The SNP’s Currency Nightmare

The Chancellor’s contribution this week to the independence debate was dramatic. What does it mean? And where do we go from here?

What the Chancellor said was that there will be no currency union between an independent Scotland and the rest of the United Kingdom. He said this on the basis of independent, expert and hard-headed analysis — all made public — prepared by HM Treasury and signed off by the Permanent Secretary to the Treasury, no less (the civil servant who is leading the UK Government’s ongoing series of Scotland Analysis papers, about which I’ve written before). The Chancellor’s verdict — that it could not be said to be in the best interests of the rest of the UK to enter into a currency union with an independent Scotland — is not a narrowly partisan position adopted in the interests of the Conservatives. It is, on the contrary, a position with which the Liberal Democrat and Labour parties whole-heartedly agree. For the Lib Dems, Danny Alexander gave a statement agreeing with the Chancellor and for Labour Ed Balls wrote in the Scotsman explaining his reasons why a Labour government could not “enter into a new sterling monetary union to share the pound with an independent Scotland”.

None of this means that an independent Scotland could not use the pound. Any country anywhere in the world could use the pound if it wanted to. Likewise, the UK could abandon the quaint notion of having a currency of its own and could use the US dollar if it wanted to. But, for the UK to use the dollar in this way — or for an independent Scotland to use the pound in this way — would have massive drawbacks. (Just pause to wonder: why is it that so few states in the world use the currency of another state? Why is it that most states in the world prefer to have a currency of their own?)

Using the currency of a foreign state without entering into a monetary union means that you surrender the entirety of your monetary policy to that foreign power (in the words of the Scottish Government’s own Fiscal Commission, it would mean that “the Scottish Government would have no input into the governance of the monetary framework”). Using the pound without entering into a currency union would mean that the Scottish Government would have no power to print money. Its borrowing would be in a foreign currency, making it inevitably more expensive. Even if it had a central bank it would have no power to create reserves. Any shock to the economy would have to be absorbed using only fiscal policy (because Scotland would have no monetary policy of its own). Suppose that the oil price crashes (and it is notoriously volatile): any shock to the economy would have to be absorbed by putting taxes up or cutting public spending. Murdo Fraser MSP drives the point home even further:  an independent Scotland unilaterally using the currency of a foreign state would mean, he says, that “there would be no one to stand behind our financial institutions in the event of another economic crisis. That means waving goodbye to RBS, to Standard Life, to Aberdeen Asset Management, to Alliance Trust, and to a whole host of other financial institutions, who would have no interest in continuing to be based in Scotland without that protection. It would be a disaster for the Scottish economy”.

For all of these reasons, surrendering all control over monetary policy is a deeply unattractive option, which is why — perfectly sensibly — the Scottish Government has not proposed it (and why its Fiscal Commission recommended against it). It may well be, however, that it is the position which the Scottish Government will be driven to now that the “three Chancellors” have ruled out a currency union. Their only alternative is to concede that the current SNP leadership have got it all horribly wrong and that the likes of Jim Sillars have been right all along, and that an independent Scotland should have a new currency of its own.

Pausing there, why have the SNP leadership not already adopted this as their policy for an independent Scotland? The Scottish Government’s Fiscal Commission was surely correct to say that it’s this option that would give policy makers in Scotland “maximum policy flexibility”, representing “a significant increase in economic sovereignty”. The answer, of course, is that it would be very expensive, especially in the short term. Everything that currently happens in Scotland in sterling would have to be re-denominated into the new Scottish currency. Every contract. Every mortgage. Every salary. Every wage packet. The new currency might fly. Or it might sink. It would be immediately vulnerable to the verdict of the bond markets, which are notoriously ruthless in attacking perceived points of weakness. Sterling is a safe bet (or as safe a bet as you can get in this game). A new Scottish currency might not be. This is not to say that Scotland is too poor or too wee to have a currency of her own. But it is to say that the SNP have quite rightly realised that the risks are such as to make the option unattractive to the naturally risk-averse Scottish electorate.

Of honourable and dishonourable cases

And here we come to the nub of the problem. There is an honourable case to be made for independence. It’s not a case I would personally agree with, but that’s neither here nor there. There is an honourable case to be made for it. But it’s a case that is honest and upfront with people about the risks involved. It is a case that, in answer to any number of questions about “what would happen …”, says “we cannot be sure, but come with us anyway because, whatever happens, we will finally be free”. This is the case for independence that is made by stalwarts such as Jim Sillars. It’s rooted in faith — an unbending belief that whatever the manifold risks of independence they are worth taking because the goal is so prized. But this is emphatically not the case for independence which the SNP leadership have sought to make. Their case, in stark contrast to the Sillars crusade, is to do as if a vote for independence poses no risk at all. We’ll still have the same Queen, the same pound, the same EU membership. We’ll still share with the rest of the UK a deep social union and a common welfare system. There will be no border controls at Carlisle or Berwick, because we’ll still be in the same common travel area. We’ll still have the BBC. The whole of the SNP’s independence white paper is premised on this approach to independence: the dominant refrain of Scotland’s Future is “seamless transition”.

This choice — the choice of the SNP to go with the “gradualists” led by Salmond and not the “fundamentalists” formerly led by Sillars — has shaped everything about the independence campaign, on both sides of the argument. Better Together would look altogether different if the No vote it was trying to secure was an answer to the question “will you opt for independence despite all its risks”? The SNP leadership are not running the campaign Sillars wants them to run because they know that only a minority of Scots would vote for it. We know that somewhere between a quarter and a third of Scots (and no more than that) would vote for independence no matter what. The campaign which the SNP are running is designed not for these people (who are going to vote Yes in any event) but for the people it needs to persuade: that is to say, for the people who are not yet of the view that independence is worth the risk. And how do you do that? By de-risking it. By doing as if independence can be achieved “seamlessly”.

This would be a brilliant and, for the Unionists, an extremely dangerous strategy but for one flaw. The flaw is that independence can be achieved “seamlessly” only if an awful lot of people sacrifice their own interests to the advantage of the Scots. “Automatic” EU membership for an independent Scotland would happen only if all the other Member States of the EU (including those, such as Spain, with their own separatists to deal with) acted in the interests of Scotland to bend or break the EU’s rules even where it was manifestly not in their own interests for them to do so. SNP bluster insisted that it would be so. When it was pointed out to them, by Better Together, by the UK Government, by politicians from across Europe, by the EU’s own leaders, and by numerous independent academic experts, but only after an awful lot of bluster, assertion and, indeed, deception, did the SNP finally cave. They now recognise, as we had said all along, that an independent Scotland’s EU membership would require to be negotiated and would not be automatic.

Currency union is much the same. A currency union between an independent Scotland and the rest of the UK (“rUK”) would require the Bank of England to play the lead role in ensuring the financial stability of both states; this would make taxpayers in the rUK ultimately responsible for underwriting the financial stability of what would be a foreign power (Scotland having voted to leave the UK). Even with a rigorous fiscal pact agreed between an independent Scotland and the rest of the UK, it was never clear why rUK taxpayers should expose themselves to such a risk. The UK Government said as much in April 2013, when the Chancellor in a speech in Glasgow said that it was “unlikely” he would agree to such a currency union. I wrote about that here.

Enter the Governor

In January 2014 the Governor of the Bank of England delivered a speech in Edinburgh in which he set out the issues in more detail. In particular, he explained how a successful, durable currency union would need a banking union to underpin it and would require each party to the union to share fiscal risks. The Governor made it clear that this, in his words, would require “some ceding of national sovereignty”. What he meant was not only that an independent Scotland would have to cede some of its national sovereignty to the rUK but also that the rUK would have to cede some of its national sovereignty to Scotland. The Governor concluded his speech by noting that “decisions that cede sovereignty and limit autonomy are rightly choices for elected governments and involve considerations beyond mere economics”. His job was to set out the economic considerations that should be borne in mind when figuring out how to make a currency union successful; it is for the politicians then to decide whether acting on these considerations is in the public interest or not.

The Governor’s speech should have left no-one in any doubt that, for a currency union to be successful, the rUK would have to cede a degree of its national sovereignty to the newly independent Scottish state. To anyone with any sense of British politics, that should have been more than enough for folk to realise it was never going to happen. Sovereignty over fiscal affairs cannot be ceded by Chancellors or Prime Ministers acting alone (or even by “three Chancellors” acting together): such a move would require legislation. And the House of Commons is famously reluctant to cede sovereignty to anyone, never mind ceding it to a newly foreign power that had just decided to leave the jurisdiction! Be under no illusions about this: if Scots vote Yes in September, the rest of the UK will feel rejected. And why should a state which has just been rejected then turn round and offer to cede some of its sovereignty to the very country that has just rejected it?

For these reasons, the clarity of the Governor’s January speech confirmed in my mind that the Chancellor’s 2013 position that currency union was “highly unlikely” really meant that it was “inconceivable that the rUK would sign up to it”. There would have been a case, in my view, for leaving it there.

But that’s not how the SNP interpreted the Governor’s speech. They spun it as if it was a slap in the Unionists’ faces. The Governor said that there is a way to make a currency union work — and, moreover, that he could make it work — as long as the political will were there. The political will may be there on the SNP side but, for the reasons given above, if they ever truly believed it was there equally in London they are fools. The SNP misread the Governor’s “we could make this work” speech as an endorsement of the idea that “it will happen”. In other words, they completely overlooked the basic distinction at the heart of his speech between economics and politics. What he actually said was that, economically, a currency union could work but only if the politicians agreed to cede a degree of national sovereignty.

Enter the Chancellor

Mr Osborne’s speech picked up precisely where the Governor left off and dealt more or less exclusively with this all-important question: why would he or any other rUK politician seek to persuade the House of Commons that it was in the interests of the rUK for it to cede a degree of national sovereignty to the newly independent Scottish state?

He dealt first with the SNP’s oft-repeated assertion that a currency union would be in the rUK’s best interests just as much as it would be in Scotland’s. They assert this (as if the SNP are the arbiters of what’s in the rUK’s interests!) because of the large volume of trade between Scotland and the rUK. Keeping the same currency minimises transaction costs and is good for business. Well, yes, all true. Except that only 10% of rUK business is with Scotland, whereas 40% of it is with the eurozone and 20% of it is with the US. On the SNP’s own analysis, then, it would make four times as much sense for the rUK to adopt the euro and twice as much sense to seek a currency union with the USA than to seek a currency union with Scotland. Thus, when the true scale of rUK trade is understood, SNP insistence that a currency union is in the rUK’s best interests rings hollow.

Having dealt with this the Chancellor then explained the political risks that would be entailed for rUK taxpayers in entering a currency union with an independent Scotland. The banking union which the Governor had said would be necessary would put rUK taxpayers “on the line for banks in a foreign country, asking them to underwrite a Scottish Government guarantee on deposits held in Scottish banks and asking them to put their money at risk whenever Scottish authorities extend emergency support to Scottish banks”. Moreover, there would be “little prospect of any benefit flowing in the other direction”, for Scotland could make precious little contribution to supporting a big English bank. What would be in this for the rUK? “Nothing but exposure” was the Chancellor’s reply.

The Chancellor then turned to the fiscal pact: i.e., the second element, along with a banking union, that the Governor had said would be required for a currency union to be successful. He quoted remarks, uttered by both the First Minister and the Cabinet Secretary for Finance, which showed that they had failed to understand the nature of the fiscal constraints under which an independent Scotland would have to operate were it to be in a currency union with the rUK. Contrary to the views of the First Minister, such fiscal constraints would mean that Scotland would not be free to set whatever rates of taxation it wanted; and contrary to the views of Mr Swinney, they would mean that Scotland would not have full control over its tax policy. SNP ministers’ views are “a million miles away from the fiscal risk-sharing the Governor has said is the foundation of an effective currency union”, said the Chancellor. But so, of course, are Mr Osborne’s views. Just like Mr Swinney, the Chancellor would never sign up to the sorts of constraints on tax and spend which the Governor of the Bank of England has said would be necessary for a currency union to be successful.

For all of these reasons, the Chancellor concluded, he “could not … recommend” that the rUK should enter into a currency union with an independent Scotland: “that’s not going to happen”, he stated. “The people of the rest of the UK would not accept it and Parliament would not pass it.”

Nationalist reaction

The Nationalists reacted in four ways, each of them profoundly wrong. First, they said “it’s Scotland’s pound too”, insisting that no-one could take it away from us and that Mr Osborne was “bullying Scotland”. Secondly, they said “if we cannot keep the pound, we’ll not take our share of the UK’s debts”. Thirdly, they said “it’s all just campaign talk, it’s a bluff that will change on day 1 after we vote Yes”. And finally, they said that the Chancellor’s stance was in breach of the Edinburgh Agreement. This last point is perhaps the most disingenuous of the lot, and I’ve dealt with it before. It is time for the SNP’s wilful misrepresentation of the Edinburgh Agreement to stop.

That the SNP reacted in these ways was not surprising. But what has been disappointing is the way that some in the Scottish media — and several commentators who should know better — have failed to see how ill-conceived the SNP’s reaction has been. Let’s look at this in more detail.

First, the line that it’s Scotland’s pound too. This is straightforwardly wrong in law. There is no secret about this. I’ve written about it at length here. I told the House of Commons Scottish Affairs Committee all about it last month. Better Together posted my legal analysis on their Facebook page. And the Treasury’s supporting documentation, published alongside the Chancellor’s speech, contains a perfectly accessible four-page annex on “the legal position of the UK pound”. The currency is not Scotland’s (and it’s not England’s either). It is the currency of the United Kingdom. If Scotland votes Yes to independence it will have voted to leave the United Kingdom: that’s exactly what “independence” means — independence from the United Kingdom. If Scotland leaves the UK it leaves the UK’s public institutions, which would become the institutions of the rest of the UK. The UK’s assets and liabilities would fall to be apportioned equitably between the rUK and an independent Scotland, but the pound is neither an asset nor a liability. Any gold or other reserves left in the Bank of England would fall to be apportioned. So would the national debt. But the pound itself would not. It is Scotland’s pound now because and only because Scotland is part of the UK. If Scotland votes to leave the UK it votes to leave the UK’s pound. 

It really could not be more simple, could it? But it is staggering how many folk get all this wrong. Iain Macwhirter, one of Scotland’s leading political commentators, wrote on his blog that “the pound is common property”. Straightforwardly wrong in law. For Macwhirter, the UK Government setting out and standing up for what is in the best interests of the rUK was as act of “coercion by the UK political establishment, an act almost of economic warfare”. Such bellicose interpretation is so over the top that it would not be out of place on the most extreme of the Nationalist blog sites. STV’s Scotland Tonight has a strong claim to be Scotland’s flagship news and current affairs programme, but its researchers were evidently too busy to read the legal analysis on the position of the UK pound which the Government, the House of Commons and others have published, leaving its hapless presenter to ask the Chief Secretary to the Treasury why his Government were refusing to apportion the pound as an asset and failing to correct the First Minister when he said that the Bank of England is an institution of which an independent Scotland would have a share. An all-party House of Lords committee explained as long ago as April 2013 that the SNP’s plans for sharing the Bank of England post-independence were “devoid of precedent and entirely fanciful” but, since then, neither the Scottish Government nor its Fiscal Commission have done anything to explain why these conclusions were mistaken. One can only assume that this is because they know damn well that they are not mistaken.

As for Scotland refusing its share of the national debt, this is basket-case economics. The debt is currently the UK’s. In order to reassure creditors (and to preserve its credit-rating) the Treasury has made plain that it will continue to honour the debt even in the event of Scottish independence. But this does not mean that Scotland would be born debt-free. On the contrary, as part of the separation negotiations the rUK would secure from Scotland an agreement to service an equitable share of the UK’s debt. There is no chance that Scotland could walk away from this obligation without punishing consequences being imposed at the hands of the international money markets. An independent Scottish state would need to borrow from day 1. There is no question about this (for those in doubt, Ian Smart explains it here). A responsible Scottish Government would do everything it could to ensure that it was able to borrow on the most favourable terms possible. This precludes absolutely any refusal to service a fair share of the UK’s debt.

Conclusion — where does this leave us?

The intervention of the “three Chancellors” has generated a lot of heat. Nationalists are furious. Iain Macwhirter said on television during the week that the Scottish Government genuinely did not see this coming. Their hysterical over-reaction would suggest that, on this score, Macwhirter is correct. But I have to say I find this extraordinary because, as I set out in the opening paragraphs of this post, all the signs were there for those who bothered to read them. As usual with political heat, it will soon die down. And, when it does, we will be able to see that the intervention of the “three Chancellors” has also shone a welcome and penetrating light on an aspect of the independence debates that the SNP had tried valiantly to keep obscure.

This goes back to the point made above about “honourable and dishonourable cases” for independence. The SNP’s entire approach to independence is to do as if, having voting Yes, Scotland will breezily and unilaterally be able to cherry-pick exactly which bits of the old British state it wishes to keep and which bits it wishes now to discard. The currency is just one of several bits that the SNP want to keep. But they present this as if it is a policy that poses no problems: the mere fact that they want it will be enough. Mere assertion that it is Scotland’s pound, as long as it is repeated often enough, will be sufficient to make it so, even when both the law and the interests of the rest of the UK point in diametrically a different direction. Those with long memories will recall that we saw the same tactic deployed in 2011-12, when the argument was whether the Scottish Parliament, without help from Westminster, enjoyed the legal competence to pass legislation authorising a referendum on independence. The SNP insisted, wholly without legal foundation, that it did. The SNP was wrong yet, when the UK Government suggested a solution, they were abruptly shouted down with cries of Westminster “boots” “stomping” all over “Scotland’s referendum”. Over the course of some long months, it was patiently and calmly shown that on analysis, the UK Government had got the law right and the SNP had got it wrong, and Nationalist talk of boots and stomping was replaced with rather more mature language of co-operation and respect. It was the same again with last year’s stramash over “automatic” EU membership. And now we’re on our third go around the same loop. This week’s cries of “bullying” and “economic aggression” will sooner or later give way to a cold, hard realisation that everything the Chancellor has said is based on clear, authoritative, expert and independent economic analysis, all of which has been put freely into the public domain. You can read it for yourself. And, when you do, you will see that it really is not in the interests of the rUK to enter into a currency union with an independent Scotland; that this really is not an unlawful power grab for “Scotland’s pound”; that this really is not a bluff; that a currency union really has been taken off the negotiating table; that it really is not going to happen; and that the UK has compelling reasons for having arrived, calmly and rationally, at this conclusion.

This shines light on the question which we in Scotland have to answer on 18 September: should Scotland be an independent country? Independence means independence from the United Kingdom. Independence means leaving the UK behind. And independence mean leaving the UK’s institutions behind, including the UK’s pound. By all means use the UK’s pound as a foreign currency. Be Panama if that is what you want. It’s your right to choose that for your national destiny if that’s what you want. But be clear about one thing, good people of Scotland. Independence means leaving the UK. Vote for that and you cannot then turn around to demand that the bits of the UK you actually like (such as the pound) come with you. Are you in, or are you out? Are you staying, or are you going? It’s your choice, Scotland. And this week, thanks to the Chancellor, we found some much needed clarity about what, precisely, that choice entails.

47 thoughts on “The SNP’s Currency Nightmare

  1. Having lived in Wales when we got the glorified county council voted in by less than a quarter of the population i am pretty much against the idea of a devolved UK. I tried a blog on Scotland and independence but couldnt get past the idea of Sean Connery living abroad and demanding independence just in time to be a burden upon the state. My pitiful efforts are the blogging equivalent of the Beano compared to your rather excellent piece. I have reblogged, hopefully my reader in Halifax will do the same too.

  2. This excellent piece should be compulsory reading for everyone of my country men before marking their cross

  3. Excellent treatise on the reality of currency matters in Independence – sadly, those who would desire to inform and advise the great Scottish public, i.e. politicians and the media, in simple factual language, are getting it wrong. Too often, opinion and supposition are replacing facts and hard evidence in the national debate. The truth is here to behold. Thank you.

  4. I’m more of a floating voter than anything else, but I think this is a great analysis of where the SNP have got it wrong in my view. Making the principled case for independence – i.e. it has risks, but it’s worth it – is more difficult to achieve, but that’s what independence is. The electorate aren’t idiots and trying to pull the wool over their eyes does more harm than good.

    From the Yes side, the chances are they’ll lose whatever they do, so at least taking the Jim Sillars approach would lay some kind of foundation for the future. They’d have attempted to sell a principled idea to the electorate, but come up short – and who could blame them for that? Indeed their arguments are becoming so tenuous at this point – as they attempt to convince everyone they can dictate what’s in the interests of not just the rest of the UK, but all of the EU as well – that the only people who will end up buying into it are the dogmatic core in any case: the Wings Over Scotland, Newsnet Scotland types that have bought into independence as a principle, not on pragmatic grounds.

    Another negative side effect of this is that what should be an inclusive campaign has become incredibly divisive. The main thrust of the SNP’s strategy has been to deride dissenting voices by accusing them of “scaremongering”. Ignoring the somewhat odd logic that an argument being “negative” therefore makes it inaccurate, all this does is make an enemy of those in the centre. I don’t blame the SNP for there being uncertainty over the currency or EU membership (they’re inherently uncertain issues), but I do think they deserve the blame for attacking anyone who dares to mention these issues. We’ve witnessed a grand attempt to effectively sweep them under the carpet because they’re politically inconvenient and that’s no way to fight a referendum campaign.

    Let’s be clear: a good natured inclusive campaign, which accepted independence has risks but supported it on normative grounds, would have lost. However it would have laid the foundations for something that people could support in future. Trying to portray independence as something so monumentally flawless that anyone who disagrees with it must be a scaremongering Tory can only create division. It might play well to the converted, but attacking the very people you’re trying to win over isn’t likely to be successful.

  5. Currency last week, the EU this week… Is it all over for the Yes Campaign?

    Hope so. Then maybe we can actually have the Scottish Government get on with actual governance.

  6. Independence Panama style is nothing to be snubbed at. Panama will be the fastest growing economy in Latin America; Growing at 10% with only 1.7% unemployment!

  7. An outstanding article, well written and entirely true. The point about the currency as an asset has annoyed me for months; the assets are the reserves and the liabilities are the debts. An independent Scotland is no more entitled to the pound as it is to 1/5th of the Palace of Westminster.

      • The whole point is that Sterling isn’t an asset. It’s a medium of exchange. It is the UK currency, which means the UK is responsible for its maintenance and management and has sole power to print it. This is what enables a nation to set its own monetary policy, which it typically does in concert with deciding its fiscal policy (taxes and public spending). The Bof England manages Sterling on behalf of the UK Govt and within a set of parameters laid down by it. If an economy does badly, speculators will sell that currency and that will make it more costly for a Govt to borrow. In the extreme it can cause a currency crisis, “a run on the Pound”. In such case imports become hugely expensive. Alternatively a currency can become over-priced, and that makes it extremely difficult to export, which create a balance of trade problem. The UK used to be very familiar with both of those scenarios.

        No-one outside of the SNP thinks it remotely credible that the UK Govt would consider entering into a currency union, which would involve accepting all of the risks associated with such a union, especially with an untried foreign Govt, which has expressly stated its intention to have diverging tax and spending policies, for no significant benefit to UK citizens. And after the Eurozone debacle.

        So no, not like saying the metre is a French asset. Not at all. Really.

  8. Very interesting and well set out points, though not impartial – the use of the term “separatists” is always a give away. The ‘I told you this before” points and the “good people of Scotland” and “there is an honourable case to be made for independence” patronizing also detract from its overall impact. Note too, that the “honourable ” case he’s referring to isn’t the one proposed, just one he thinks can lead only to defeat.
    Interesting to note that he accepts in its entirety the assertion that Scotland can’t walk “away debt-free.” Fair enough but what about the assets? Oh, they belong to the UK. Both sides of the argument – YES and Better Together – are lacking on this point I think.
    As to the SNP’s cries of “scaremongering”, what else would you call claims that our major airports might have to be bombed, that Shakespeare won’t be taught in our schools, that there would be border controls, that we won’t get Eastenders, and ” We would be asking to be invaded?” This is hardly the sensible fact-based mature discussion that we want and need.
    He’s correct though to say that the Chancellor’s “is not a narrowly partisan position” but doesn’t follow through and ask why Ball and Alexander agree so readily – doe he believe that they arrived at their “honourable” case independently and for different reasons?
    The response to this has not been the one they hoped for as vox-pops and newspapers suggest. There will be many in the No camp who are uneasy with this tactic, though I’m pleased to see millionaire Tories come to Edinburgh to lecture us anytime. Similarly, Ed Balls, one of the men responsible for the hands-off, self-regulation policy of the last Labour government can’t be relied on in any discussion about economics and Alexander, well, he’s already selling himself and his party to the highest bidder ahead of the next election.
    Vote YES and we get an independent Scotland, responsible to and for itself. Vote NO and we’ll have…. well actually, what will we have? We don’t know as Better Together won’t say, or at best, haven’t said what their Plan B is.
    Will it mean an end to the hated Bedroom Tax, low or no pay increases as millionaire athletes are given a ‘welcome to the UK’ pass to earn and go? Will the UK renew Trident or its successor? (That was a rhetorical question.) Will the UK’s foreign policy be determined at Westminster or Washington? What about the uncertainty over a referendum on EEC membership?

    • Yes Scotland can walk away from the debt…and rUk can close the border……if you bother to read it he says Scots get a share of gold reserves etc

    • Linking this article to other articles he has written is not patronizing. “The UK’s assets and liabilities would fall to be apportioned equitably between the rUK and an independent Scotland” does not suggest all assets will belong to the UK. All the SNP has in response to their assertions being wrong are cries of “Scaremongering”. Nobody in the No camp will be uneasy at being shown how a currency union will not be accepted by anyone in the rUK government as we wish to know what would happen in the result of a Yes vote. As correctly stated the rUK would not be willing to cede any of its sovereignty to a foreign country who has just voted to remove themselves from the UK. As for being responsible for itself – that is correct, but we would also be responsible when everything inevitably goes t1ts up.

    • Whilst I have no wish at all to see the RAF bomb Scottish airports, or deprive you of Shakespeare or Eastenders, I do have some concerns over the potential differences between Scotland’s and the UK’s immigration policy. Mr Salmond in Scotland’s Future says ‘We will welcome people who want to come and live and work in Scotland'; this policy is further developed into something very different from the UK’s. The notion of a ‘Common Travel Area’, which we have at present with Eire, being extended to a Scotland with such a policy is quite unrealistic – it would make the Scottish border a wide open door for illegal immigration into the UK. Therefore, and very regrettably, if the UK is not to open itself to massive illegal immigration, it will be necessary to have a physical barrier with passport controls between the UK and Scotland. This is not bullying, it is plain common sense!

      • Border controls would be necessary not just because of different immigration rules but also to prevent smuggling of whisky, tobacco, etc

  9. There’s a lot of good analysis in this piece. But it repeats the very dodgy reasoning of HMT about the costs of repudiating UK legacy debt. Markets are largely forward-looking and amoral. They won’t place a great penalty by way of borrowing costs unless they think the welching on UK legacy debt will be repeated sometime in the future with new, Scottish debt stock. Even if a penalty were applied, it would have to be massively punitive before the additional marginal cost of new debt outweighed the benefit of avoiding the burden of a share of legacy debt.
    Of course, if Scotland welched on its share of UK debt (as a response to be excluded from the Pound or whatever), that would probably prompt all sorts of harsh responses from London.
    Especially after this Three Chancellors intervention, the Union looks more and more like an unhappy marriage kept together by fear of the consequences and the lawyers’ bills, with one spouse claiming that divorce will see the other end up in the gutter (so let’s stay together, darling). Of course, the eurozone is kept hanging together by much the same thing.

    • How do you people manage to ignore the facts? If you vote for independence you then need to agree with the rUK the terms of the parting. Those terms have to pass a vote in Westminster before they can be carried out. The rUK will never agree to terms in which you walked away without a fair share of the debt. So that is not even a possibility.

      • And how does the SNP think the EU would respond to an application from a country that has just repudiated all its debt? Technically rUK could veto the Scottish application (and would be politically justified in doing so in the event of repudiation) but it wouldn’t have to as many other countries would get there first. As others have said, pure bluster.

      • Mr Baverstock, UK debt is presently £1.3T, that is £1,300,000,000,000 and rising. An independent Scotland is prepared to take its fair share but only if Westminster agrees to a currency union. I really cannot understand how these facts cannot be assimilated by unionists.
        Now should circumstances change before September 18, say for example George Osborne managed to reduce the debt to manageable ratios then his and Westminster’s negotiating position with an independent Scotland would be greatly enhanced. However you know as does Osborne that that is an impossibility, that he has been chancellor since 2011 and that his borrowing rates are higher than his predecessors’ (note the position of the apostrophe).
        Don’t underestimate our First Minister, I know for a fact he is an honourable man, a man that will honour his debt to a neighbour. But Osborne should beware not to be too arsey with Alec, after all this is not some game played on Eton’s hallowed turf; this is the final act in the break up of the British Empire that is at stake. It should be managed with dignity.

    • Scotland’s share of debt servicing is £4bn pa. Think rUK won’t penalise iScotland if they try to walk away from that ?

  10. As an interested observer of the debate (I’m English) must compliment the writer on a very coherent breakdown of this situation that is currently causing so much heat, just 2 points from me:

    Would a second referendum not be essential within r UK should the vote be yes and Scottish negotiator’s insisted on the currency union plan ? with all major UK parties having a common line I don’t see how any government could possibly make that concession without a referendum and if that is the case then lecturing from Salmond et al is totally meaningless and counter productive, excuse me if this point has been made elsewhere but if so I haven’t seen it.

    My fear is that the legacy of this process will inevitably be vastly increased mutual antipathy between our 2 nations almost regardless of the outcome, any Yes vote that exceeds 30% but sub 50 will be viewed with real hostility down here. I know many Scots but not one who thinks separation is a good idea so this all feels like loose loose to me, since the damage is now done and maybe permanently so.

  11. I do admire the calmness and clearness of this analysis, but I think it is missing a bit of realpolitik. The single big idea which runs through Westminster politics is The Recovery, and no Westminster politician will want to be seen as jeopardising it. If there is a Yes vote, they’ll all get together and stitch something up – the UK/Scottish electorates will grow very impatient with anything else. Given the “nightmare” of a Scottish currency or of borrowing somebody else’s currency, the Euro is also another option, particularly since it might be compulsory in the end. Post-independence, there could be an exciting Iran-style interregnum, in which my wages are paid in euros but Tesco are demanding dollars and the inland revenue want new Scottish groats.

    • I’m all in favour of realpolitik…which is what you just got from “the three Chancellors”….as Margaret Thatcher once said, “Learn to say “No”, “No” is a very useful word.” Learn to vote “No” as well.

  12. A refreshing, clear read which puts to bed the continual obfuscation of the SNP and their bedfellows. I am utterly at one with your overall position, having woken up one morning and discovered that I had been shoved into a “no” camp where I am forced to concur with politicians I normally find loathesome. I am as definably British as I am Scottish – what’s so difficult to understand about that?
    In modern politics, the English/Scottish border is a complete irrelevance. The history is fascinating, the cultural dimension equally so, but why make out this wee line has any real modern meaning?

    • please read my comment below. being british means you were born on the british isles not that you are ruled by westminster

  13. The SNP are very wily operators. I’m sure they saw this coming but perhaps they are playing the long game: upset the rest of the UK so much that we hold our own referendum to kick the Scots out?

    This campaign is very polarizing and whatever the outcome I can’t see Scotland being part of the UK for the long term.

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  15. I note the markets haven’t punished Iceland too heavily for welching on its UK debt during the banking crisis, their current rating is BAA, down from AAA at the peak (I just checked). OK, it’s taken a dip, but due to the collapse of its banking system rather than welching on its UK debt and at BAA it’s hardly third world, is it? I find it astonishing that the writer can blithely assert that the debt, the currency, and the bank, are the UK’s, but in the event of separation all Scotland can hope for is a share of the debt but not of the stable currency which would be of benefit to the whole sterling area. Especially with Scotland’s oil wealth to balance the UK trade deficit.

    There would be no way that an independent Scotland could be forced to take a share of the debt. And I hardly think that a sudden increase to the rUK’s debt level of another 8% relative to its GDP, is going to help the welfare of the southern economy or its international reputation for probity on the international markets, do you?

    Imagine the headline, ‘Despite Edinburgh Agreement Osborne elects to increase by a further 8% in one fell swoop rUK’s £1.3 trillion debt level relative to GDP, rather than share currency with the oil rich Scots. Markets in shock. Panic in City.’

    It would be subject to negotiation, a bargaining chip, and as we’ve seen, tiny Iceland welched and is still standing.

    If the rUK continues to take such a malevolent position during negotiations I would fear for the future of the British Isles community. We might be forced to nationalise Trident and sell it to the Chinese! Seek uncertain friends! Don’t force us into ridiculous extremes! During decolonisation in the 40s, 50s, 60s, the aim of the departing British government was always to leave behind stable conditions that gave newly independent countries a chance of growing into strong and successful democratic states. If this was the aim for countries thousands of miles away, why would rUK seek to wreck Scotland’s chances of building a strong and successful economy? There are 400,000 English immigrants living in Scotland. Could England deal with an influx of 400,000 displaced people should Scotland’s economy and welfare system suddenly collapse through such constructed malice? The Edinburgh Agreement pledged to work in the aftermath for the ‘best interests of the people of Scotland and the rest of the UK’. Why would rUK set about trying to leave a disaster on its doorstep? If the Scottish economy took a nose dive, post-independence, because rUK had imposed unreasonable and unworkable conditions on its currency, and forced border controls and other economic impediments, do you think for one moment that this toxic shock would be confined to the north side of the Tweed? The Scots have been fair partners for over three centuries and we deserve A Fair Go. The EU was also set up as an organisation to end conflict and promote prosperity and co-operation between rival nations. Why would it seek to wreck Scotland’s chances of A Fair Go? Why would rUK veto its neighbour’s entry into the EU? The EU was set up to avert spite, not promote it!

    This is a return to the divisive great power politics of the 19th century!

    As the writer notes, there’s law, and there’s politics. The law is often complex and capable of interpretation. Whatever the law is or isn’t, it can be overridden by the pragmatic decisions of politics. Deals are struck. They are most typically struck when there is a pressing need to do so and existing law is too complex and uncertain to be workable.

    • Let’s assume that iScotland is floated “debt free” because it cannot get a currency union.
      Do you think that the BoE will let British banks lend any money to the SG in those circumstances ?
      It would be irresponsible of the BoE to allow them to lend to a government which won’t pay debts.
      To prevent that the BoE would have to amend UK banking licences to embargo loans to the SG.
      It can also require banks to ensure that if they operate in Scotland then the same applies there.
      It can even forbid them from allowing the SG or any other public body to bank with them.
      In fact that’s the obvious way to ensure the ban isn’t evaded.
      The SG’s hints about being “debt free” are just a bluff.
      No one knows this better than AS, who worked for RBS.
      That’s why the writer calls it basket-case economics.
      What you heard from Osborne wasn’t bullying.
      It was straight talking.

    • MBC’s response is typical of the SNP faction’s refusal to deal with reality. The UK debt will not grow by 8% if the first act of the Republic of Scotland is to show bad faith and walk away from its debts, it will stay the same. Be in no doubt though, it will be covered in other ways – no sharing of assets for a start, and it is always worth remembering that the rUK is the market for 90% of Scotland’s production, whilst Scotland is the market for only 15% of rUK’s production. As in any case of international default, sanctions will follow.

      Sterling – derived from the Anglo-Saxon word ‘steorling’, a little star – was the currency unit of England long before the 1707 union; in any case it is an institution not an asset, and the rule of thumb is that institutions stay, assets and debts are divided!

      The reason the rUK does not want to share Sterling is because it does not make sense for two foreign nations to share a currency, the setting of bank rates etc., will always be a compromise, detrimental to each. Does Scotland want to be independent in the same way as a 17 yr-old wants to leave home and live in a flat, but always come home to mum and dad for a good feed and have his washing done? Or does Scotland intend to be truly independent?

  16. Excellent article, and as others have pointed out, well written. One word which is used a lot is “law”.

    I should like to bring in a point of law, and ask the question, what precisely is the United Kingdom?

    My take on it is, that on the 1st of May 1707, the hitherto independent Kingdoms of Scotland and England were unified politically as one Kingdom, that of Great Britain. This was brought about by an INTERNATIONAL treaty after the enactments of Union in the respective Parliaments.

    If the Scottish electorate choose by majority that Scotland become an independent state, by virtue of that ancient international treaty will require to be dissolved, thus the very existence of the United Kingdom itself will by consequence cease to exist.

    A lot is cried within this debate about Wales and Northern Ireland. Wales is and has been for centuries and integrated part of the Kingdom of England. Northern Ireland is one fifth of what joined the Union in 1801, and with the dissolution of the UK, would almost certainly become part of the Republic of Ireland.

    So, come 24th March 2016, it is not Scotland leaving the UK, it is that the UK will be no more. So this begs the question, why is it assumed that the parts England, Wales and Northern Ireland will become the successor state to the UK? Or even more presumptuous, that those three entities will continue to be the UK?

    The Acts of Union passed in the Parliaments of Scotland and England all those years ago and the Treaty of Union are as valid in law today as they were 307 years ago.

    Scotland is not leaving the United Kingdom of Great Britain and Northern Ireland, rather that singular political state will no longer be.

    • This has been dealt with before, on these pages as well as elsewhere. When the Irish Free State left the UK in 1922 the UK continued. Were Scotland to leave after a Yes vote the same thing would happen: Scotland would be a new state in international law and the UK would continue. The UK was not made by the Act of Union in 1707, but by the Union of Britain and Ireland in 1801. “Britain” would cease meaningfully to exist in the event of Scottish independence, but Britain is not a state: the United Kingdom of Great Britain and Northern Ireland is the state. The Union between England, Wales and Northern Ireland would continue (at least in the shorter term) in the event of Scottish independence, but one of my many reasons for opposing Scottish independence is my fear that it would trigger further trouble for the relations between England, Wales and Northern Ireland. The First Minister of Wales has spoken eloquently about this.

    • I have no idea if contingency plans are in place for renaming what is currently referred to as rUK in the unlikely event of a yes vote but there will still be a United Kingdom of England and Northern Ireland + the Principality of Wales. I do not think there is any international law that says that remaining parts of a nation must do what the departing state says – though Mr Salmond seems to think so….

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  18. Thank you for this. A clear and easy to read article cutting through the political waffle. Most of the discussion in the papers seems to be of the puddle stamping variety (if someone says something you disagree with stamp in the puddle and cover it with so much mud you cannot see what is truth and what is lies).

    Thank you – I am now in the process of back-reading through your archives.

  19. Just a quick thank you for writing this piece. It is by far the most thoughtful analysis I have read on the Independence debate. Tragically the land of Hume and Smith seems to have been reduced to a level of argument that would not be worthy of a playground. As such it is genuinely refreshing to see someone who has actually bothered to read Mark Carney’s speech – the subtext of which was very clearly ‘don’t talk to me, talk to the politicians’.

    On the currency you might want to look into how much currency risk German companies encounter when dealing with Danish counterparts – my understanding is that the answer is close to nil, all the contracts being in euros and all the risks being borne by the Danes. And obviously this another reason why there is nothing in it for rUK from currency union. In reality Scotland’s plan B will either involve adoption of the Pound or a fixed exchange rate. So there will be limited transaction costs for rUK companies and the argument is a busted flush. If you have looked into this already I’ll apologise for not doing my homework.

    Finally, if I was English (and I’m not) I’d also be tempted to simply give Alex the Pound, and all the debts he seems to think go a long with it, and then form a ‘new’ Pound. But then I’d joining the playground with Alex.

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  21. i c ould say a lot of things, but the reply which annoyed me the most is this. since when did being british stop meaning you were from the Britannic isles, and start meaning you were ruled by Westminster? im Scottish, which is in Britain, which is in europe, which is in earth. does that mean that post independence, I will no longer be able to consider myself an earthling?

    • Q: “does that mean that post independence, I will no longer be able to consider myself an earthling?”
      A: I think you’ll still be an earthling if you stay in Scotland, but in England you’d become an Alien !

      • clever, and I really did ask for that. still another irrelevant dodge of the question though. your piece was thought provoking, but you have just lost all credibility

  22. The Euro ran into difficulties because its members whilst wishing to CONFERGE failed to obey its rules, Scotland wishes to DIVERGE how could any agreement stand the test of time or political changes? Completely impractical.
    Derek Salter

  23. North Britain is fine. 200 years ago Scotland’s leading magazine was called the North Briton. Walter Scott used to take it, and he invented being Scottish, as you know.

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