It’s the McEconomy, Stupid

The lawyers have moved out, and the economists in. This is a good thing. Finally, after 18 months of legal wrangling about process we are finally getting down to what should have the been the meat and drink of the argument from the beginning.

The last month of debate about Scottish independence has been dominated by economic argument.

We know that there are those who will vote Yes no matter what; similarly on the No side. But at least as big as either group are those whose vote will depend on who makes the more credible economic argument — one reason, no doubt, why we have a former Chancellor leading the Better Together campaign. The First Minister is a formidable economist (or so we’re told), and his right-hand man, John Swinney, has scored highly as a more than competent Finance Minister. Yet over the past month the Nationalists have struggled as heavy blow after heavy blow has been landed by the No campaign, by the UK Government, and even by independent groups such as the Institute of Chartered Accountants of Scotland (ICAS). This is having a marked effect in the polling, with No support closing in on the 60% mark and Yes support down to the low 30s, with fewer and fewer of us undecided. The good news for the No campaign is that we are miles in front. The good news for the Yes side is that the only way is up and that, with an upswing, if it comes, momentum begins to turn.

So, what’s happened this past month, what have the arguments been, and why has it all been so good for the No side?

The main event — the headline — has been detail. Very weighty, densely packed and highly professional publications have been pouring out. The UK Government alone has published two long documents, each containing more than 110 tightly-argued pages in its ongoing Scotland Analysis series. The first, published in April, focused on the currency and the second, released in May, concerned financial services and banking. The Scotland Analysis programme is not designed to make the case for a No vote. The papers published in this series are presented as neutral accounts of the facts and objective accounts of the implications of the choice that Scotland faces come 18 September 2014. They are written not by politicians but by civil servants: their purpose not to persuade but to inform. This, it should be recalled, is precisely what numerous commentators (as well as the official regulator, the Electoral Commission) have long since been calling for: clear, detailed analysis of what independence would actually mean.

I dare say that very few people actually read the Scotland Analysis papers. None the less, they are making their presence felt and they are having an impact. When Ministers launch the papers journalists turn up and pay attention. April’s paper on the currency was launched in Glasgow by the Chancellor, George Osborne, and the Chief Secretary to the Treasury (and Scottish Lib Dem MP) Danny Alexander. I was there. It was a big risk, having Mr Osborne launch such an important paper in a city such as Glasgow — he’s not exactly the most popular politician just now in the West of Scotland. But he put in a compelling performance, and he and Danny Alexander absolutely pulled it off. And what we learned from it was critical.

The SNP want to keep the pound in the event of independence. This is a relatively new policy: until not long ago they wanted an independent Scotland to join the euro. But “events, dear boy, events” have taken place in the eurozone and the SNP cannot be blamed and should not be castigated for wisely having changed their minds. The SNP seem to think that the pound is theirs to keep and that, just because they say they want it, they’ll necessarily get it. Messrs Osborne and Alexander politely but firmly pointed out that it ain’t so simple.

Now, of course, any country anywhere in the world can, if it chooses, adopt someone else’s currency and use it. Panama uses the US dollar, for example. But this is hardly a model of independence. Panama is dependent on the US for all manner of things, including interest rates. Panama cannot print money to inflate its way out of economic problems, and nor can it devalue: its money supply is controlled entirely by the US. And the US, of course, regulates its money supply and sets its interest rates with regard to the priorities and needs of the US economy, not of Panama’s. This is dependence, not independence.

So the SNP want not simply to use the currency of what would be a foreign power, but to enter formally into a currency union with the rest of the UK. This is something that would have to be negotiated in the event of a Yes vote. And Messrs Osborne and Alexander made it clear that the negotiations would be tough. The eurozone is a currency union. And it’s a ghastly mess, especially in southern Europe, precisely because the negotiations upon setting it up were not tough enough (the dogma of “ever closer union” blinded a number of Member States who should have known better). In particular, the fiscal rules in the eurozone are far too loose. The lesson of the eurozone is that for a currency union to be successful there need to be tight controls on tax and spend (i.e. tight fiscal rules). In Scotland’s case this would mean that the Scottish Government’s budget would have to be at least monitored by and possibly even approved in advance by the Bank of England, HM Treasury and others in the rest of the UK before the United Kingdom could agree to enter into a formal currency union with an independent Scotland.

The SNP’s reaction to this was twofold. First, they wheeled out their favourite line — “scaremongering!”. They must know by now that this line is not working. Like the boy in Aesop’s fable who cries wolf, the more the Nationalists sound the scaremongering horn the more people stop listening to them. But as so often in this debate, those who oppose the SNP were not scaremongering. The UK’s Treasury Ministers were merely pointing out some deeply inconvenient truths about the reality of what the SNP are proposing for Scotland. The SNP’s second reaction was even more bizarre and was reminiscent not of Aesop’s shepherd boy but of his baby sibling, throwing his toys out of the pram in a fit of infantile petulance. “If they won’t let us keep the pound”, they shrieked, “we’ll refuse our share of the national debt!” A move that would do nothing but declare to the world’s bond markets that Scotland was a basket case, irresponsible, untrustworthy, and deserving only of the most punishing credit rating.

The newspapers saw exactly what was going on, and for the best part of a week the lead story was that if you want to keep the pound the only guaranteed way of doing so is to vote No come polling day. Disliking the trap into which that alleged genius of political strategy Mr Salmond had walked open-eyed, his colleagues starting reaching for alternatives. Let’s have our own currency, they helpfully suggested, and be rid of sterling altogether. Just what the Yes side needed: radical uncertainty, division and chaos in the ranks.

At the same time as all this was happening, in stepped ICAS, with a series of well aimed and expert questions about how pensions would work in an independent Scotland. What would happen to the state pension? How would an independent Scotland ensure financial security for people in retirement? ICAS did not suggest that these questions could not be satisfactorily answered, but they made it plain that no answers had yet been given. ICAS’s conclusion was that “given the extent of the challenges involved and the level of public interest in pensions”, it was vital that the Scottish Government developed “a robust plan … before the outcome of the referendum is known”. Has any such plan been forthcoming — have Salmond, Swinney & Co given us any answers? Not yet they haven’t.

Other non-governmental bodies have also made telling contributions. The all-party House of Lords Committee on Economic Affairs published a terrific report in April on the Economic Implications for the UK of Scottish Independence. Among other matters the committee examined carefully proposals put forward by the Scottish Government’s Fiscal Commission. The Fiscal Commission, aware of the fact that any sort of sustainable currency union would leave the Bank of England and the Treasury retaining significant power and influence over a supposedly independent Scotland, recommended that in the event of independence Scotland should become a 10% shareholder in the Bank and that the Scottish Government should have an input into appointments at the Bank and into the Bank’s decision-making. To the obvious question, why would the UK allow a foreign power to have such a role, the Fiscal Commission offered no answer. Yet the matter is critical: to whom will the Bank of England be accountable in the event of a Yes vote? The answer, of course, is that it will be accountable, as it is now, to HM Treasury and to the United Kingdom Parliament. As things stand, of course, Scotland is represented in both the Treasury (e.g. Mr Alexander) and in Parliament (e.g. her 59 MPs). But if Scotland votes to leave the United Kingdom and to become an independent State, its representation in both these institutions will cease. For the Bank of England to agree to a governance structure that would make it partly accountable to a foreign power would be, in the forceful words of the House of Lords Economic Affairs Committee, both “devoid of precedent” and “entirely fanciful”.

To the Scotland Analysis papers, to the ICAS report on pensions, and to the House of Lords Economic Affairs Committee, the Scottish Government, the SNP and Yes Scotland have no answers. Their only effort to date is a shoddily produced and painfully thin restatement of old Nationalist lines about the economic case for independence. Putting aside the numerous spelling mistakes and other basic errors contained in this pamphlet, it amounts not even to an argument for independence, but a plea for a different (and unfunded) economic strategy from that pursued by the current UK Government. Yet, disapproval of Mr Osborne’s running of the Treasury isn’t going to deliver a Yes vote for Mr Salmond. To achieve that, he’s going to have start answering some elementary economic questions. Questions about the currency we’d use, about the fiscal pact we’d need to enter into in order to be able to use it sustainably, about banking, and about pensions.

And that’s just for starters. There are something like nine or ten further Scotland Analysis papers still to come. The No side have raised their game. So far there’s been no response from those who, it seems, simply cannot answer the question — if we take the great leap towards independence, can we be guaranteed to land safely? Before we break up Britain, and destroy a 300-year old Union, we’re entitled to know.