The SNP’s Sterling zone would depend more on the Bank of England (BOE) and HM Treasury than in the Eurozone where countries issue their own debt & guarantee their own banks as well as take the pound sterling as the currency.
The SNP wants this done for them which means if the BOE and HM Treasury agreed they would want firm control and a veto on Scotland’s budget. Of course there is no indication that they would accept this SNP’s proposal.
There are many reasons that the SNP do not want Scotland to have its own currency. One is that Scotland’s deficit is twice that of rest of UK without oil tax revenues and these tax revenues are highly variable driven by the oil price, exchange rates and the global economy. Even with oil revenues the deficit would be very volatile. This is shown below based on analysis of data from Scottish government’s web site.
Scotland’s economy is highly skewed to public services, financial services and oil. This would mean a weak currency with high interest rates and an economy leveraged to the world economy. That is why the SNP wants the shelter of the pound, the BOE and HM Treasury but with it would come control of our budget and finances and no control over interest rates.
These contradictions are being fully exploited by the “No” camp making people think Scotland would be worse off with little control over the economy and a plan that may not be agreed by the BOE and HM Treasury
These issues were not addressed at the recent Radical Independence Conference (RIC) in Glasgow.
The majority SNP government would negotiate the settlement with a Tory coalition and any settlement would be based on their blueprint. But they have to tackle such issues such Scotland’s share of the national debt (about £105 billion and 73% of notional GDP) and their liability for the RBS & HBOS bailouts (£63 billion of debt issued for these two rescues).
The debt could be transferred to Scotland and redenominated but the price of this would fall to reflect the higher credit risk that Scottish debt would carry given the state of its finances and economy that I have outlined here. The SNP may want to simply pay the interest on Scotland’s slice of the debt to HM Treasury but they are likely to want a premium to be paid to reflect Scotland’s higher credit risk. Then there are guarantees that would have to be pledged to HM Treasury for £105 billion capital that Scotland has to repay when the debt matures.
Then there is the issue of raising debt to cover Scotland’s annual deficit which would mean on the last three years an average of £12 billion per year. Exactly the same issues would arise as with the £105 billion of the national debt it would inherit.
On the bank bailouts which were to save RBS and essentially Bank of Scotland (Lloyds had to be bailed out because of taking over under force Bank of Scotland and its toxic lending business) going insolvent. The UK government could argue that Scotland is liable for the £63 billion spent saving these banks as they were both Scottish companies. If Scotland want’s the oil they can pay for their toxic banks. After all the SNP cheered these banks from the side-lines as the leadership of Scotland’s “Celtic Tiger”.
We need a plan for what we would do with any part of state owned banks we would inherit in a settlement that can transform them to peoples’ banks while decommissioning their toxic parts. This would require nationalisation and using the capital and the sale of assets to pay off the bailout or part of the bailout.
Only nationalisation of oil would rectify the problems with the SNP’s strategy providing funds to re-balance economy in a green sustainable way. This would also allow us to eliminate the deficit, pay down the public debt and restore the £5 billion real cuts, 14% in real terms (20% ex Health) that SNP have implemented from 09/10 to 13/14, the £445 million lost in SNP’s council tax freeze and the additional £5 billion real cuts from reserved public services (real is adjusted for growth in the retail price index).
Nationalised oil revenues would back an independent currency and fund a democratic participatory budget, through the nationalised banks, based on for example: sustainable affordable social housing; renewable energy and an integrated public transport system.
There are conservatively² 25 billion barrels of oil left in the North Sea by estimates and with a cost of extracting a barrel of North Sea Oil at $10 and even with a low oil price of $80 a barrel this would provide £55 billion in revenue a year for twenty years. Any surplus would be put into a reserve fund to deal with the oil price falling below $80 a barrel. Every three years 20% of the reserve fund could be used to finance more socially useful projects.
These could be started as joint public/private initiatives to develop the skills necessary to run these fully under public control and ownership. They would create hundreds of thousands of jobs for young and old and provide services that would benefit the whole of society.
Utilities and public transport would be taken under public control and ownership and price controls for basic essential foodstuff implemented.
The introduction of progressive personal taxation to fund services could help plug part of the deficit and cuts in our spending that have arisen since the financial crash of 2008. Nationalised oil revenues are also needed as progressive taxation would only fill a small gap in the deficit and cuts and not be able to start paying our debt down. Our deficit even with oil taxes has averaged £12 billion over the last two years and if you add £10 billion in real cuts to services then a local progressive tax which might raise £1.7 billion a year is insufficient to fill the hole.
NATO & the monarchy are givens which according to polls the majority of Scots backing staying with. These are SNP policies designed not to deter voters from voting yes. Equally those against these institutions are not going to vote no if they believe in independence.
RIC is focussing on Trident to stop SNP policy shifting. The focus must be also on fighting for a radical economic alternative after independence. In particular how Scotland can be economically & financially independent & make the majority of Scots better off in a more equitable and sustainable way.
We need to show how a radical coalition can fight for a coherent workable economic and financial programme in an independent Scotland. Otherwise the contradictions and weakness of the SNP’s economic and financial policies for independence will lead to a crashing generational defeat for the “Yes” campaign.
Ralph Blake is the pen name of an analyst in the Scottish financial industry and a former head of research and strategy at a global investment bank.