BY EFFIE DEANS
There’s an Austrian school of economics. After Emma Harper, an SNP MSP’s confusion about what a currency is, we obviously need an SNP school too.
1. In an independent Scotland we could make money from non-existent secret oil fields even if the price of oil can turn negative.
2. Scotland already has its own currency because we have different bank notes to England. This rather ignores the fact that while each member state has its own Euro coins this doesn’t mean they each have their own currency.
3. England won’t let the Scottish cash cow go. This proves that Scotland is running a surplus rather than a deficit.
4. It’s Scotland’s pound.
5. We could just keep printing money. This used to be called the Weimar school of economics.
6. We could afford a Universal Basic Income while running a deficit. Why would anyone work in an independent Scotland when we could all pay each other to do nothing?
7. We want to be in a different trade bloc to our biggest trade partner. Scotland exports 56% to the other parts of the UK and imports 71% from them. Nearly everything that arrives on our shelves is driven through England. Major UK ports are in England. Sounds like a plan in the SNP school of economics.
8. We’re going to campaign for independence while demanding the Chancellor pays our wages, but we don’t intend to pay him back.
9. We’re going to close the Scottish economy lock everyone down and have more tiers than England just so we will be that bit more ready for independence.
10. We’re going to promote Scottish tourism by banning tourists and being nasty to those who come.
11. SNP Government predicted oil revenues of £6.8bn-£7.9bn for 2016/17 in the 2013 White Paper. In fact, they were £36 million.
12. The SNP want Scotland to have a large financial sector while using someone else’s currency. But this together with most of their customers being located in other parts of the UK would mean that Scotland’s financial sector would immediately have to leave Scotland if it became independent. The lesson of Icesave was don’t put your money in a foreign bank.
13. Scotland would have no lender of last resort. This role presently is performed by Bank of England. Scotland would not have a central bank that could create money, because it would be using the someone else’s currency. If banks went bust like in 2008, Scottish savers would lose all their money.
14. Osama Bhutta, a former aide to Alex Salmond said Scotland could create money instead of making us pay taxes. Why don’t other countries try this?
15. Using Sterling unofficially would mean the Scottish Government would have no ability to directly influence the Scottish economy. It would have no control over interest rates. Scotland would literally have no monetary policy. It would be set by the Bank of England. This is called being independent.
16. Scotland would lose seigniorage, which is the difference between the cost of producing bank notes or coins and their monetary value. The profit gained would stay in England.
17. Scottish securities (debt) would have to be bought back with someone else’s currency. Scotland would have to build up reserves of Sterling otherwise it would face running a current account deficit to buy back its debt, that is it would have to borrow to pay back debt. This is the equivalent of using one credit card to pay off another.
18. Scotland would be unable to underwrite any public expenditure because it would lack the ability to create its own money. This means that the risk of default would be much higher for Scotland than a comparable country whose currency was backed by a central bank issuing its currency. This would mean that Scotland could only borrow at extremely high interest rates compared to at present.
19. Scotland would not have the ability to devalue if Scottish goods or services became uncompetitive in relation to the former UK. This would put Scotland in the position of Italy or Spain in the Eurozone, which lacking the option of devaluation could only introduce austerity to regain competitiveness.
20. In a crisis such as 2008 or the present Covid crisis a country with its own currency can bail itself out by printing money. If there is a recession or a depression it can loosen monetary policy and lower interest rates in order to stimulate the economy. Scotland could do none of these things but could only borrow on the international markets at very high rates or else appeal to IMF, who would then run Scotland in exchange for a loan. This too would be called independence.
21. Joining the EU while continuing to use Sterling would probably be impossible unless the EU changed its rules. No country has joined the EU without having its own currency. Some may do so soon having unilaterally adopted the Euro. But even if Scotland could join the EU while continuing to use Sterling it would be in the hopeless situation of using the currency of a non-EU country while being inside the EU. Bank of England Sterling policy cannot possibly fit be appropriate for an EU member and a non-EU member state.
22. UK national debt is at present more than 103.5% of GDP. The last SNP plan was that Scotland would not accept a share of UK national debt but would instead pay a solidarity payment of around £5 billion a year. If parts of a country can avoid paying debt in this way, it might become embarrassingly popular. Expect Flanders and Lombardy to dump Belgian and Italian debt. The danger is that the markets would view it as a default, which would lead to still higher interest rates for Scotland. Why anyway would London agree to Scotland paying only 2.5% of GDP per year while the former UK continued to owe 103.5%? This might lead the UK to argue that the divorce should be like Czechoslovakia where both parts were successor states. Alternatively, it could lead to the UK simply refusing Scottish independence on the grounds that Scotland refused to accept its share of debts that had been used to bail out Scottish banks and pay Scottish wages.
23. The SNP’s Sustainable Growth Commission in 2018 had a commitment to robust spending controls. But Covid has made the Scottish economy much weaker than it was in 2018. We can assume therefore that the spending controls would be even more robust. But this is another way of saying that Scotland would face austerity. But it was in order to avoid wicked Tory austerity that Scotland was seeking independence in the first place.
24. Andrew Wilson the author of the Growth Commission said that Scotland would emulate Denmark, Finland and New Zealand. But independence doesn’t automatically turn you into any other country. It is just as likely that it would turn Scotland into Portugal, Poland or Papua New Guinea. Perhaps nose piercing would go well with kilts.
25. Scotland’s nominal deficit is £15 billion pounds or 7% of GDP. Like most parts of the UK including most parts of England we receive more from the UK Government than we raise in taxation. If Scotland became independent, we wouldn’t receive that money. Instead we would have to reduce our deficit by ourselves by spending less and taxing more. The EU requires a 3% deficit for new member states. So, Scotland doesn’t at the moment qualify for EU membership unless the EU changed the rules. We would need a 4% cut in order to join the EU. Alternatively, you can believe the SNP school of economics that tells you there is no deficit and there would be no cuts.
26. Scotland has most of its trade with other parts of the UK and much less with the EU. The danger is that Scottish independence will mean that we have to pay tariffs while trading with the former UK with whom we do most of are trade in order to have free trade with the EU with whom we do only a small amount of our trade. Scotland both sells to and buys more from the other parts of the UK, which is the opposite to the situation the UK faces in relation to the EU. It is for this reason that a no deal Brexit would damage the EU more than the UK, but a no deal Scexit would damage Scotland more than the UK. There is no guarantee that Scotland would have a trade deal with the UK especially if we refused to pay our debts. Do you think they would respond to this with kindness and friendship?
27. The UK’s internal market means that we can buy and sell goods freely within the UK with the same rules and regulations applying everywhere. Independence would mean that Scotland would cease to be part of the UK’s internal market. Everyone is much more likely to buy goods and services from the businesses of fellow countrymen than from foreigners. Who would buy their household insurance from Slovenia or indeed Scotland?
28. There is the possibility that if Scotland joined the EU the external border of the EU would have to be manned in order to check passports and apply tariffs. It’s hard to see how this could not damage cross border trade especially for those in the south of Scotland. Not only would trade with the former UK be slower it would be more expensive, and almost all trade would have to go through England, which could charge Scotland what it pleased for the use of its ports and roads.
29. If Scotland refused to accept its fair share of UK debts, it would obviously have no right to UK assets. It might also forfeit UK cooperation, which would be awkward as the UK runs rather a lot of services in Scotland including benefits. The lack of shared assets would hardly leave Scotland better off financially as we would have to build everything from scratch that we presently use that belongs to the UK. This would include the DVLA, the Passport Office, MI5, MI6, GCHQ, BBC, British Armed forces and everything the UK owns abroad including all our embassies.
30. The UK economy is facing its greatest challenge in three centuries. No one knows what damage it will do to long term prosperity in Scotland. In this moment of great uncertainty, it is hard to imagine an act of greater self-harm than trying to achieve independence. Most people don’t even know if they will have a job next year or what will happen to their savings. To add the uncertainty of independence is the greatest folly of them all.
Emma Harper is a highly qualified nurse. She is not stupid, but her contribution to the SNP school of economics like all the others shows a lack of understanding of the subject. Scottish independence supporters are not stupid. But they have been won round by an emotional argument appealing to their patriotism and sense of Scottishness. I believe independence would harm Scotland and would leave most Scots financially worse off. This is a practical argument. Scottish independence would damage everyone in the UK, but Scots most of all. You may prefer the emotional argument, but the practical argument will keep more Scots fed and clothed and warm in the years ahead. It is for that reason that it is also the only truly patriotic argument.
The excellent Effie Deans writes at Lily of St. Leonard’s here.