyone of my calculations is clear and explained
But you ignore the nature of a compensation payment
And that it is already agreed that legally no debt is due
And all else you say is mere deflection for you do not want to face that reality
And when you have not actually engaged with my argument discussion with you is somewhat pointless, most especially when so far you have said nothing unknown or with which I am not familiar, but you have ignored all I have argued, which as I have noted would be true even if every one of your assumptions on debt calculation held true: the sum you estimate would still not be due
So please engage, or stop wasting my time
Richard you say “every one of your calculations is clear and explained” yet in your blog:
“I have not worked through a detailed calculation of how much of the debt charge from 2014 on should have been cancelled as a result.”
You also place reliance on the Business for Scotland calculations, which you admit you havent even looked at, so you have no idea of the veracity of their claims, and they are highly dubious.
“Business for Scotland suggests that £126 billion of interest has been charged to Scotland through that statement. I share it’s doubt that very much of that should have been included in the account when it did not arise in Scotland”
You are claiming I haven’t engaged and yet anyone looking at this can see I’m putting specific points to you which highlight significant flaws in your case. You have failed at every turn to address these points.
1 Political error
You cite yourself the UK Treasury announcement that rUK is taking on all UK debt, and the second clause to that statement that the Scottish Government will be taking on a debt agreement with the United Kingdom at the point of independence. You claim then that “the sum would not be due” which would be the case if the UK were negligent enough to pass an Act of Parliament creating a Free Scotland state which did not include a debt agreement.
So you can make your case that Scotland wouldn’t have any debt but it would be based entirely on UDI (which it seems now you reject) or on the UK acting entirely against its own interest, in which case why not argue that the UK will not only agree no debt with Scotland but it will also agree a leaving gift of £1 million for every Scot. It sounds ridiculous, that’s because like your case it is.
2 Data errors
The data which you have ‘analysed’ is entirely incomplete. It starts at 1980 and ends at 2014. You provide no explanation or justification for either despite the fact that up to date data is available and additional pre 1980s data can be created. The fact that the Scottish Government have not calculated beyond this date is telling in itself. So if you want a credible case can you explain why you can reach a conclusion based on the world starting in 1980 and ending in 2014?
3 Contradictory arguments
Your case is that Scotland would have credible case to argue that Scotland would not have to take a population share of debt due to your flawed analysis of history. However even for that flawed analysis to hold you would need to start with Scotland in 1980 inheriting a population share of UK debt. That’s a self defeating argument because Scotland’s share of UK debt in 1980 should also be based on historical balances.
When you actually model the numbers from the arbitrary starting point of 1980 (again which no one has explained) the entire case for the Scotland not having to take on a population debt share is incredibly sensitive to that initial allocation. Had you actually done the detailed calculations you would know this.
It is therefore possible to come up with an incredibly wide range of outcomes showing that this argument does not have any credibility and would be laughed out if presented in negotiations with the UK government.
So there you go, you claim I haven’t engaged and there in one post are the three points that I’ve made regarding the flaws in your case, three points that you have repeatedly deflected from. I suspect you will continue to do so and that’s fine Richard, I know the audience you are playing to and I think deep down you know this as well.
Neil
It’s becoming pretty clear that you make everything up To support your false claims
Let me summarise my case:
1) No debt is due, whatever the sum calculated for the reasons I have noted
2) Interest will not exceed a highly affordable £600m, but could be much less
Now I’ve reduced the argument to such basic levels for you alone why not deal with it?
And please stop the abusive tones and and all the false claims about data I am relying on to which I refer but do not use – and now engage or please apologise for wasting my time
Right now you’ve so far made a complete fool of yourself due to your very obvious inability to understand, which I’ve had to point out to you
Richard
Richard
Mr Lovatt,
“As ever you haven’t thought this through, this is basic level political reality, evidently its something you really struggle with.”
Now there is a way to undertake negotiation about a disputed topic. More to the point, I think you may benefit from looking from this from a different perspective. Why has Britain not made a better fist of accommodating a compromise with Scotland over devolution to head off the end that is now much nearer? Such a compromise was possibe, but Britain has profligately spent its goodwill on shoddy goods.
We have now reached a point that Britain cannot hide that in a divorce with Scotland it is not bargaining from strength. in international law, or even in terms of basic need. rUK needs Scotland in a modern, post-Brexit world more than Scotland benefits from being part of Britain. This is not just about Brexit. Much more it is geopolitics, and realpolitik. A small Britain will be no part of a big trading bloc. It is in a weak position in the world.
In addition its relaiance on the US is important to rUK, but less important to the US. The US has huge internal problems and is for the first time since WWII facing a great power of formidable strength: China. Britain is no longer at the leading edge of the US’s prime concern with Europe and Russia. Britain is a second-string concern for the US in the new US world order as it struggles to maintain its world authority with the rise of China, India, the Middle East involvement and so on, and on.
What does rUK want? Its seat in the security council of the UN, the sense of special authority it has from being a nuclear power, its place in the IMF, G8 and all the major world institutions are all critical. It is not just that rUK will be much diminished in the world, and in the world’s perception by the loss of Scotland. You only have to think about this to realise that in negotiation with a seceding Scotland, rUK is actually the weaker party. It needs a lot more from the settlement with Scotland, from Scotland than most people realise. This tells you why there is panic, hostility and desperation in London; it makes them intransigent, which makes it worse.
Richard
You are accusing me of “making everything up”? I’ve given you three separate points which pertinent to your article and subsequent comments, you have deflected from them.
In respect of your summary:
1 Is an assertion which I have noted is incorrect with my own point 1. If you want to argue no debt is due then you are basing it on the UK Parliament passing an Act which would be entirely against their own interests.
2 Your £600M figure is without any rigorous calculations and relies on a fundamental modelling error which I’ve pointed out.
I’ve reduced the argument to three points, 2 of which you’d literally tried to assert over rather than try and engage.
If I’m making false claims about your data you will actually be able to show your workings, indeed you could have saved yourself a lot of time if you had simply published it. It’s remarkable, but not unexpected that you haven’t.
Richard you may find an actual challenge is a waste of your time, but if you are going to put up such significant conclusions based on analysis that falls apart after a few questions then surely you should be the one apologising to readers of your blog?
I do enjoy you projecting the fact that you’ve been made a fool of yourself on to others. You’ve had a chance to defend your work, instead you’ve gone for deflection and ‘playing the man’ it’s a tired and old trick, sadly it won’t improve the quality of your work on this topic.
The point about no debt being due is international law
The interest figure is based on UK government accounts and Debt Management Office data
And still you can’t engage, making fatuous excuses for not doing so
I think your credibility is shot for good
I suggest you will be wasting your time responding
Richard,
I have engaged. I’ve put three distinct points to you and you are deflecting every one of them.
Your point about international law doesn’t apply as the Treaty and Act setting up an independent Scotland (which will include a debt share) will be international law.
The interest figure is also based on a manipulation of those figures as you wouldn’t be so naive as to simply sum them up. The trouble is you either haven’t done the numbers, or worse you have actually done them and you can see the same thing that I can when looking at the model.
A cursory glance at the model shows that your case has no credibility, much like yourself.
I suggest that you stop continuing to waste your time trying to gain any remote sort of credibility after this.
Putting points to me that have nothing to do with the issues raised is pure distraction activity
I made the points here, not you
As you could not spot them I laid them out in basic terms for you
You can’t argue because the ‘no liability’ but by negotiation point is agreed; compensation law is so well established it need not be discussed and my calculations are so clear on interest – and the worst case – you can’t engage
I think we’ll call that a knock out of you Neal
Bout over
The British state has already acknowledged that it was taking full responsibility for all the commitments associated with currency in 2014. There was no qualifying reference to any responsibility of the Scottish state taking a share of debt, and there is good reason for that. rUK did not wish to leave a scintilla of doubt in anyone’s mind anywhere that the obligation rUK was carrying was conditional in any way, on anything Scotland did. The curreny of rUK was going to continue to be the currency of a wholly free currency issuer. This was fundamental – they did not wait to negotiate it: it was too important, and too urgent. There are three important points following from this.
1) Scotland has no responsibility for UK debts.
2) It is forgotten that the Treaty of Union in 1707 created a completely new Parliament for Britain (both the Scottish and English Parliaments were dissolved, but only the Edinburgh parliament actually ceased); this deliberate formality created what is technically described as an incorporating Union. This has a precise meaning. Strictly, the only way to break an incorporating Union is to dissolve it, not do what we would actually be doing – allowing the secession of Scotland from a union that is not in fact, strictly a federal union; but this is in order to ensure that there is a continuing an ruk that is also the ‘continuing state’; dissolution would be a world disaster. Why was it set up as an incorporating union? Because England hoped that it could bind Scotland forever in the Union. If they believed that they would not have proposed secession in 2014 (in fact the Union almost broke in Parliament shortly after the Union, in 1712. The Scots nearly left, and the Union was rescued in Parliament only by proxy votes). The lesoon is: nothing is forever. In that sense the whole operation now is a fiction – but nobody, not rUK, not Scotland not anyone can afford to follow the strict niceties devised by 18th century commissioners’ rules. They are no longer viable in the modern world. We are doing the only thing that works. Scotland leaves, England takes the common assets and the liabilities that go with them. It also happens to follow the contemporary international precedents; the fairly standard boilerplate rules typicallu in use for seceding nations. This is what works most efficiently and fairly in the modern world.
3) The important point about the 2014 British government statement is that rUK was also making a big, very revealing declaration about what was really important to it. Nobody asked Britain to make that statement. It was not what Scotland proposed at the time. But rUK was not prepared even to negotiate with Scotland over the currency (£ sterling), in spite of the fact that Scotland is a joint owner of the currency. rUK just gratuitously asserted right of possession and full title. In fact Alex Salmond had proposed sharing the currency (a very bad judgement). The assertion was not founded in right, but necessity. It was done because the currency was of vital importance to rUK, and it required and was utterly determined, to establish unvarnished sovereignty over the currency as its prime objective, and it understood that in taking title to iselft without notice or negotiation, the the price of taking the currency with no negotiation was that rUK would have to assert equal certain ownership of all the currency liabilities. rUK knows in this case they cannot have it every way; both have their cake and eat it; (of course everybody living in rUK thinks it is worthwile to pile in and try to grab a free lunch as well by trying to pass off the liabilities to Scotland anyway as if this is a car boot sale, but we all know it won’t wash. The solution proposed by rUK in 2014 was vital to rUK, and it suits Scotland well, because independence is de facto defined by being a currency issuer, not a currency user; currency issuance is the defining feature of modern independence.
Spot on
They are central to the issue.
The legal optionality on debt is central to your case. I’ve set out repeatedly that debt isn’t optional as it requires the consent of the U.K. To claim that it will be less that a population share is to believe that the U.K. will simply do Scotland a favour. You’ve presented no evidence to argue against that case other than the concept of agreement somehow favours Scotland.
You don’t make the points Richard, you make empty assertions which are easily shown up for what they are.
As you could not deal with the point I was developing I’ve set all three out for you and it’s quite clear you have no idea of how to deal with them.
Can you establish how “compensation law” as you call it applies between international states. So it does ‘need discussion’ as it’s yet another assertion by yourself which falls part under questioning.
If your calculations are clear then you will be able to set them out? It’s quite bizarre that you refuse to. Unless you haven’t done them.
I think we’ll call this continual deflection as game set and match. Better luck next time.
The debt issue is already resolved: the RU.K. will take it.
An agreement with Scotland will be reached. All the power does rest with Scotland. They have no obligation to settle any debt. And since compensation is the basis for this discussion, the precedent of compensation law will be followed. What else could? And I really do think you should engage your political brain when replying.
And the debt issue is simple. Net debt is £1.3trn. I have quoted the sources – but you assume incapable of following them so I won’t repeat them again. 8% (a population share I disagree with) is £106bn and o.6% is near enough £600m
Now, how hard was that?
It was all there already….
Unless you engage this time please forget posting again
The debt issue with the existing market is resolved the rUK will take it. The offsetting debt with the iScotland and rUK is also resolved politically; iScotland will take it, it’s not optional no matter how much you want to assert otherwise.
When you say all the power does rest with Scotland I do wonder how you justify that against the balance of voting within the UK Parliament.
Short of a deal with the UK they have no obligation to settle debt, sadly the deal with the UK (without which there is no independent Scotland) will create that obligation. As I’ve repeatedly set out to you time and time again.
The net debt issue is fascinating, you seem to think that net debt obligations are met by the current interest rates rather than the actual coupon rates on the bonds issued. That’s a rather obvious example of you not understanding the topic of state debt. As an accountant I can see why you might come to that naive conclusion, but it’s just not how state debt works.
I would suggest that you enroll yourself in a course on the basics of state debt management and repayment before digging a deeper hole for yourself.
So how hard was that for you?
Your errors are all there already….
Unless you can actually bother to engage with the substance of my case time (points 1 through to 3) please forget posting again because it’s just embarrassing for you now,
You really do not understand politics is all I can say
Nor political economy
That was your last comment
Richard,
Your legal analysis is wrong, Put simply how do you think Independence arises. Are you seriously suggesting that the U.K. is going to pass and Act of Parliament to create an independent Scotland where there isn’t a debt agreement in place? You can argue that the U.K. are buttoned up the back but like you cherry picked time period and lack of backing data for your analysis it has no credibility.
I think England is going to have no choice
Check the UK’s legal opinion on the creation of Kosovo. England’s consent to Scotland’s departure is not required
And this matter is already resolved
It is you who has the learning to do
Great. Thanks Richard, so basically you are admitting your proposition only applies under UDI.
Good luck with that.
Hi Richard,
I’ve been thinking about the ‘debt’ liability for Scotland to the UK.
From the perspective that the debt is the private sector surplus, wouldn’t it be cleared organically as Sterling is converted to £Scot. Every loan or mortgage that’s converted or paid off would have the same effect to my mind. Obviously the Sterling would end up in the Scottish Treasury. There would be the option to pay off the debt however the treasury could use this currency to buy gilts and receive some interest that could pay off the debt over time.
Let me know where my thinking is wrong. It seems too simple.
Whatever the debt figure, if anything is owed at all, I agree with you that it is nowhere near the figures touted in the press.
Thanks for the article
David
I think this is one for Tim
But you’re discussing bank reserves and I’m discussing what is called national debt
Jamesvirtuosity – if the UK wishes to divide up the debts and the assets then it is very simple. All they have to do in International Law is to declare that the UK as a state has come to an end and dissolved and that there is no Continuing State. Scotland and the Kingdom of England, Wales and Northern Ireland will start off as new states and there will need to be a division of all the assets and liabilities. All current UK treaties and other international obligations would be null and void and both countries would have to apply to join the UN. The Security Council seat, and all other UK positions on the IMF, World Bank, etc will be vacant and re-allocated as appropriate. Since they do not want to do that, and declared that to be so in 2014, then the UK has chosen of its own free will to keep both the assets, the liabilities and the international positions. Scotland owes nothing, and neither has any other of the 60 countries that have left the empire. The National Debt is really the National Savings and it is absolutely nothing to be bothered about in any case. The Treasury could repay the entire amount (except the £70 billion of bank notes which are a part of the debt) by simply instructing the BoE to do so. There is no cost to taxpayers and the economic impact in accounting terms is nil as this is simply £1.35 trillion that moves from gilts (which are really just a term deposit account at the BoE) into the commercial banks’ reserve accounts at the BoE (as they credit the amount to the current accounts of the holders). Gilts are money so there is no change in the money supply. If on the other hand the Treasury decided to repay it by taxing the public by £1.35 trillion then that £1.35 trillion is simply destroyed and the money supply falls accordingly. There are distributional effects to the latter route as those being repaid their savings are not the same people as are having £1.35 trillion of their money taxed away and destroyed.
Blunt
Condfident
And true
Hi Tim, I’m well aware of the MMT frame of reference and some of its potential uses. I don’t have any issue with the government maintaining debt, viewing it from a whole of government accounts perspective, and as you say they are savings too.
I wasn’t aware all these gilts were callable though. That’s what they’d have to be in order for the BoE to be able to mandatorily force the savers and other holders of them to redeem them and cease the flow of coupon payments, but you’re saying all the BoE has to do is pay the commercial banks, and Richard agrees with you, so it must be true! God help the repo markets that rely upon a safe asset like gilts to conduct asset backed short term lending operations to, very silly of them to use an asset with indeterminate duration though, so I suppose that’s their fault.
I’m sure you’ll appreciate I’m being facetious, but it’s only because you are horrendously oversimplifying an operation, that is the MMT equivalent of the Wright brothers choosing to test their flyer not at Kitty Hawk but Niagara Falls. No sensible government would experiment this way.
No one says debt would be cancelled
I argue we do need a national debt
Repo is a reason
But doing QE has never been an issue
So Tim hints at a possibility, even if not a reality
[…] how much debt Scotland might owe the rest of the U.K. if it were to become independent has been a recurring theme on this blog this week, so I thought I would make a video about it as […]