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By Derek Bateman

I wish I knew something about economics. Perhaps you do. If so, read on for a laugh. First of all, isn’t it obvious that the British Treasury takes responsibility for all debt it has incurred? I know there is a need to “calm the markets” but if they issued these debt bonds in what are legally binding agreements, what else could they do but promise to pay?

If I take out a mortgage and sub let the property, I still owe all the repayments to the building society, even though I’m getting rent from my tenant. When the payment is due, the society won’t ask the tenant for the cash, they’ll come looking for me because I signed the legal agreement.

So it one level the Treasury declaration was a statement of the bleedin’ obvious. I daresay they’re also trying to avoid demands for extra income from future gilt trades. It does imply though that Scotland has no legal requirement to pay a share of UK national debt. It will remain a British obligation, they say until the moment of separation, but how can that be?

Even at the point of separation – I prefer moment of independence – debt issued by London remains London’s debt. A future Scottish state didn’t sign up for the £1.4 trillion albatross and, as a net contributor to the UK Exchequer, could adopt the same sniffy approach the British adopted to naval contracts on the Clyde – we’re in charge here and it’s not our problem.

Yes, I know that won’t happen, but it does demonstrate just how powerful a hand Scotland is dealt when you consider that a total breakdown in talks resulting in a stand-off or even a walkout leaves the burden of massive national debt being held by the Unionists staggering under its weight until agreement is reached. Scotland’s negotiators can decide how much is to be paid back in compensation – to the Treasury, not the government’s debtors – and when.

I imagine London is looking for a big cheque to bung in the bank but that would require a massive national loan to be raised by Edinburgh and might put too heavy a strain on Scotland’s fledgling economy, so a longer-term arrangement might be struck, but that will be less than London would have wanted.

I raised an eyebrow too at the analysis of Dr Angus Armstrong of the NIESR when he pointed just how big a blow this will be to the rUK. Not only does it lose 10 per cent of its economy when Scotland leaves, but that changes the arithmetic so increasing rUK’s debt to GDP ratio, taking it over 100 per cent.

What that appears to mean is that the moneylenders regard you as more of a risk and demand more in interest and those financial vultures, the rating agencies, may downgrade you – again – and that also leads to higher interest charges. This flatly contradicts the casual dismissal of independence as an irrelevance by the Little Englanders who sneer at Scotland’s “pygmy economy” and brag about how little they will miss us.

It also shows that the public line about not negotiating in advance is, if anything, a hindrance to them as well as to us. If it’s true that this announcement followed market  jitters, you wonder if it would have been needed at all if talks were under way between Edinburgh and London and ministers from both sides could emerge smiling in reassurance. The idea that they might be reaching an amicable understanding on the debt might have quelled doubts. Instead it seems nobody out there could trust what was going on.

But doesn’t it also neuter the No side’s constant balancing of assets and liabilities in the UK’s favour? The dark hint is that we have the liabilities but not necessarily the assets, a ludicrous assertion now revealed as exactly that. They have now conceded the liability is theirs and have to hope Scotland follows their argument and agrees to pay up – which it will – but the moral high ground is taken by Salmond whose claim to the assets is made so much easier.

To sum up, here’s a quote from Richard Murphy of Tax Research, a no-nonsense money man I’ve interviewed many times who revealed the true scale of tax avoidance: “…given that this was, no doubt, to be the subject of major negotiations with a new Scottish government, this statement is the most massive exercise in shooting one’s self in the foot: Scotland now starts from the position that the debt is England’s problem.”

Am I naïve to be asking another question…if the markets demanded this clarification on debt, might not the currency traders do the same with sterling? Where there is uncertainty, they demand reassurance. If they thought rUK might lose the value of the North Sea from its balance of payments for example, or if they thought Scotland, as a major trading partner, would use sterling but have no formal agreement with the central bank, might they consider its value was diminished? Might sterling be threatened with being “sold short” and other traders start a trend leading to currency devaluation?

Sounds far-fetched, I suppose. But it need not get to the stage of actually happening, if voices in the City pipe up about the possibility, mirroring what happened over debt. The Treasury and the Bank might feel obliged to reassure them in some way…perhaps by declaring that, in the event of independence, sterling will retain its value by the formation of a currency union between Scotland and England in which the Scots will use the pound and the Bank of England will anchor it.

Wouldn’t that be fun? George and Danny forced by the market to reverse their strategy of pretending there will be no currency agreement. I imagine they would say it never was their actual policy to prevent a currency union, they just hinted it might be difficult…And it’s true – they never have said No. Danny was asked again yesterday on the BBC and weaseled his way out.

I think though we can now dispense with the British government playing politics on debt, viz: Transferring to an independent Scotland its agreed share of UK liabilities would be fraught with difficulties. Creditors might not agree to a straight transfer of public debt from the UK to an independent Scotland on otherwise identical terms. The Scottish Government should explain to voters before the referendum how it would in practice take over its agreed share of UK public sector debt and future liabilities on independence.”  The first two sentences have been sorted by themselves and the third requires them to enter into pre-vote talks which they won’t.

I’m wondering if this whole affair is really the result of political decision-making though. I’m more inclined to the view that the Civil Service, Treasury officials, the UK Debt Management Office, realized the political line could not be held on the debt and intervened, demanding a statement in the national interest. That’s their job, isn’t it. They step in and ask that the politicking stop because something has happened which is more important and the politicians do what they’re told, however reluctantly. The chain is: Financial sector dictates, civil servants pass it on, politicians obey.

Mind you, there are looming questions here for Scotland, not least just what share of debt does Mr Salmond, as he’s morally bound to do, accept, as there are different measures available, although I reckon this statement strengthens his hand. How will the same market types regard Scotland as a risk and how much will they demand in interest and how does Scotland repay London? One suggestion is that, instead of borrowing from the markets – OK, the spivs in the City – a Scottish central bank prints its own – surely one of the joys of independence, no?

Another would be ridding ourselves of Tory toyboys Danny Alexander and Alistair Carmichael who continue to traduce the radical, home rule traditions of their party by sounding like right wing English backbenchers determined their own country and constituents should be made to suffer if they don’t get their way.

I think Honey Bear Carmichael blamed the whole matter on Salmond threatening to renege on the debt when, ironically, he was pointing out that the quid pro quo for Scotland taking its share was sharing the currency. And you know the politicians are at it when you hear the phrase devised by the pipsqueak spad in the back office repeated on air, thus Danny’s cringe-worthy Separation Surcharge. Aaaarrrghh!!??


Incidentally, who ran up those debts of £1.4 TRILLION…can anyone remember their names?


Courtesy of Derek Bateman

Comments  

 
# gus1940 2014-01-15 08:01
I wonder what the combined value of all government buildings built or acquired since 1707 in England and abroad is (not forgetting the value of the land).

I don't suppose that an Indpendent Scotland would be interested in retaining 8.4% ownership of The Palace of Westmiknster, The Foreign Office, The Treasury, Buckingham Palace etc and the land that they stand on.

Therefore, after subtracting the value of the equivalent properties in Scotland the resultant amount can be subtracted from Scotland's liability for UK Debts substantially reducing the amount that The Indpendent Scottish Government would have to borrow to settle up with RUK.

Can anybody hazard a guess as to what the value of said Assets is?

We shouldn't forget that it may be that the amount due to Scotland as its share of UK Assets may exceed our share of Liabilities.
 
 
# Jo Bloggs 2014-01-15 09:11
"We shouldn't forget that it may be that the amount due to Scotland as its share of UK Assets may exceed our share of Liabilities."

A very good point gus. We can surely assume that the UK's total assets outweigh its total debts as of now. Otherwise surely they'd have already called in the IMF.
 
 
# Xaracen 2014-01-15 09:00
The closest I ever got to the Assets values was £1.3 trillion for the UK assets, taken from the Whole of Government Accounts (WGA), which did not break this down for regions of the UK. However, the last (2007) Asset Register does break it down by "department", one of which is "Scotland", whose assets were valued at £23 billion.

Business For Scotland had an article on this.
 
 
# maisiedotts 2014-01-15 20:02
Quoting Xaracen:
Business For Scotland had an article on this.


Is this the article you mean?

www.businessforscotland.co.uk/.../
 
 
# Leswil 2014-01-15 09:40
Great article Derek,and bang on logic.I believe that this is why Alex Salmond has never deviated from the idea of retaining sterling.He actually IS an economist.

He just had to wait patiently. rUK is now in an awkward place, Scotland accepts a proportion of the debt by the virtue of good will and takes the high ground.

The division of assets will particularly sting Westminster, as such a division will throw up many assets that rUK will to keep.So a money valuation would be agreed and accrue against Scotland's share of the debts.

So how much Scotland will have to pay at the end of the day may be far less than rUK hope for.

So YES we will be in a currency zone with sterling, also YES we WILL have representatives in the Bank of England. What Alex Salmond has said from the beginning will come to pass. Kudos to him.
Our hand is strengthened by this in the full spectre of negotiations, a blinder right enough.
 
 
# ituna semea 2014-01-17 07:06
Leswill: Excuse me if you will, " I believe that this is why Alex Salmond has never deviated from the idea of retaining sterling.He actually IS an economist."
Mr Salmond IS primarily a politician and he has deviated on quite a few longstanding policies including of course his policy to ditch Sterling.
 
 
# call me dave 2014-01-15 09:57
Enjoyed reading the article yesterday and Mr Bateman is a strong voice with compelling arguments in our favour.

As an aside, I read somewhere a while back that, due to some quirk in the past the British part(s)of Antarctica is the responsibility of Scotland. How ironic is that. (will try and find the data again)

Just for fun.. imagine we might have more oil than we thought in the Antarctica shelf.
 
 
# IXL 2014-01-15 11:49
...just put that thought right out of your head.

There will be no exploration in Antarctica.
 
 
# Scotsfox 2014-01-15 18:03
The 'quirk' came about at the same time as the maritime border was moved in England's favour in 1999. However the coming Scotland Act will re-reserve Antarctic interests back to Westminster.
 
 
# call me dave 2014-01-15 19:35
#IXL
I hope your right.

#Scotsfox.
Thanks I couldn't find the link to the 'quirk'. Have you got one?

PS
David Crawley, a former career civil servant with extensive experience of European negotiations, said it is “largely accepted” that Scotland would be welcomed into the EU eventually, but that the 18-month timetable “seems unrealistic”.

Half a step forward then, until you read the rest of the article, one of a few planned for a blitz tomorrow from the Herald.

archive.is/ePich
 
 
# maisiedotts 2014-01-15 20:23
That would be this David Crawley?

Scottish Natural Heritage BOARD
Mr David Crawley
David Crawley is a former senior civil servant with wide experience of Government and European affairs. After joining the Scottish Office in 1972 he worked in many different areas of UK and Scottish
public policy, in particular as Head of Food and Agriculture Group from 1999 to 2002. He has also worked in Whitehall and Brussels. He is currently Chair of the Audit Committee of the Wales Office and is an SNH member of the UK Joint Nature Conservation Committee and a Director of JNCC Ltd.
He is the Chairman of the Central Scotland Forest Trust. Mr Crawley does not hold any other Ministerial appointments.

This is a bit more "in depth" and also interesting jncc.defra.gov.uk/.../
 
 
# maisiedotts 2014-01-15 21:00
Link to article in Scottish Daily Express on Scotland's Antarctic Rights and the HoL claw back.

express.co.uk/.../...
 
 
# call me dave 2014-01-17 10:14
Thanks for finding a link to the story. Looks like Scotland ,at the moment, has responsibilitie s there.

Interesting.
 

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