Questions multiply over financial status of an independent Scotland

Alex Hern presents further questions, and an answer, for Alex Salmond on Scottish independence.

 

As the debate over Scottish independence rumbles on, an editorial by economic journalist Martin Wolf in the Financial Times raises further questions about the ability of an independent Scotland to retain the fiscal strength it has as part of the UK.

Wolf writes:

A newly independent small country with sizeable fiscal deficits, high public debt and reliance on a declining resource for 12 per cent of its fiscal revenue, could not enjoy a triple A rating… To avoid the risk, it would need to lower its debts quite rapidly. This would require even greater austerity than in the UK as a whole

This links directly to a second question: Scotland’s monetary future…

Remaining within the sterling area for an unknown period, as the Scottish National party suggests, cannot be a unilateral decision. True, one possibility would be for Scotland to adopt sterling as its currency, without access to the Bank of England…

Yet, in that case, neither its financial institutions nor its government would enjoy a lender of last resort, with lethal consequences in a crisis – as we have seen in the eurozone… Scotland would enjoy neither monetary nor fiscal independence.

This, then, connects to a third big question: the future of Scotland’s financial industry.

Because of its full integration inside the UK, Scotland is home to a number of very large financial institutions that do most of their business elsewhere, particularly in the rest of the UK.

The Scottish government would not have the fiscal resources to back these entities if they got into difficulty.

He concludes:

The Scots need to understand that independence would deprive them of the benefits of pooling resources and bring real costs.

They cannot assume they would be able to remain inside the sterling area or retain anything like their present financial sector.

They can also not assume they would sustain the UK’s credit rating and be able to enjoy their current level of spending either, even if they were to receive what they see as their share of North Sea revenue.

Wolf’s warning follows a similar concern from former general chief of staff Lord Dannatt, who argued that Alex Salmond had to set out a blueprint for defence and foreign policy prior to a vote on independence if the electorate were to be able to make an informed decision.

Unlike Dannatt, however, Wolf presents concrete concerns about post-independence policy which will be hard to rebuke by suggesting that they ought to be discussed after independence.

In the end, it took until today for Salmond to give a more detailed defence policy, as the Telegraph reports:

Alex Salmond, Scotland’s First Minister, is demanding that several historic units with centuries of service in the British Army should become part of a new defence force in Scotland if he wins a referendum on breaking up Britain.

These include the Scots Guards, the Royal Regiment of Scotland – whose five regular battalions include the Black Watch, the Argyll and Sutherland Highlanders and the Royal Highland Fusiliers – and the Royal Scots Dragoon Guards.

Mr Salmond said that 2010’s defence review had produced a template of how armed forces would look in an independent Scotland. He said one naval base, one air base and one mobile armed brigade was “exactly the configuration” required for a Scottish defence force.

Mr Salmond has previously fought to retain all three Scottish air bases.

See also:

Win or lose, Scottish independence referendum heralds a revolution in UK politicsEd Jacobs, January 16th 2012

The Week Outside Westminster – Sending Osborne to save the UnionEd Jacobs, January 14th 2012

Devo-max isn’t a solution, it’s a whole new can of wormsMatt Gwilliam, January 11th 2012

SNP: Cam’s “economic uncertainty” argument is nonsense; we’ll stick to our timetableHumza Yousaf MSP, January 9th 2012

Former Army chief: SNP needs to be “honest and transparent” on defence policyEd Jacobs, October 19th 2011

30 Responses to “Questions multiply over financial status of an independent Scotland”

  1. Pulp Ark

    Questions multiply over financial status of an… //t.co/vwu3N3ER #Clean_Politics #Alex_Salmond #Finance #muslim #tcot #sioa

  2. Cate Vallis

    Questions multiply over financial status of an independent Scotland: //t.co/NOT18ANe by @alexhern

  3. Political Planet

    Questions multiply over financial status of an independent Scotland: Alex Hern presents further questions, and a… //t.co/DitkE9n6

  4. Anonymous

    And on top of a Barnett formula share of the UK’s debt.

    If the SNP win the vote, then Cameron’s role changes. He doesn’t have to protect Scotland and the union any more. He has to protect the rump of the UK.

    He can play hard ball. If Scotland doesn’t take its fair share (Barnett formula) of the debt, then he vetos the use of Sterling, and membership of the EU.

  5. BevR

    RT @leftfootfwd: Questions multiply over financial status of an independent Scotland //t.co/pebl5muq #spartacusreport

  6. evangeline

    @herringcliff RT“@leftfootfwd: Questions multiply over financial status of an independent Scotland: //t.co/AfYF5uzu by @alexhern”

  7. Anonymous

    Wolf’s anlaysis is at best partial.

    This analysis (as do a number of the posters) handily ignores the fact that the Government Expenditure and Revenue Scotland annual reports (easy to find online btw) show that with its geographic share of north sea oil that in 3 of the past 5 years Scotland has run a slight surplus on its current budget balance. That in one of the other two years it balanced and in the most recent there was a deficit….mind you I’d like to see which European countries didn’t have such a deficit in that year.

    On the issue about the banks it is of course important to remember that responsibility for bank bailouts (e.g. Dexia) are calculated in rough proportion to the size of a bank’s operations in the countries it is operating in. The bailout of HBOS and RBS would have been calculated similarly.

  8. Anonymous

    You may be missed Alex Salmond being interviewed by Jon Snow on C4 news last week but the First Minister made it clear that Scotland would accpet either its GDP share or per capita share of the UK’s debt -they are both apparently around 8-9% of the total. Talking of bargaining “chips” are you wanting these nuclear weapons you’ve left lying in Faslane or should we sell them to the highest bidder?

  9. Darius Dixon

    //t.co/CiYrzlPH Questions multiply over financial status of an independent Scotland …

  10. TheCreativeCrip

    #ukpoli RT @leftfootfwd: Questions multiply over financial status of an independent #Scotland: //t.co/xd31exnz by @alexhern

  11. Anonymous

    The SNP’s position on ‘defence’ is difficult to fathom. They’ve previously said they’d take an independent Scotland out of NATO, and described the NATO intervention in Kosovo to stop ethnic cleansing as “an unpardonable folly”, but when the Libyan intervention went through Westminster in March last year, all six SNP MPs voted to commit UK forces to the NATO operation. Shouldn’t the six SNP MPs have voted against the NATO intervention or abstained?

    .

  12. Keith Davis

    RT @leftfootfwd: Questions multiply over financial status of an independent Scotland //t.co/pebl5muq #spartacusreport

  13. Angus McLellan

    Cameron would veto Scotland’s EU membership so that Scotland doesn’t have to contribute around £500 million a year to the EU and EU fishing boats can longer fish in Scottish waters. This’ll be playing hard ball? You must have been advising Cameron the last time he used a veto.

    I can see how Cameron would be worse off with your plan, and I can see how Nigel Farage would love it. I can see how Spanish fishermen would be worse off too. What I can’t see is how these things would persuade Scottish negotiators to accept unreasonable terms.

  14. Jamie brown

    @leftfootforward err isn't the BOE the UK'S central bank and as such could remain Scotland's central bank as well? //t.co/REiVaTVj

  15. Nick Leaton

    Salmond is quite happy to take a Barnett formula share of taxes. After all he claims that is fair.

    Why isn’t a Barnett formula share of debt fair?

  16. Nick Leaton

    Because Salmond is basing his argument on being in the EU.

  17. Mike_docherty

    ….and do you know what percentage Scotland gets under the Barnett formula?

  18. Mike_docherty

    Unfortuntately for your argument one country’s veto would be insufficient.

  19. angus murray

    RT @leftfootfwd: Questions multiply over financial status of an independent Scotland //t.co/Pu5IE9p7

  20. Angus McLellan

    If Cameron plans to announce prior to the vote that he will veto Scottish EU membership, that might impact Salmond’s plans. Otherwise not. Negotiations, so far as we can tell, will follow a referendum.

    Independence is the main thing. The SNP’s goal is presently independence in the EU, but EFTA would do just as well, or some novel state of affairs involving EEA membership only.

  21. Anonymous

    Mike, the surplus claim is based on reading figures for the current budget balance only. These figures exclude capital expenditure, which as the GERS report details, means spending on infrastructure such as roads, schools and hospitals ‘which brings benefits to the Scottish economy in the future’. If you include spending on roads, schools and hospitals, which allows for the calculation of the net fiscal balance, then Scotland has been in deficit for the five years detailed in the GERS. I’m assuming the SNP, should they ever achieve independence, will hope to invest in roads, schools and hospitals and so the only partial account of Scotland’s economic situation is coming from the SNP. As you say, the GERS report is easy to find online. It’s actually on the Scottish Government website and I would urge anyone with an interest in this issue to read a report that will lay a lot of myths (including the one about Scotland being a subsidy junkie) to rest.

  22. Mike_docherty

    TrainingBall – I don’t think it is the SNP who are being partial as it was the SNP Government that came to power in 2007 which established the GERS reports (nothing similar existed before then). You are of course right that GERS provides two measures, viz, the “current balance” and the “net fiscal”. My point in quoting the former, was that Wolf had avoided doing so and that was probably because it (to quote GERS, p.24) “…measures the degree to which current taxpayers meet the cost of paying for the public services they use”. In terms of the latter measure (net fiscal) there are a number of points that can be made; (i) the net fiscal deficit for Scotland in 09/10 was less as a percentage of Scotland’s GDP than the net fiscal deficit of the UK as a whole; (ii) the net fiscal deficit includes Scotland’s “contribution” towards the UK’s financial interventions following the problems of 2008 onwards; (iii) most countries run with some form of deficit; (iv) in an independent Scotland the Scottish Govt would have control of revenue streams including the Crown Estates (which will be significant in the development of off-shore renewables) which it currently does not have access to (nor are they accounted for in GERS). In summary then, Scotland’s position is currently healthier than the UK under both of these measures and in an independent Scotland I believe would be healthier still given its ability to control revenue streams to which it does not at the moment have access.

  23. PhilJoMar

    Bearing in mind that it was the UK that joined the EC or EEC or whatever it was at the time, why should Scotland have to rejoin anything? Shouldn’t England/Wales/N.Ireland have to rejoin as well in that case?

  24. Newsbot9

    He CAN’T veto it under the SNP’s argument, which is based on the succession of states in international law…and the SNP have a very good argument.

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  27. Anonymous

    Nonsense, the SNP did not establish the GERS report and you can find it here for 1997-98 //www.scotland.gov.uk/Resource/Doc/158148/0042792.pdf

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