Michael Kelly: Scottish independence would be in name only
Going it alone will not change the fact that many major decisions about Scotland are made south of the Border
YOU can fool some of the people all of the time. And it is clearly on these electors that Alex Salmond is focusing. As the unionist arguments for avoiding divorce get stronger, the First Minister continues with his double-speak, claiming that break-up can be not only easy but painless, even rewarding, for both parties. But his arguments do not stand up to economic analysis.
According to economist Brian Ashcroft in his blog Scottish Economy Watch: “The First Minister’s recent pronouncements on monetary and exchange rate policy post-independence give the impression of being made up on the hoof.” If the government ever produces its thinking on these matters, all sorts of uncomfortable anomalies and obstacles will emerge.
One potential problem currently doing the rounds in Edinburgh’s inner circles is the threat posed to English-based depositors with Scottish banks and the users of Scottish pension funds. Current bank guarantee schemes only cover the funds of those based in the country in which the bank is based. It would be intolerable for the Bank of England to agree to be the lender of last resort for Scotland, as the SNP suggests, without safeguarding the funds of its own nationals. It might be possible in the short term to cobble together some sort of mechanism to deal with this. But the obvious solution is for the Scottish banks to move to England. What remains of the UK would be anxious to welcome them – especially as RBS owes the British government £45 billion in bail-out money, for which the SNP is refusing to take any responsibility.
But this is just one detail of allowing an independent Scotland using sterling to be backed by the Bank of England. Mr Ashcroft examines whether or not it would be feasible for the Bank of England to become the Bank of Sterling, allowing it to have a relationship with a Scottish bank – though not the Scottish state – similar to the one between the ECB and the eurozone.
He accepts such an arrangement could work. But he dismisses it because “it would mean that rUK (the remainder of the UK) would effectively be borrowing in a ‘foreign’ currency while the Bank of Scotland (if it could be called BoS), not the rUK, would be issuing the currency”. The risk of default would be higher, and so the new United Kingdom would have to pay to borrow. Mr Ashcroft concludes that “this is not going to happen” and, instead, the Bank of England would charge Scotland “penal” rates for borrowing and demand fiscal rules which would restrict the freedom of the Scottish Government on monetary and fiscal policy. It is economic independence in name only.
Richard Leonard of the GMB trade union comes at this problem of the intractable relationship between the economies north and south of the Border from another perspective. He pointed out this week that Scotland exports and imports almost twice as much to and from the rest of the UK as from and to the whole of the rest of the world. He joins this with Scottish Government figures showing that more than 80 per cent of large enterprises in Scotland are owned outwith Scotland. They account for 63.9 per cent of employment and 77.5 per cent of turnover. This leads him to join the growing number who have concluded that “the commanding heights of the Scottish economy are externally owned and controlled”.
More specifically, he points out that the ten biggest private-sector employers of GMB members in Scotland are all either UK-owned and controlled, quoted on the London Stock Exchange or highly dependent on the whole UK market.
So experts are arriving at the same conclusion: that political independence will not alter the fact that strategic political, economic and corporate decisions will still be taken in London. Independence means giving up a direct vote on the fiscal and monetary policy of Scotland’s largest market. It is possible. But, Leonard asks, “Does it make sense?”
This is the kind of hard-headed and objective analysis that is increasingly going to undermine the independence myth. Since David Cameron rightly opened this debate, we have seen the SNP twist and turn on all the questions posed to them. It emerged at the weekend that now we can continue to be part of a United Kingdom yet still be an independent state!
The Nationalists are unprepared for these debates. Independence to them is an act of faith. They have no need to explain it or defend it among themselves. But they are outraged when those not of their religious persuasion challenge the very basis of their belief.
This is why – in true Orwellian fashion – they can, on any issue, hold two contradictory ideas at once. The latest example is how England’s attitude to any post-referendum negotiation is being talked up. For decades the SNP has portrayed the English as exploiters out to do Scotland down by stealing our oil, refusing our banknotes and only calling Jim Clark/Sandy Lyle/Andy Murray Scottish when they lose. Now, after all this vitriol, Alex Salmond has decided to paint the future relationship with the south as friendly. In the negotiations on separation, the English will be warm. Fairly and reasonably, England will give Scotland all it needs to launch it on its way to Utopia.
My experience of politicians is that if they have been roughed up – as the English ones will have been during a successful Yes campaign – there will be only one thought in their minds: to ensure that a breakaway Scotland finds it as difficult as possible to prosper. They will yield nothing and try to ensure that terms for independence penalise Scotland as much as possible.
And will the Foreign Office, the Treasury and the Bank of England not make life as difficult as possible for the new wee state? Alex Salmond may well be right when he claims England will be better off after it has got rid of Scotland. But don’t be kidded on. If it is, we’ll be the ones who’ll pay.
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Wednesday 22 May 2013
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