{"id":44784,"date":"2019-04-10T08:27:38","date_gmt":"2019-04-10T07:27:38","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=44784"},"modified":"2019-04-10T08:27:38","modified_gmt":"2019-04-10T07:27:38","slug":"dear-derek-a-letter-to-scotlands-finance-minister","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2019\/04\/10\/dear-derek-a-letter-to-scotlands-finance-minister\/","title":{"rendered":"Dear Derek: a letter to Scotland’s finance minister"},"content":{"rendered":"

I share this blog post from Craig Dalzell<\/a>, head of research at the Common Weal think tank in Scotland, addressed to Derek Mackay, the SNP\u2019s Scottish finance minister, for three reasons. First because I agree with it, as my own post for Common Weal<\/a> this week revealed. Second, because the issue is fundamental to Scotland\u2019s future, and so the well-being of all who live there. And third, because I have had enough of politicians deferring difficult decisions that it is their job to embrace and take, all in the interests of pandering to the powerful financial interests, which are behind the SNP\u2019s disastrous plan for the Scottish currency.<\/em><\/p>\n

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Dear Derek Mackay<\/p>\n

I read your recent article in The National (6th April<\/a>) with interest. Particularly your endorsement of the motion being put to the SNP conference this month as \u201cyour\u201d plan, building on the Growth Commission. This direct endorsement gave me hope that you would have taken the opportunity in your article to tackle the now widespread critiques of that plan.<\/p>\n

Your direct endorsement of the Growth Commission proposals also led me to the realisation that unless things change, you as Finance Secretary will be personally responsible for this plan and its consequences. In this spirit, I would like to address you directly regarding some of the critiques raised.
\nThe big one, as raised by Robin McAlpine in The National last week (30th March<\/a>), is the problem of what happens to the Scottish economy if we\u2019re Sterlingised \u2014 that is, we continue to use the pound without a formal currency union \u2014 and the rUK economy tanks.<\/p>\n

Without the powers to create (or destroy) money, apply Quantitative Easing, adjust interest rates, adjust exchange rates and, crucially, without the Bank of England having a legal remit over Scotland to do it for us, what powers would a Sterlingised Scotland actually have to shield us from the effects of an rUK crash?<\/p>\n

This is not merely a hypothetical. The UK has suffered a recession in every decade of the past the century bar one (the 1940s) and we\u2019re still suffering the \u201clost decade\u201d from the 2008 Financial Crisis. Let\u2019s be honest, your plan isn\u2019t going to meet the \u201csix tests\u201d within the first Parliamentary term and we all know it so the results of the vote at the end of that term is a foregone one. Following the Growth Commission model of not having a currency for the decade or more that those tests imply presents a major systemic risk to the Scottish economy. You will surely understand that this is not a problem that can be solved by tweaking tax rates.<\/p>\n

Derek, you are quite correct to point out that currency is a servant of the economy but it\u2019s not true to say that the reverse doesn\u2019t also apply. The relationship is one of mutual feedback. The currency shapes what kind of economy is possible. It\u2019s notable that you and the Growth Commission are keen to point out that many of our comparator countries don\u2019t have their own currency. What you seem less keen to point out is that all of them are Eurozone members. None of the comparator countries cited in the Growth Commission report unilaterally use the pound, euro, dollar or another currency. Read section A3.21 of the report if you don\u2019t believe me.<\/p>\n

It\u2019s the placing of limits on that range of economic possibility that is proving concerning to many. Under the Growth Commission\u2019s wider economic proposals, there are measures to keep Scotland\u2019s financial regulations tightly tied to the UK\u2019s failed model \u2014 not just at the point of independence but as the UK continues to make changes to their regulations afterwards. Scotland\u2019s political input into the Union may be slight at the moment. We may so often be ignored. But at least, on paper, UK-wide regulations are made with Scotland\u2019s say and to cover Scotland\u2019s needs. Post-independence, your plan makes as much political and economic sense as unilaterally adopting changes to the financial regulations of Singapore. It is a plan built to appease those who would be loaning Scotland the money that we couldn\u2019t print on our own. They will not easily give up such a \u2018valued client\u2019 - hence why the \u201csix tests\u201d take the nigh-impossible-to-meet form that they do.<\/p>\n

I understand the desire by some to campaign for a \u201csoft independence\u201d model. It\u2019s not my preferred model. It\u2019s not the model favoured by just about any SNP member I\u2019ve ever met. It\u2019s certainly not a model anywhere near compatible with the \u201cScotland in Europe\u201d policy espoused by the SNP. Put aside the \u201cwe\u2019ll be forced into the euro\u201d arguments. We won\u2019t be getting back into the EU at all if we don\u2019t have control of our own currency nor if we follow the rUK\u2019s \u201cGlobal Britain\u201d financial regulations into an ERG-led tax haven on (non-EU compliant) steroids. Such a \u201csoft independence\u201d was compatible with \u201cScotland in Europe\u201d in 2014 but that compatibility ended in June 2016. Scotland doesn\u2019t necessarily have to choose between the UK and the EU, but we can no longer have both.<\/p>\n

This all said I do understand the desire for the \u201csoft independence\u201d model. If this truly is the economic path that you want to follow then, by all means, launch a Scottish currency and peg it to the pound. Maintain that close link to rUK and make the case to the Scottish people for the need to mirror changing rUK financial regulations. A Scottish currency pegged to the pound would be easy to change in a crisis (or outwith one) compared to moving from Sterlingisation to a Scottish currency. The experience of Switzerland and the Czech Republic during the Eurozone crisis makes that clear. Our own currency allows Scotland to actually harness the powers of independence to forge the Scotland that we want to see, not to be trapped in one defined by the arbitrary tests we apply to it. Do this in a democratic way and you\u2019ll build the Growth Commission vision of an independent Scotland. But do not do this at the expense of other voices and other visions. Allow them the space to campaign alongside yours and let the Scottish people decide which journey they want to take.<\/p>\n

The time for discussion within the SNP is almost over. The party will soon have to bring the wider public into this discussion. I have every confidence that the party will make its decision this month with the full knowledge of the consequences of it. If we want to build the fairer, more equal country that we all want, then we have to make sure that Scotland has the tools at its disposal to be able to do so. To have the best economic case to put to the people, then win, we HAVE to secure the powers necessary to deliver the more prosperous and fairer Scotland we seek. An independent Scotland needs its own currency.<\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

I share this blog post from Craig Dalzell, head of research at the Common Weal think tank in Scotland, addressed to Derek Mackay, the SNP\u2019s
 Read the full article…<\/em><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,140],"tags":[],"class_list":["post-44784","post","type-post","status-publish","format-standard","hentry","category-economics","category-scotland"],"_links":{"self":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/44784","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/comments?post=44784"}],"version-history":[{"count":0,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/posts\/44784\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/media?parent=44784"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/categories?post=44784"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.taxresearch.org.uk\/Blog\/wp-json\/wp\/v2\/tags?post=44784"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}