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 politics – Ed Jacobs, January 16th 2012
• The Week Outside Westminster – Sending Osborne to save the Union – Ed Jacobs, January 14th 2012
• Devo-max isn’t a solution, it’s a whole new can of worms – Matt Gwilliam, January 11th 2012
• SNP: Cam’s “economic uncertainty” argument is nonsense; we’ll stick to our timetable – Humza Yousaf MSP, January 9th 2012
• Former Army chief: SNP needs to be “honest and transparent” on defence policy – Ed Jacobs, October 19th 2011
30 Responses to “Questions multiply over financial status of an independent Scotland”
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.
Alan Cowan
https://www.leftfootforward.org/2012/01/questions-multiply-over-financial-status-of-an-independent-scotland/comment-page-1/
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.
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?
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.