I have just posted this thread on SNP plans for the Scottish economy after independence, which offer me few sources of joy:
Amongst today's Westminster issues that will impact every person in the UK it would have been easy to overlook today's announcement from the Scottish government on the economy after independence, but that would be a mistake, because this is another debacle in the making. A thread….
The 110-page document to which I am referring in my comments is available from the Scottish government website, here. The short-form document glosses over many of the issues I will raise.
Let me be blunt: much of this document is puff. You either believe Scotland will be better off independent, or you don't. There is no data in this document to persuade you of the case. So I see little point in placing much emphasis on claims to improved well-being the paper makes.
Saying that, the absence of data in the paper is worrying. The suggestion, for example, that everyone in Scotland might eventually be £11,000 a year better off seems faintly ridiculous.
The use of the Government Expenditure and Revenue Scotland statement in another section, when it is known that this cannot represent the finances of an independent Scotland, is also worrying, most especially when how the deficit that shows might be made good is not explained.
Candidly, I was expecting something better than this, and have not got it. If I was sceptical of the case for an independent Scotland this paper really would not sell it to me.
But that is not the core problem with the whole paper. That core problem does, as ever, revolve around the currency an independent Scotland will use, and the SNP appears to have made almost no progress on this issue.
I say almost no progress because it's not quite true that the SNP have ignored their critics, entirely. So, there is a commitment to create a Scottish Central Bank by the time independence happens. And there is recognition that a Scottish currency must happen.
The problem is that underneath this document it is all too easy to read the thinking of the appalling Scottish Growth Commission report from a few years back, which has been rehashed for use again, with a few new blunders added.
So, for example, the policy of sterlingisation remains, but the term is not used. It is very clear from the language used that the SNP is planning that sterling should be used for several years after independence.
Then it has changed the terminology to be used for the tests to be applied when working out the time to move to a Scottish currency, but they remain in essence that the money markets must be happy with the move, putting them in charge of a decision that should be Scotland's.
Overall, these new tests seem to be structured to make it as hard as possible to ever get to a Scottish currency, which is exactly where the SNP was before today.
This, though, is disastrous for Scotland. First, without using a Scottish currency Scotland cannot join the EU, and a whole section of the report is dedicated to joining it without ever mentioning the pre-condition that the Scottish currency must be in use first of all.
Second, it is admitted that using sterling means that the monetary policy of any independent Scotland would be set in London. That means interest rates and the used of QE would be determined in London to suit its purposes. That is madness for Scotland.
Third, saying that Scotland would have full control of its fiscal policy, i.e. its taxes and the size of its deficit, makes no sense either because monetary and fiscal policy are intimately related.
Clearly decisions on desired deficits are going to be related to interest rates, for example. If Scotland does not have control over the interest it pays as a country it cannot control its own fiscal policy.
And worse than that, if London goes berserk, as it has now shown it has the capacity to do, then Scotland could not prevent the fall out for it as a result. So, right now it could not stop the ruinous interest rates the Bank of England is proposing, for example.
The bizarre nature of the claims made continues on issues such as debt, where it is said that Scotland will be willing to pay a part of the cost of what would then be England's debt? Why do that?
National debt is just a savings account mechanism. Why should Scotland pay interest to people who want to save with England? Why shouldn't it pay interest to people who want to save with Scotland?
As it is, the proposed arrangement is like RBS agreeing to pay the interest due on accounts kept with Clydesdale Bank, and that is utterly illogical. It should not happen.
And then there are reserves. The paper says Scotland would have a claim on the UK's gross reserves of currency. It wouldn't: it would have a claim on the net reserves. So the figures start in the wrong place.
But worse, with £14 billion (or less) reserves it is claimed that the bank deposit guarantee schemes and pension guarantees can be maintained, and that is just not true. Those guarantees can only be offered by a government using its own currency.
But Scotland won't be using its own pound for years to come. It could literally be bankrupted by a claim on such a scheme in that case if it arose at the wrong moment because that would require it to borrow in sterling.
I could go on. For example, the discussion on fiscal rules reveals the most extraordinarily limited imagination on how Scotland might manage its affairs, whilst guaranteeing austerity far too often.
Surely by now we have learned that fiscal rules work well on good days and have to always be broken on bad ones (as when Covid hit) and are therefore as useful as a chocolate teapot. So why are they being offered? To keep the financial markets happy, of course.
And that is the problem at the core of this paper. What is never said is for whose benefit it has been written. It should have been about how Scotland could manage its finances for the people of Scotland.
Instead this paper is actually written for the benefit of the small number of people who make up Edinburgh's financial elite, in whose interests it is clear that the paper thinks an independent Scotland should be run.
That's the conflict that this paper does not say exists, but which runs throughout it and which the paper does not in any way resolve.
I think this paper lays out a policy that would be disastrous for Scotland. It could even crush it. As a result, I doubt the conviction of those who wrote it about independence. Do they really want it, I wonder? It's that bad.
The answer is that if Scotland wants independence it has to imagine both that it can have it, and then not choose the SNP to run its government on this basis when independent, because this approach will not work.
Can that simultaneous mindset be sustained? I am not sure when the independence issue is already so finely balanced. And in that case I suggest this paper sets back the independence cause, quite a bit.
I greatly regret that when a Scottish currency very soon after independence would address all the problems I raise. Why won't the SNP do what is so obviously the right thing?
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As a Scot this is depressing. How can they get this so wrong when there is an underlying genuine wish here for better. Will try sending this to my MSP.
Anna, good idea. I’ll do the same … Sadly I suspect that powerful lobbying voices shouting louder than others are still catching the attention of the policy makers ( sure feels like it on housing ) .
I’m horrified these key issues seem less understood than they were in 2014! I believe the SNP when they say they want independence, but they seem set on recreating the Darien nightmare! I despair!
I am not Scottish, I have no dog in the fight.
However, it is obvious that with no currency and an open border, all meaningful policy will be made in London. Better the status quo where at least there are 50 Scottish Westminster MPs to argue their corner.
Now, you know that I have raised quite a lot of questions about getting from “here to there”….. but being “there” (a Scottish currency) is essential.
My MSP and MP are both good people as are others here in Edinburgh. Have sent to both of them. Whats your take on housing Hazel?
Ooh! housing – a different subject really, but to start you off. This is from my own experience of attempting to live somewhere and somehow else. I’m not naming names for obvious reasons.
Compare and contrast – The help people in England have been given ( and even that is at a very much lower level than in continental Europe e.g. Germany, Denmark, the Netherlands ) to get finance, land, buildings and help to promote and realise the concept of *co-housing*. Now look at Scotland – virtually nothing has been developed – in spite of years of planning, trying to bid for plots of land, old buildings to retro-fit. Profile raising is exhausting and demoralising when very little results. Architects are totally on board with enthusiasm. Many individuals see it as an answer to their housing and social needs for community. It would be all energy efficient, low running costs etc. However in reality it is still the same old volume house builders who repeatedly get the contracts. They apparently have strong connections with the decision makers and policy makers which us little people cannot compete against.
Websites, facebook groups, YouTube videos are available for further info.
Having said all that nothing would persuade me to leave my dear Scotland for something being built anywhere else ( well ok, maybe Norway! ) so a poorly built, poorly ventilated, dark cardboard ( you can hear the neighbours sneeze never mind the booming tv ) shoebox remains my current lot in retirement.
I have a dream ….
If you don’t want this in Scotland:
https://www.theguardian.com/technology/2022/oct/18/sharp-rise-airbnb-listings-coastal-areas-england-wales
Then for goodness sake do not have housing at the heart of your economy!
Housing supports the economy by being affordable – it is NOT the economy!
I’ll give you my thoughts on the housing side – it would be the repetition of huge mistake made in England (and elsewhere) to let the Scottish economy be driven by house prices/housing market and the huge misallocation of resources that it is compared to investment in jobs and companies and infrastructure.
In England at least, the planning system is broken, and you might end up seeing housing development in parts of Scotland that you would rather not – executive type homes etc., when what is needed is investment in soaking up and remediating brown field sites. If the housebuilders have got into the SNP early doors, they’ll be a fight on.
I imagine that a lot ‘inward investors’ (I use the term sarcastically) will not want a Scottish poond? Is this the sword of Damocles that the SNP are responding to I wonder?
It’s not for me to tell the Scots what to do, but this is very disappointing indeed.
It blows all the credibility of the SNP out of the water as far as I am concerned.
I am still reading Christine Desan’s ‘Making Money: Coin, Currency & Capitalism’ (Oxford University Press, 2015) and there on page 2 in the introduction she explains how the revolutionary act of ‘melting metal into coin’ for free enabled a little country called Britain to become so powerful in the late 17th century onwards.
A nascent independent Scotland cannot afford to let history or contemporary economics hide the truth of the matter.
As Desan says in the opening line of her book ‘Perhaps the most powerful revolutions are the ones that deny they ever happened’. Can Scotland afford such denial?
On page 434: ‘There is no romantic baseline to the coming of capitalism. But looking at the history of money does suggest
that the market is a matter of constitutional design, a political and legal creation. It is a governance project all the way down starting with its money’. To me this statement underlines Kelton’s powerful assertion/reminder of money as a sovereign project that is too often overlooked.
Scotland must have a currency of its own. Surely.
Surely, indeed
“Why won’t the SNP do what is so obviously the right thing?”
Because it never originated from them and they can’t control it. It also means they have to be serious about Independence and too many politicians have a vested interest in not achieving it. We need politicians to legislate and grassroots to liberate.
https://www.businessforscotland.com/the-new-economic-case-for-independence-five-key-takeaways/
Make of this what you will Richard?
Frank, can you say more re your point that it didn’t originate with the scotgov and they can’t control it?
There are optimists out there – and thank goodness for that
IO wish I could share it – but the failure to address the currency issue prevents me doing so
That’s the problem
The acceptance of rUK’s debt, when rUK keeps the currency, is here: “Accumulated deficits mean that the UK has a large public sector debt. Scotland’s opening fiscal position would reflect, to some extent, the UK’s previous fiscal decisions, and the division of UK assets and liabilities would be agreed as part of negotiations with the UK Government.” (p.42, ‘A Stronger Economy with Independence’; 2022)
In the case of independence rUK will be the ‘continuator’ state in international law (source: Crawford and Boyle, who suppled the UK legal opinion on the intrnational law issues to the UK Government, in 2013), and will not negotiate over the currency. To keep this brief, this means Scotland will be paying interest on a share of debt, in a foreign currency. This is a hostage to fortune. It is irresponsible. Crawford and Boyle are Delphic about the status of the UK national debt: “The division of liabilities and assets is a significant part of any negotiations to create a new state, and would also have to be settled by negotiation. Although there are some general principles of international law that could impact upon this matter there is no clear consensus in international practice as to the precise allocation of national debt in circumstances of state separation or dissolution” (p.57, Crawford and Boyle, ‘Devolution and the Implications of Scottish Independence’, 2013).
Crawford and Boyle’s opinion is that an “equitable” share of UK debt should be taken by Scotland, but offer no precedent, and the above statement does not make the case. They are lawyers, and clearly understand little about economic reality. The proposition is untenable. The Czech/Slovak “velvet revolution”, although there was no continuator state, probably provides a better precedent, which avoided the state without a currency the invidious and frankly unsustainable problem of paying interest to another state, in a foreign currency over which it exercises no control. If Crawford and Boyle understood economics sufficiently, they would see that such a prescription could only be designed to ensure independence may be ‘de jure’, but ‘de facto’, it is dead in the water. For Scotland, it is completely impossible; let me summarise this a baldly as I can, such a proposition is utterly catastrophic; it beggar’s belief that the SNP would even consider it – a monetary suicide note: and it is needless. The currency is a key asset; which is why rUK insists on possessing it. The debt must follow the currency; and indeed the UK Government made clear in 2014 that it would guarantee the WHOLE of the UK debt; i.e., it made no qualification for any Scottish share of debt. If rUK wants the curreny, untrammeled, it must accept full responsbility for the debt. For Scotland that must be a sine qua non; like the currency for rUK – non-negotiable.
Wholeheartedly agreed
Genuine question, how quickly could Scotland move to its own currency and via what steps?
I suggest reading the materials produced by the Scottish Currency Group – they answer all this
I’m incredulous at this. I’m no expert on Scottish history but…………………………..
So, England decided to rule over Scotland and whilst they were at it, decided to charge Scotland for the privilege as well assign some of the costs as debt for which money is owed.
What a load of bollocks. It’s as if the Scottish begged England to be managed from London and here is the bill.
It’s just not like that though, is it? I hardly call it a voluntary situation.
Scotland want to sue for independence. It is London’s voluntary decision to manage Scotland that is being curtailed. Not a Scottish decision being reversed, but an English imposition.
If England ran up ‘debts’ when managing Scotland – well I’m sorry – that’s an English problem, not a Scottish one. If England ran up debts, then they did so at their own risk. Tough. Bye, bye.
Sorry, PSR you are completely wrong. Yes, England made life difficult for Scotland, but the Scots (at least those who ran the country) cut a deal for the opportunity of Empire. England literally paid Scotland a sum (largely calculated by Scots), the ‘Equivalent’ (it is in the Treaty of Union); yes, in cash and Bonds, to accept the English National Debt (and compensation for Darien). The price for the Scots? Their Parliament; which the Scots elite decided was cheap at the price (even if they had to sign it in a broom cupboard to avoid the rioters). The Equivalent actually was a key transformatory moment in the creation of a modern, monetised, imperial, commercial society driven forward by the application of a rationalised, quantified, systematisation of the time value of money, applied to state credit, projected far into the future (often in undated, effectively perpetual bonds or Gilts); and made it work. This work, especially that of William Paterson and David Gregory on the Equivalent effectively established the methodological outline of a state debt model that was transformatory; and projected British power to a dominant position in the world. They did this by a quantification process that placed a monetary valuation on a State; their own.
rUK unsurprisingly is opportunistic in trying now to palm off some of the debt burden on Scotland; but I trust Scotland will not be irresonsible enough to fall for it.
I have written above a brief summary of the serious mistake the SNP is now making on Debt. There is nothing worse a State can do, than to accept a burden of debt in a foreign currency on which interest and capital repayments will be due long into an unkown, unforecastable future, and it isn’t even the currency in which all the State’s business is done, or taxes raised. The Truss-Kwarteng blunder inadvertently created a chain reaction with the unintended consequences of a threat to Pension Funds; using a foreign currency as part of state debt will create serious unquantifiable risks for Scotland. It is grotesque even to contemplate it. Joining the Euro, or cutting a new constitutional deal in the UK that breaks the constitutional assumptions built in to an incorporating union (that the 1707 Scots Commissioners didn’t like); would be better than a dangerous, false independence burdened by Sterling Debt. I should note here the deeply eccentric irony that the rUK/Crawford and Boyle solution, and modern international law, effectively turns the Union, and the historic facts of the Incorporating Union, into a Federal Union, simply in order to end it!
Nevertheless sentimentalising a history of Scottish victimhood is not something Scotland can or should claim. It would be a travesty of the facts. Scotland was a primary creator of the British Empire, which it threw aside its independence to enter; and created the Union as a matter of deliberate calculation, for better or worse. At the same time it must now live with current attempts by Scottish institutions, to come to terms with its own deep responsibility for imperial colonisation, exploitation and even slavery (the last notably, but not exclusively in the Caribbean); your victim story isn’t true, doesn’t cut it, and is lazy history (my apologies for the blunt tone, but it has been a long day).
Thank you Richard
It is not too difficult after looking through this new SNP document, and hearing the radio clips Nicola has been allowed to relate to us, to realise why Richard is disappointed.
The SNP backstage work parties ought to be telling us that a Central Bank is only a few months away from setting sail with a fleet of desks, a set of managers to get that office formed up, along with policies to oversee the strength of the NEW SCOTTISH CURRENCY, and of course continuous signalling with the ‘Markets’ to ensure everyone understands how well backed-up, targetted, and managed Scotland and its new currency will become.
I thought they would have to join the Euro if that wanted to go back into the EU?
No
They only have to promise to join
They do not have to actually do so
So entering into a legal treaty with no intention of complying with that treaty is acceptable to you? It doesn’t sound morally or legally correct.
Sweden has done it
The precedents are clearly set
And the commitment is always conditional: you pretend otherwise
What happens when the next crisis hits an independent Scotland and they have to borrow billions of £ of a now foreign currency, no doubt at high interest rates? That’s a one-way ticket to austerity. This is prospectus for Edinburgh bankers – not one to transform Scottish society.
If this is all the SNP have to offer Scotland then post-Indy they’ll be toast. It’ll be up to other parties to present a more progressive alternative.
Absolutely spot on.
Currency issuance defines independence.
If Scotland had power of currency issuance while still within the U.K. it would enjoy a greater degree of sovereignty than any purely political separation of state while keeping the £.
Mr Reavell,
The pound (£) Sterling is the only reason Scotland is still in the Union. It is the only thing that prevents the Union falling apart. The UK essentially has nothing else to offer. The final doubts about that prospect were settled by Brexit. There is nothing else of material significance actually holding Scotland in the Union. Scotland already possesses all the other elements of a separate state, and knows everything else is negotiable; and already had most of characteristics of a State. The Union came with the seduction of Sterling, and the problem is going – without Sterling. There is no prospect whatsoever of sa econdary currency issue in the UK.
Thanks Richard, interesting analysis. I tend to agree that there’s a worrying lack of ambition and surfeit of timidity around the SNP’s plan for an independent Scottish currency. However, I can’t help recall that Ireland used sterling for several years after independence from the UK, and from a much weaker economic base than the Scottish economy of 2022 (whose strengths are convincingly articulated and meticulously referenced in today’s paper).
Certainly using the pound for a transition period would entail following the Bank of England’s diktat. But would it necessarily mean zero progress on negotiating EU membership? The EU has proven itself to be nothing if not pragmatic and it’s certain that they are already receptive to Scotland joining as a new Member State that’s already compliant with EU regulations and culture.
Meanwhile I note with amusement that you’re being quoted by a few of the more switched-on Unionists, who are conveniently forgetting your severe criticism of GERS methodology!
Using the pound devastated Ireland gave it four or more decades of poverty
That is one of my many reasons for opposing its use in Scotland
A wee, sleekit, cowrin, tim’rous beastie of a thing.
Not there yet…
No John Warren, that is fine – I understand your point and I expected you to pipe up TBH.
My viewpoint is not sentimental though – as a working-class Englishman, I’m well aware of the English state apparatus of subjugation, and I can see elements of it in how Scotland has been ‘ruled’. I’ve lived with English racism towards the Scots, Irish etc., all my life. The dominant English attitude throughout my life is that we English apparently prop Scotland up.
I suppose the point you are making is that Scotland made a deal with the devil – it saw advantages for itself in English empirical ambition and went along with it.
But when all is said and done – and speaking as Englishman – the arrangement was not as equal as perhaps the Scottish thought?
To which I will finish on the statement ‘How typically English’. It never is equal. When all is said and done John, I’m English and I know my back own yard. And it is treacherous.
But point taken John, point taken.
[…] Writing on his Tax Research UK blog, Prof Murphy said the SNP had “made almost no progress” on the policy of a new Scottish currency and clearly planned to use sterling for “several years” after a Yes vote. […]
It is almost tragic that the SNP leadership have taken little notice of the Road to the Scottish Currency report that the Scottish Currency Group sent, in private, to the FM, all Ministers, MPs and MSPs back in March 2022. This was carefully crafted to say the position should be:
Complete the preparations, so establish the Scottish Reserve Bank, build the S£ inter-bank payments network (by duplicating the systems developed by the ECB for the Euro – these already handle multiple currencies so easy to add the S£), get the notes and coins manufactured (takes a year we understand), notify Visa and Mastercard (minimum of 1 year notice required for the addition of a new currency). That is done so that the post-independence Government (which not going to be the present ScotGov as there will have been another election before then) has the choice to introduce the S£ as soon as practicable. The precise timings and procedure will be determined by the government at that time in the future.
So this formulation was precisely to accommodate all opinion in the Yes movement from us right through to Andrew Wilson’s ‘decades of sterling’. There was no need to witter on about ‘just using Sterling for years’. It is not for the present government to try to put obstacles in the way of the post-Indy government with nonsense about ‘criteria and guides’ (the 6 tests under a camouflage net). Nor should the present government be trying to specify a nonsense set of unquantified rules that they want to apply to a different government in the future.
With our formulation you could have this:
BBC: What is your currency plan?
FM: We will have our own currency as soon as practicable after Independence Day. The same as every other country that has become independent.
BBC: But what are the timings?
FM: I can’t possibly tell you exactly what a different government is going to do probably 5 years in the future. They will determine those timings based on circumstances at the time, the advice of the Scottish Reserve Bank and the decisions of the Scottish Parliament.
And just stop at that point. What can you argue about or dispute?
Here is a link to our new Q&A: https://irp.cdn-website.com/8274bfd1/files/uploaded/SCGv3.pdf
Nail on Head. However, as you have said the SNP are not interested in the YES movement.
I think they are getting suck into the ‘repeat a lie often enough’ philosophy.
[…] Writing on his Tax Research UK blogProf Murphy said the SNP had “made almost no progress” on the policy of a new Scottish currency and clearly planned to use sterling for “several years” after a Yes vote. […]
[…] Writing on his Tax Research UK blogProf Murphy said the SNP had “made almost no progress” on the policy of a new Scottish currency and clearly planned to use sterling for “several years” after a Yes vote. […]
[…] Han skriver på sin blogg Tax Research UK.Professor Murphy sa att SNP hade “nästan inga framsteg” med en ny skotsk valutapolitik och planerade helt klart att använda pundet inom “flera år” efter ja-omröstningen. […]
[…] Escrivint al seu blog de Tax Research UKel professor Murphy va dir que l’SNP “gairebé no havia fet cap progrés” en la política d’una nova moneda escocesa i clarament planejava utilitzar l’esterlina durant “diversos anys” després d’un vot favorable. […]
[…] Rašo savo Tax Research UK tinklaraštyjeMurphy teigė, kad SNP „beveik nepadarė pažangos“ naujosios Škotijos valiutos politikos srityje ir aiškiai planavo naudoti svarų sterlingus „kelerius metus“ po balsavimo „Taip“. […]
[…] Escrivint al seu blog de Tax Research UKel professor Murphy va dir que l’SNP “gairebé no havia fet cap progrés” en la política d’una nova moneda escocesa i clarament planejava utilitzar l’esterlina durant “diversos anys” després d’un vot favorable. […]