I admit that yesterday's blog on Scottish debt was unusual in two ways. First, it was long. Second, it was developed over the weekend and took Some time to bring together. Most of my blogs don't have such long lead times.
I also deliberately left that piece as the main blog post of yesterday. That was partly because I thought it important. It was also partly because summer is coming and there is less to write about. And there's also the fact that I am slowing down in anticipation of taking some time off for a week or so. The blog won't stop, because I seemingly almost never do that. But work is definitely heading for a halt: there's some serious walking to do. The
But I was also encouraged to leave that post in place because Callum Baird of The National paper in Scotland asked if he could reproduce it in that paper over two days. The first part is out today,out today, and the rest tomorrow. If he thought it important enough to do that then I thought it worth It having its own fair share of attention here. His view is summarised here:
Callum Baird, editor of The National, said: “Richard Murphy's analysis is a must-read for anyone interested in Scotland's future.”
By the end of this week the idea that Scotland cannot owe England any debt that England itself has no intention of repaying because that's the way in which the law of compensation works - by preventing anyone profiting from a compensation payment - will be well known in the Independence movement. And the idea is so simple that it's easy for anyone to explain - despite the lengths to which I went to make it.
And the idea that Scotland's interest owing to England - if it agrees to pay anything - will be amongst the smallest interest obligations of any government as a proportion of its income anywhere in the world - will also be known.
In other words, what I will have put forward is the argument that far from Scotland having a debt impediment to face by being independent that process of becoming an independent nation will instead liberate it from most of its debt obligations. What is more, I really can't at present see very much that London could do about that given the announcements It made in 2014 and that the rest of the UK will want to be the successor state to the UK as it now is.
If this becomes the prevailing narrative a major impediment to independence in many people's minds will have been overcome. And that matters.
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Hi Richard, thanks for this clear & concise explanation . Can I ask your opinion on the same issue as it affects Wales? I understand you have not made an in-depth study of our debt situation should we become independent but your view on the similarities or not would be interesting?
Diolch,
Richard
I have not looked at the issue
And clearly there is no oil adjustment
But it would undoubtedly be equally true that no debt would be owing as England would be the successor state and no compensation for debt would have to be paid as England will be repaying none
So there would just be an interest liability at no more than 0.6%
And Wales could manage that
I am very gladdened to hear that the blog is getting wider exposure.
Scotland needs as many critical friends as it can get. There is enough tragedy in it’s history created by the treachery of England and those of its own.
And I’m not implying that Scotland is some child that needs coddling. In this world as it is now, malignant forces abound in plain sight.
For all we know, the City is betting on Scottish companies failing with credit default swaps because of the sort of independence Boris has planned for it. I think Boris went up there recently to wind people up personally. Don’t fall for it. Steady as she goes.
Eyes right; eyes left; eyes back; eyes forward; eyes up and eyes down: eyes open Scotland. I’m serious! We’ve seen how this Government works.
If independence goes wrong there will be a privatisation free for all.
In a national newspaper… This is indeed good news Richard (and it’s always nice to be published by other publications 😉 ). I am also glad for it, a couple of days ago on your multiple reports of the U.K. Governments taxation plans it was just one depressing read after another and I admit to being nearly in tears over what it means for the future – I was going to appeal to you to even just make something up to give us some light relief. So it’s good to see you didn’t need to make anything up! And you’ve injected a bit more hope that things can change. It will be a relief if this puts the debt fallacy argument to bed (I can hope!), but mainly if we get people thinking about it and asking questions we can start moving on.
I wish the fallacy argument that we can’t appeal to the UN with a petition (showing a majority support for independence, signed through a covenant) because somehow the UK can ‘block’ it, could be debunked using economical arguments, but it’s a more awkward one, just now anyway. I’m going with the ‘if you don’t ask, you won’t get’ for now, but I might need a bit more to get folk away from frozen inaction. There is no magic bullet, and we should be examining all options, if we are serious and are to be taken seriously anyway.
“In a national newspaper… This is indeed good news”
The National is effectively the mouthpiece for Scottish independence, bit like its predecessor the Scottish Standard. Preaching to the converted..
54% of Scots then
and all newspapers do, in any case, preach to their converted
Mr Clunie,
The traditional print media business model is ‘bust’; the Scottish daily paper circulations are going through the floor; which is not just a function of a redundant product that market will not buy (the dead-as-the-dodo model), but also for two reasons to do entirely with content: they are a mouthpiece of increasingly hysterical, over-the-top Oligarchic Billionaire Unionism and ofIncompetent Conservative government, which everyone can see through; and even more obviously the journalism is generally, and with only few exceptions, lazy, uninformed, third-rate and derivative.
I note the National’s subscription base is rising
The National is owned by Newsquest, a major newspaper owner. It has an apparently efficient production base in Cambuslang that produces 300,000 copies of various titles – including the Herald, a usually pro-Union, historically large circulation title that is now ‘tanking’ fast. The National was I believe a risk punt by Newsquest to counter the collapse of the Herald, and the obvious increasing unpopularity of editorially Unionist titles, without changing the position of the Herald, lest they lose all the aged and intransigent Unionists who still bought it, as well. It is not an inspiring long-term prospect for the Herald, either way.
Newspapers are still often used as source material – from newspaper reviews on tv to people linking to their articles online – and plenty of people still give credence to newspaper articles.
For the National itself – the reader base is probably the same size as most newspapers these days (not quite, but not that far off) – and the already converted is part of the audience it would be good to reach. Anything in print can be shared, shown, and left lying on a bus seat freely. Not that there are that many people travelling by bus these days, but you know what I mean.
I am not sure why all the negativity around getting articles in a newspaper, as if it’s the worst possible outcome – the message will reach different groups of people, and you often get people tweeting links to articles as well, more spreading of the word. All good, nothing bad.
I am more than pleased
Thank you.
Yesterday’s article was a breath of fresh air. Good to see you in The National.
It maybe the case that an English government will have to pay Scotland for use of the ridiculous Trident nuclear submarine base in Holy Loch if the SNP have not banned it altogether by the time if independence.
Can you please clarify that the £3.162 bn annual debt payment allocation to Scotland takes into account the QE practices of the BoE? I am assuming that debt held by the BoE and receipt of payments on the Gilts from the Treasury is included in the accounts. Looking forward the deficit will expand under C-19 but the interest rates have collapsed. But also the BoE has been expanding QE to circa £750 Bn. That means that the BoE is in receipt of interest payments on £750 Bn of UK Gilts which it returns to the treasury. This income should be allocated to Scotland pro rata in the same way that costs are ie income on £60 Bn worth of UK debt should added to the GERS figures. In terms of successor states and debt the recent case study is Russia which took on all the debts attributed to the former Soviet republics in return for retaining all the previous treaty agreements and more importantly a permanent seat in the UN security council. This latter privilege would be difficult to sustain if the UK was not the continuity state and carrying forward the debt of the former UK construct.
What is the source of the £3.162bn? I have not checked GERS, but I guess that’s your source?
Yes. GERS 2018-19 published Aug 19. Public Sector Expenditure p 28. Table 3.1
“Public Sector debt interest” – £3,162m.
I assume that may be debt interest on the UK national debt of circa £2,300 Bn but £750 Bn of UK debt is held by the Bank of England via QE who receives the interest payments on the gilts but also returns the payments to the Treasury as income. If we get charged for the debt interest we get the pro-rata income from the gilts held by a public body serving the UK. MMT and QE are destroying double entry accounting as a means of describing the public finances, something GERS and the UK case is anchored on.
I suspect it is the gross debt, i.e, pre QE
It would be a good question to ask via an MSP or an FOI
Mr Bollen,
Apart from QE, do you believe GERS can be comprehensively described as a straightforward exercise in double-entry book-keeping; for absolutely everything? Governments never, ever make selective decisions, by exclusion or inclusion?
Stephen Bollen asks for clarification of an annual debt figure from GERS and Richard is understandably unable to provide a clear answer. Welcome to the opaque world of GERS in which the overwhelming majority of the contents are estimates or allocations with no probative audit trail and thus raise more questions than answers. One of these questions is: where is the balance sheet which, if it were present, might provide some clues to the unanswered questions? Obviously preparing a meaningful balance sheet might prove tricky, given that the income and expenditure statement consists mainly of numbers which can’t be proved, but its absence simply indicates that the GERS contents are unreliable. Indeed, GERS is a classic example of “evidence” being assembled to “prove” a previously determined set of assumptions/ assertions.
This raises (yet again) the absurd question of why does the Scottish Government sign off on GERS, thereby accepting ownership of it? GERS proves nothing about the current state, as part of the UK, of Scotland’s economy or of Scottish Government accounting. Far less does it portray any picture of a future independent Scotland and yet its unreliable data are constantly used by MSM to do precisely that. It is simply a costly annual ritual (which the Scottish Gov has to pay for!!) whose original stated aim was to undermine opposition to the Conservatives in Scotland and, as such, should be replaced with a meaningful, representative financial statement as soon as reliable, Scotland-specific data is available.
Don’t hold your breath on that though: I wrote to the previous Finance Secretary suggesting that he get Audit Scotland to audit and report on GERS, as I can’t see how any competent auditor could sign off GERS without severe qualification of the Auditor’s Report. The reply, from a Civil Servant, was mainly waffle stating that GERS was produced in accordance with pre-existing guidelines, but recognised its weaknesses and that the Scottish Gov intended to produce its own statement of accounting once reliable data becomes available. Given that we can’t get reliable data for some tax matters already devolved to Scotland (VAT is just an allocation of UK-wide totals), this is going to take as long as Scotland remains in an ever-centralising UK.
Ken
I agree with all that
But would add that there can be no balance sheet because the income and expenditure in GERS are accounted for on different bases to make the result worse than it might otherwise be, and the two could not be reconciled by a balance sheet as a result
GERS is not accounting; it is a propaganda statement
Richard
I will put in a FOI request to the Bank of England and the Office of Debt Management. At the time in question of GERS I read £435 Bn in QE by the BoE. Or £34.8 Bn or 8% was Scotland’s pro rata share QE share. If Richard is right and it is net debt then this is not important. ( But I doubt it – people can be lazy)
UK debt was c£1800 Bn in total. Or net £1365 Bn. (1800-435) The BoE base rate was 0.5 – 0.75% at the time so taking the higher rate (0.0075 x 1365 = 10.2 Bn) and Scotland is getting charged £3.2Bn ? Looks like a first order error and needs checked. I can see the headlines in the National – “Scotland pays 30% of all the UK debt interest”
Let us know…
Thanks Richard, I’m aware we’ve all debated GERS to death here and was seeking to keep my comments simple since new names commenting on your blog won’t have been exposed to these discussions. I agree that a major problem which makes GERS so unreliable is that data are drawn from multiple sources, which in turn are expressed on different bases, so apples are routinely compared with the entire contents of the fruiterer’s shop, not just pears. That was behind my understatement that “preparing a meaningful balance sheet might prove tricky”.
Propaganda it certainly is, so is the Scottish Gov, regardless of the party in power, obliged to produce GERS and, if so, on whose orders? I checked the Scotgov website and could find only these statements: “the aim of GERS is to enhance public understanding of fiscal issues in Scotland” and “GERS is an accredited National Statistic publication, which means that it has been independently assessed by the United Kingdom Statistics Authority as being produced in line with the Code of Practice for Official Statistics.” The first statement is farcical since unreliable and misleading data can never enhance understanding of anything, while the second only tells us that the mechanics of deriving data have followed have followed approved procedures i.e. procedures have been adhered to, it’s just a pity the numbers are meaningless, crap in, crap out.
I can’t find any info about who orders GERS to be produced. If there is no legal requirement for it, it begs the question why does Scot Gov bother to produce it when it creates a rod for their own backs? It may be that Scot Gov just thinks they’d get more flak if they don’t produce it, but, if so, why not publish it with a health warning that its contents are unreliable. If there is some legally binding order to produce it, why doesn’t Scot Gov make that clear along with a disclaimer of the content as misleading and inaccurate?
There is rumour that it may be issued subject to qualification this year….
Richard can you please clarify that the £3.162 bn annual debt payment allocation to Scotland takes into account the QE practices of the BoE? I am assuming that debt held by the BoE and receipt of payments on the Gilts from the Treasury is included in the accounts? Looking forward the deficit will expand under C-19 but the interest rates have collapsed. But also the BoE has been expanding QE to circa £750 Bn and now represents circa one third of total UK debt. Or one third does not really count as debt because the Gilts are held by an arm of the gov. That means that the BoE is in receipt of interest payments on £750 Bn of UK Gilts which it returns to the treasury. This income should be allocated to Scotland pro rata in the same way that costs are ie income on £60 Bn worth of UK debt should added to the GERS figures. In terms of successor states and debt the recent case study is Russia which took on all the debts attributed to the former Soviet republics in return for retaining all the previous treaty agreements and more importantly a permanent seat in the UN security council. This latter privilege would be difficult to sustain if the UK was not the continuity state.