When Alex Salmond gets things wrong in the Holyrood debating chamber, it undermines trust in him and politicians generally. But ultimately, that is all such errors do.
But ultimately, that is all such errors do. If made in the run-up to, and during, an independence referendum campaign, however, such mistakes could have extremely serious consequences, affecting the economy, output and jobs.
Unfortunately, Mr Salmond has form in this regard. He has a habit of putting forward views of what may happen under independence which turn out, on closer inspection, to be completely untenable. But his pronouncements are said with such utter certainty and authority (as with the erroneous college budget figures last week) that the innocent spectator assumes he must have all the right facts and knows what he is talking about.
Take, for example, the case of RBS (which once employed him as an economist). Though it failed and is now 82 per cent owned by UK taxpayers, it is still a tremendously important institution upon which some 40 per cent of Scottish businesses depend for their banking and loans.
Its Scottish workforce is 14,000, about 16 per cent of RBS’s 90,000 UK employees, a share that is nearly twice Scotland’s proportion of UK population. That large share is mainly due to the fact that RBS is headquartered in Edinburgh.
Last week, Sir Philip Hampton, the bank’s chairman, was quizzed by a House of Lords select committee inquiring into the implications of Scottish independence. He made it clear that RBS was “very happy” where it is, that Scotland was a “very effective” place to do business, and there was no reason at the moment for that to change.
But, he added: “If, as a result of a vote for independence, we found extra difficulties or cost pressures or whatever arising from that, then we would have to think about alternatives.”
So the message is pretty clear. The present RBS board wants the bank to stay headquartered in Scotland but if independence causes problems, moving would become a real possibility.
Alright. Let’s assume that Scotland becomes independent and Prime Minister Salmond makes good on promises to lower corporation tax. This would reduce the cost pressures Sir Philip referred to and would presumably make his board even happier to stay in Scotland, perhaps even to transfer more work and jobs north of the Border.
A happy ending all round? No, it isn’t. Before RBS made any decision to get bigger in Scotland, or even just to stay here, the board would want to know the answers to a whole host of other questions.
Regrettably, as we taxpayers know to our cost, governments also have to be the ultimate financial guarantors of big banks. True, Iceland let its banks fail – forcing share and bondholders to take the loss. But its banks were not important to the global financial system. RBS was and still will be for some years to come, which means the implicit government guarantee is important to its stability.
So will an independent Scotland take any share of responsibility for RBS’s assets and liabilities? When Mr Salmond was asked about this on Channel 4 News in January, he said Scotland would not. “Obviously the people responsible for that, just as the people who took the corporation tax from the Royal Bank of Scotland, were the London Treasury, and, unfortunately, they were also responsible for mis-regulating the financial sector as well. I’m afraid people have to take responsibility for the past mistakes they made,” he said.
I suspect that someone from RBS then had a wee word in his ear. The problem is that if there is any hint that a government will not step in should a bank get into trouble, then its credit rating gets down-graded and its cost of borrowing rises. At the worst, investors might take fright and sell the shares, which then fall in price. If they fall far and fast enough, depositors panic and withdraw their money.
So when John Swinney, finance secretary, spoke at a meeting of the David Hume Institute in February, the line changed. He said that far from repudiating any liabilities, Scotland had already “assumed its share of liabilities of these banks by our participation within the United Kingdom” and precise shares, if they existed at the time of independence, would be worked out then as there was a “shared interest” on the part of both Scottish and UK governments.
This, however, is nowhere near enough assurance, as was made plain in a paper by Brian Quinn published yesterday by the same institute. Mr Quinn, best known in these parts for being chairman of Celtic between 2000-07, also worked for the Bank of England between 1970-96, including a year as deputy governor, and has since been chairman of a number of big international banks.
Mr Quinn raises a great list of problems that need sorting out, too many to detail here. A summary is that retaining the Bank of England as lender of last resort and regulator is not impossible, but is extremely difficult and will require treaties to be negotiated with the rest-of-the-UK government and the EU.
That’s because if it came to a bail-out for a Scottish-registered bank, under new legislation the Chancellor is the ultimate decision-maker on committing public funds but would be only empowered to do so for rUK (rest-of-UK) banks. So a joint Scottish-rUK mechanism would need set up.
Even then, Mr Quinn notes, there are problems because the Bank of England, as Scotland’s financial regulator, might decide to let a Scottish-only bank fail, even if the Scottish Government wanted it bailed out, because its failure would pose no systemic financial risk.
What this all means, as Sir Philip Hampton has been delicately hinting in recent weeks, is that RBS (and Scottish-registered Lloyds for that matter) needs to know a lot more about what Mr Salmond proposes for the practical institutional structures of independence before they can make any judgment about whether it is good or bad for the bank.
So do its share and bond holders. And if Mr Salmond comes blundering in with any more of the kind of statement he gave Channel 4 in January, they may take fright and dump their investments, while financial markets may hoist the interest rates they charge the bank for wholesale lending, all potentially costing jobs and imperilling financial services in Scotland.