I was asked by The National newspaper in Scotland to bring forward my column this week. They wanted me to cover the row about Scottish deficits, and the fact that the Institute for Fiscal Studies has attacked the SNP and other parties for their fiscal plans.
I admit I ignored the detail of the immediate post-May plans. There was good reason for that. Scotland has so little control over its own budget at present that arguing over this is a touch meaningless. Given that any post-May government in Scotland will have to balance its budget the fact is that the room for manoeuvre that any party really has is not that big. I instead concentrated on the claim that Sturgeon has made that a deficit would be good for Scotland after independence.
This I had to caveat. Her claim is conditional. As I noted:
To use this argument Nicola Sturgeon has to do something that she has refused to do to date. She has to abandon her commitment to using Sterling after independence. Unless she does that, she's planning on using other people's money to fund a Scottish deficit. London's money, to be precise. And that would make Scotland a microeconomic economy — and as out of control in a crisis as a household without work and with a mortgage is. This is the basis of the microeconomic criticism from the Institute for Fiscal Studies and BBC, and their sense that Nicola Sturgeon's claims do not stack is, to this extent, true. She cannot make the claims she does on deficits and stick to Sterling, and they know it.
It really is time for Sturgeon to get off the fence on this issue. She cannot claim she would manage deficits like any other government and at the same time say she will not have her own currency when having one is the condition for managing deficits, and even for being independent.
The SNP cannot fudge this for much longer.
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I’m not sure this works – Ms Sturgeon and the other pro-independence parties all the way down to the Libertarians who support even more devolution than independence would give are doing well in the polls.
Should Scotland be an independent country, and should the SNP be in charge of it are questions that are routinely conflated. There are a great many people who want the first but not the second.
Once independence is set then if the SNP won’t follow an independent currency route then other parties can if they can persuade the public of the benefits.
No, it can’t go on ‘fudging’; but it does. The problem is it has allowed itself to be drawn into a comfortable relationship with a deeply ingrained, old Scottish establishment that plays to a reputation for power and economic judgement that it no longer possesses. Notably, this discreet establishment watched (with hapless, passive incompetence), as Thatcher and neoliberalism slowly and systematically dismantled and destroyed the great tradition of Scottish banking (from Big Bang, 1986 its total destruction was inevitable), and has continued to worship at the shrine of that dubious God, the City of London.
The reason I can say that Big Bang inevitably doomed Scotland’s independent banks followed from the fact that after Big Bang, onlyfull political independence could have saved Scottish banking. Why do I say this?
The leading Scottish Banks (who had already eaten and consolidated most of their smaller Scottish brethren), had a cross-border agreement with the major London clearing banks, buttressed by cross-holdings in shares (up to the key takeover trigger-point of 30%), to provide protection from unwanted and unnecessary takeover. This prevented the introduction into Scotland of the kind of ‘standards’ that would lead to the financial crash. Big Bang finished the established ‘understandings’ overnight. The Scottish Banks had little choice, except to become the prey to predators (Bank of Scotland), or predators to avoid being prey (RBS). In both cases they merely became city of London banks – and the rest is history; inevitable history, and we are still living its unresolved consequences.
Your column in The National yesterday chimes well with the SBFG response to the Fact Checker column also in The National yesterday
To the Editor
FACT CHECKER NEEDS TO BE FACT CHECKED
The Fact Checker in The National on April 27th (“Would indy Scotland “begin with a big deficit?”) needs to be fact checked.
It is true that the size of the Scottish deficit at the date of independence is an unknown since the fiscal position of Scotland within the union cannot be determined with any certainty and includes a share of spending choices which Scotland would not be making if independent.
However, the flaw in the April 27th Fact Checker is that it accepts that fiscal deficits are manageable when borrowing costs are low, as they are at present, and so Scotland is in an equivalent position to many other countries whose deficits have ballooned during the covid crisis.
What the Fact Checker fails to recognise is that government deficits are actually a necessary feature of a thriving economy. This is because managing the economy is based on high level double entry book keeping . One person’s surplus is another’s deficit; one person’s spending is someone else’s income. When the government is in deficit the rest of us are in surplus. The “National Debt” is our savings — government deficits are mirrored by private sector (households and businesses) surpluses. We will all be poorer if our government decides to reduce the deficit.
One of the most important reasons why Scotland should have our own currency is to allow government spending to happen without having to borrow in another country’s currency. With our own currency the Scottish Government can borrow from its own people and can always repay that borrowing as it controls our currency. Government borrowing from us is the way we can all save safely. Borrowing in foreign currency leaves us at the mercy of global money markets, who don’t care about Scotland — they only care about getting their money back at the highest level of interest they can squeeze out of us.
Deficits do matter if they become so large that the economy becomes “overheated” and inflation sets in because the economy is at full employment — at this point more public spending cannot employ more resources as they are already fully employed.
What is also important when considering government deficits is the issue of ”value for money” — has the money been allocated wisely and efficiently in order to employ our human and physical resources to the production of the things which are of the greatest importance to us? So, what really matters is the quality of the government’s spending and whether it delivers on the aspirations of the people for greater social equality, high quality public services, tackling climate change and environmental degradation, and making the transition to a zero carbon world.
The size of the deficit does not matter provided we have our own currency, if government spending is not stoking inflation and if it is being used effectively to support the economy to deliver all the things we need to live well and in harmony with nature.
Jim Osborne
On behalf of the Scottish Banking & Finance Group
The SNP won’t want to commit to a separate currency, whatever its merits might be, because they know that it will cause many of their less committed supporters to baulk at the prospect of independence.
I could claim to be a quarter Scottish. If I’d been good enough I could possibly have qualified to play for Scotland at football on that basis! But, I’ve never lived in Scotland. So it is an argument I should stay out of. I don’t want the UK to break up but if the Scottish want to leave it’s their choice. Let’s not get too involved in the arguments either way.
It strikes me that there are those in England who are so peeved with the Tories, and their English compatriots, about the UK voting to leave the EU that they are determined to get as much as they can back in by working to break up the Union. I voted to Remain. I think, however, we’ll have to stay out for at least the next decade. It won’t do the Rejoin movement any good if we are seen to have a history of wanting to break up the UK. When the time is right we should, hopefully, rejoin together and not as the former countries of the UK.
Sorry, but that is a deeply English perspective and I suspect some will want to react to it rather strongly
Why should your English cause be advanced at the cost of the independence of others? I hate top say it, but it smacks of colonialism
I’m sorry but I really understand your reply. If the Scots, Welsh or Irish want to be part of the same country as the English that’s perfectly fine by me. We all pay, more or less, the same taxes and live by, more or less, the same laws. They do have some scope to make some adjustments as they see fit via their devolved Parliaments. This is entirely their decision to make and not one any of us who happens to live England should have too much to say about.
How is that colonialism?
If you are happy about them going, I read you wrong
But you actually said as I recall that you wanted them to stay to make it easier for England to return to the EU
That is what I read, at least
If I got it wrong, sorry
@ Richard,
I’m not happy about the Scots leaving, but if that’s their choice then we all have to accept that. I don’t want them to stay because it might make it easier for England to rejoin the EU. That is, or should be, a separate issue.
Getting back to the point of the OP you are arguing that Scotland needs its own currency. That’s fair enough. However, if Scotland leaves the UK because it wants to rejoin the EU it won’t have a separate currency for long. Ireland did better after it ditched its link with the UK pound and before it adopted the euro. That wasn’t for long either.
However, the issue of Scottish independence has become intertwined with Brexit and I’m not convinced about the motivations of those involved and are campaigning for it. Especially those who don’t live there and won’t have to live with the consequences.
I did consider that the case for the UK as whole for staying in the EU was stronger. We had a pretty good deal including using our own currency. I doubt we’d be offered that deal again either as the UK or as a collection of separate countries. So my inclination is to bide our time and see how the EU develops before rushing to rejoin. I’d hope the Scots would take the same view too, but I’m not offering any advice and don’t want to interfere in their decision.
I am strongly in favour of Scotland rejoining the EU
But all it has to do to do so is commit to join the euro
Sweden did that 26 years ago and has no intention of doling so
Nor should Scotland
Your claim on this is just wrong
And I only comment on Scotland because I am asked to do so
Mr Edmunds,
I understand your problem. Scotland cannot avoid its part in Britain’s Imperial-colonialist history, but after two world wars in the 20th century Scotland has paid too heavy a price trying to shore-up the UK as a ‘world power’ and the Anglo-UK anachronism of a defunct imperial constitution in which Scotland participated principally to access an Empire, but is now focused on deluded geopolitical ambitions, and the appalling re-tread of ancient Anglo-British visceral anxieties about ‘universal monarchy’, that is now centred on turning the EU into a ‘friend or foe’ issue (see Daily Telegraph headline today). Brexit was not about plucky Britain leaving a nasty EU; it was about undermining the existence of the EU. I wish nothing to do with it; and nor, I suspect do most Scots want anything to do with it. It is time for Scotland to go.
Sorry John and Tom or Mr Warren and Mr Edmunds if you prefer but I take a polar (pun intended) viewpoint.
Countless years ago Norway, Sweden, Iceland, Greenland, Denmark were all classed as Scandinavians as we are all classed as Great British. (I’d also include Finland in the category of being Scandinavian but accept that this is a debatable point).
Now we’ve got Norway, Iceland and Greenland as separate entities. Sweden, Denmark and Finland in a different corner if you like. Small successful countries pursuing their own national interests but with a common ethos.
But in certain areas, particularly tourism they combine as Scandinavian.
Why is it so impossible for the same ethos to work here?
Maybe that’s why they are consistently voted the happiest countries in the world while we drown in bitterness, and are led by narcissistic psychopaths.
No I think on balance I’d prefer to go along with Norway and Iceland and go the Nordic Alliance or EFTA route if it’s OK with you but that’s a decision for another day.
Mr Fayre (Justin if you prefer),
If you are suggesting that my observation that “I wish nothing to do with it” (nothing to do with undermining the EU), was written out of ‘bitterness’, you are simply, and badly, wrong. rUK has a deep problem with the EU that Scotland cannot solve (neither the power nor influence to do so; that is just a fact), but the important matter is that Scotland should not allow itself to fall into accepting that British paranoia over the EU is – normal life. It isn’t, and more; it must be resisted, and I say that whether or not Scotland joins the EU post-independence. There is no plausible future for the Union, save disturbed and paranoid ambitions in a polity in which integrity is now demonstrably absent, which offers no good outcome.
Everything else is for an independent Scotland to decide for itself. Personally, I believe in the EU, and I believe the EU wants Scotland (ignoring the media of the paranoid); how we find ourselves returning to the EU will depend on circumstances to be explored. These circumstances should not be merely assumed, ‘a priori’, by anybody.
Be in no doubt, rUK’s attitude to Scotland will transform – like magic – once Scotland is independent: I can say this because UK (rUK) always changes its tune, has to change its tune when there are departures from the UK ambit; from the very first, the US and on through Canada, Australia, New Zealand, Ireland, India and on and on. This is different only because Scotland is a founder member of the whole ‘British’ enterprise. The enterprise is over, the substance is long gone and quite dead; all that is left is the bookkeeping.
May turn out to be a pointless discussion as it seems independence isn’t wanted in Scotland
https://www.google.co.uk/amp/s/www.scotsman.com/news/politics/worst-polling-for-yes-since-2019-as-snp-support-continues-to-drop-poll-shows-3218102%3famp
Desperately claiming one poll is evidence really does amount to desperation on your part
Especially a poll commissioned by a newspaper which is vehemently opposed to Scottish Independence. Given that, there are doubts as to the composition of the sample, the weightings applied and, especially, the precise wording of the questions asked. He who pays the piper calls the tune.
🙂
It’s blindingly obvious that there is either little understanding of macroeconomics in general, and money creation in particular, among the inner circle of the SNP. Either that or they are playing to the innate conservatism (small c) of much of the Scottish electorate (which John S Warren has identified here many times) and avoiding upsetting their familiarity-bond to the GB£. I can’t say for sure where Kate Forbes (Cabinet Secretary for Finance at Holyrood) stands on MMT etc, but recent articles show that Sturgeon still talks as though sterlingisation is SNP’s preferred option and yesterday I saw a link to news item whose banner headline proclaimed that Alyn Smith MSP was in favour of joining the Euro (it linked to a Daily Express article, so it may or may not be true; either way I didn’t read it on mental health and anger management grounds).
Tim Rideout’s amendment proposing a Scottish currency and central bank (i.e. sanity) was passed at the 2019 Party Convention, but somehow or other this doesn’t seem to have been acknowledged by the “inner circle”. As a non party-member I have no leverage on SNP policies, but it’s beyond time that someone with the necessary knowledge (looking at you Richard or Tim) gave them a tutorial on the realities of macroeconomics and currency. Perhaps Tim could advise on the feasibility of this?
It’s not just on currency that the SNP’s inner circle appears to hold contradictory views. It is long-standing party policy that an independent Scotland would not allow nuclear weapons on our lands and seas, but it’s also stated policy that Scotland would seek Membership of NATO, an organisation which supports nuclear weapons as deterrents (as if authorising a second strike killing millions is somehow less immoral than a first strike). NATO values the existence of UK WMDs, so quite how it would view Scotland pulling the rug from under its deterrent strategy is unstated, but predictable. A huge part of SNP’s support comes from those who oppose the UK’s WMD’s at Faslane, so alienating them would not be a smart move electorally.
Clarity on these issues is urgently needed in order to avoid SNP ministers being destroyed on prime time TV debates/interviews. The 2014 referendum was mortally damaged by Salmond’s unwavering (and illogical) demand for sterlingisation in the face of UK Gov denial. Scotland can’t afford to make such fundamental blunders again. With Westminster arrogating the right to interfere in devolved matters regardless of public opinion or devolved nations’ policies, it’s clear that devolution will be stifled, all power will be restored to Westminster and national identities will be undermined.
Agree with all that Ken