fromtheshopfloor

Independence – at what cost? | 14/08/2011

The independence referendum is due to be held in 2014 or 2015.  If the majority of residents in Scotland vote “yes”, the UK will be broken up and Scotland will apply for membership of the EU.

So imagine, if you will, we’ve woken up the day after Scotland has voted “yes”. Both the UK and Scottish governments would have to negotiate the break up of many institutions (the Armed Forces, Customs, Inland Revenue, Social Security, the Security Service, the Diplomatic Service, the Border Agency and so on).  The budget deficit will also need to be broken up.  It is unimaginable that we would be allowed to ride off into the sunset without being allocated our share of the national debt. We would need to pay back the bail out of RBS and HBOS – £470 billion.  And then finance the setting up of an independent Scottish state (Armed Forces, Customs, Inland Revenue, Social Security…..) Previously devolved areas would also have to be funded – like health, education and transport.  Instead of a seamless transfer from UK to Scottish institutions we will have to find many billions of pounds to set up Scotland and pay back debts to the rest of the UK. Independence Day will leave us saddled with debt.

 

So Scotland has set up a new country, and the SNP administration have sent the EU our application form.  We can have a bigger voice in European affairs, they say.  But what the SNP haven’t publicised is that new member states must join the Euro. Now I don’t know about you, but the thought of joining a very unsteady currency gives me pause for thought.  And by adopting the Euro as our currency, our fiscal decisions will be made – not by Holyrood but by the European Central Bank.  We won’t be able to set our interest rates or our conversion rates.  We may have to help bail out another Greece.  Our own budget deficit after setting up a new State will be considerable – and there will be no way to stop the ECB imposing harsh cuts on our spending. I know Mr Salmond was keen for us to copy the Celtic Tiger – but that would be taking it a bit too far.

 

Don’t let independence kill Scotland.

 

 

 

 

 

 

 

 

 

 

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32 Comments »

  1. Great article, it should spark a lot of debate. Although in reality is there ant spare money to follow these wild dreams of one man?

    Comment by stoker — 14/08/2011 @ 9:12 pm

    • there just isn’t enough money, Stoker. All the oil in the world wouldn’t cover independence!

      Comment by Lizzie — 14/08/2011 @ 9:30 pm

  2. Congratulations on your first blog entry and some very well-made points! Sometimes it’s better the devil you know than the devil you don’t! I wouldn’t want to join the Euro, either, especially not when the world’s economies are all in the shit like they are now! Best for our island’s countries to stay together for the time being while the going is still very rough, even if the UK ever splits up in the future.

    Comment by joannedj — 14/08/2011 @ 9:24 pm

    • The UK should stay together – if it ain’t broke, don’t fix it!!

      Comment by Lizzie — 14/08/2011 @ 9:31 pm

  3. Congratulations Lizzy – well written, clearly expressed and nice layout. Have added you to my favourites, and your blog too! 🙂 xx

    Comment by splottdadrants — 14/08/2011 @ 10:17 pm

  4. Welcome to the world of blogging

    Might I suggest that you read the following and readdress your ‘arguments’…

    HER Majesty’s Daily Mail got hot under the collar about the First Minister’s speech to the Scottish Parliament outlining the SNP Government’s legislative programme. In its leader column (May 27) the Mail accused Mr Salmond of “a barely disguised appeal to anti-English sentiment from the man who wants to eliminate sectarianism.”

    After a long rant, the paper’s leader writer concluded: “Economically, independence is impractical: the UK-funded bailout of RBS and HBOS cost £470 billion, more than three times Scottish GDP inclusive of North Sea oil and gas. Salmond is delaying an independence referendum in the hope that rhetoric will brainwash Scots into sharing his delusion.”

    The real delusion, however, lies with the Mail’s grasp of economics. Let’s examine that figure of £470 billion and whether or not an independent Scotland could have bailed out RBS and HBOS. Expect that £470 billion figure to reappear often during the referendum campaign.

    The £470 billion comes from a briefing document published by the Scottish Parliament Information Centre (SPICe) in February 2010. In turn, SPICe drew its information from figures published by the UK National Audit Bureau (NAO).

    The original NAO report shows that the total amount provided by the UK Treasury to bailout the British banking system was £753 billion. Of this, SPICe estimated that £470 billion relates to RBS and HBOS – but it is only an educated guess because the Treasury has provided no detailed breakdown. However, this does not – repeat, not – mean that the Treasury actually spent £470 billion in cash, paid for by the taxpayer.

    First, the Labour Government took an 83 per cent stake in RBS, paying £45.5 billion in cash, and agreed to insure its riskiest assets for an annual fee. But it charged the bank for the insurance, making a profit on the deal. Again, Brown and Darling injected £20 billion into Lloyds Banking Group, which had acquired HBOS at their urging, in exchange for a 41 per cent stake. The Treasury also provided additional guarantees to insure Lloyd’s liquidity. And again, it charged for the privilege.

    So that makes an upfront payment of only £65.5 billion in cash and the rest in “guarantees” which the banks pay for. But where did the £65.5 billion in cash come from? The taxpayer? No – it was borrowed especially to fund the deal. However, as this borrowing was set against the bank shares acquired, it does not count as part of the Treasury’s net debt. In other words, it is merely a book-keeping transaction (though interest is paid). Any country of any size could do it. According to JPMorgan Chase, the annual cost of servicing that loan is around £3.2 billion. So the actual cost of rescuing RBS and Lloyds was…err, £3.2 billion per year minus the charge to the banks for insuring them.

    It is also true that the Bank of England provided both banks with liquidity because interbank lending had collapsed during the credit crunch. Essentially, the Bank of England invents this cash electronically. It also gets it back, squaring the circle. All central banks do this.

    When the UK Government rescued the banks, it paid per share 50.2p for RBS and and 73.6p Lloyds. As of Friday (May 27) the share price stood at 42.34p for RBS and 52.98p for Lloyds, leaving the Government about £10 billion out of pocket if it sold out now. By comparison, this year’s North Sea oil tax revenues will be around £15 billion.

    So the true cost to an independent Scottish Government of bailing out RBS and HBOS would have been containable. An independent Scottish Government might even make a profit, if the banks can be sold off at a higher price than they were bought at.

    The £470 billion figure has been twisted out of all context by the Daily Mail. Final proof comes at the end of the 2010 SPICe report which is at pains to quote the Treasury’s Pre-Budget Report of 2009. This Pre-Budget Report (Box 4, page 199) attempts to put a net figure on the total cost of the entire UK bank rescue programme – not just RBS and HBOS. Remember that most of the so-called bailout funds were actually guarantees, not cash up front. And guarantees the banks had to pay for.

    The net figure the Treasury thinks it will cost the UK Government to finance the entire bailout programme is…£10 billion, assuming RBS and Lloyds’ shares are finally sold off. Repeat, that’s £10 billion, not £470 billion or £753 billion. Beware of Unionists who invent factoids.

    Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 10:28 pm

    • The figure of £470 billion came from…. The Scottish Parliament Information Centre. And if independence happens, you’ll need to add in the cost of buying back the shares owned by the public. And I haven’t concentrated solely on the banks – please explain how we will finance setting up a brand new state?

      Comment by Lizzie — 14/08/2011 @ 10:40 pm

      • Hi Lizzie, from the article –

        “However, this does not – repeat, not – mean that the Treasury actually spent £470 billion in cash, paid for by the taxpayer.”

        As regards setting up a new state –

        Education, Policing, The Health Service, The Legal System, etc etc are already Scottish run as part of devolution, so no change there…

        Its only the other bits currently reserved to Westminster that would need to change… Not beyond us, in a amicable fashion surely??

        The establishment of a Scottish Exchequer should be fairly straightforward dont you think?

        How it is funded will change, but given that we have been in surplus for the majority of the last 30 years when oil and gas revenues are factored into equations, I dont really see where the issue lies

        As UK taxpayers, who have already contributed to buying the bank shares I’m not really sure that I follow why we would buy back the shares owned by the public?

        We would simply receive our per-capita share of the revenues when they are sold in the future…

        Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 10:55 pm

      • Hi Gavin,
        As regards to setting up a new state – functions which are devolved already are not funded directly by the Scottish taxpayer. They are funded via our settlement from Westminster. So yes, we would need to set them up again from scratch. The wages bills alone would be huge.

        Reserved departments – do you honestly think Westminster would allow us to just snip them off and run them? Using the Forces as an example – we would still have to feed, clothe & equip them. We would have to purchase MoD land & buildings. Will join NATO and possibly have to fund ourselves through a conflict?

        We may be in surplus just now – but once we’re running things ourselves that can change very quickly. During the Clinton presidency the US economy actually had a surplus. Look at it now. Oil and gas supplies will not last indefinitely. And as members of the Eurozone we would have to contribute to a declining economy or two. How would our surplus look if we had to help bail out another Greek or Irish disaster? What if the ECB decided we needed to be restructured? We will lose all fiscal autonomy and control over our surplus when we join the EU.

        And as for RBS/HBOS – we would still need to buy back the “Rump UK”‘s share of them. And it’s nice to think that the share sell off would raise some cash – but with the global economy being as shaky as it is, that’s not something to bet on.

        Comment by Lizzie — 14/08/2011 @ 11:11 pm

  5. “So Scotland has set up a new country, and the SNP administration have sent the EU our application form.” We can have a bigger voice in European affairs, they say. But what the SNP haven’t publicised is that new member states must join the Euro.”

    Sweden still has the Kronor and recently voted in a referendum to retain it…

    Must try harder again….

    Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 10:33 pm

    • Sweden, Norway and the UK have retained their own currencies. But as founder members of the EU they insisted on doing so. New member states will not have that option – they *must* join the Euro.

      Comment by Lizzie — 14/08/2011 @ 10:42 pm

      • Norway are in EFTA Lizzie, they aren’t in the EU…

        Sweden only recently joined the EU

        Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 10:46 pm

  6. Just one more thing…

    You seem to have missed out in your article what would happen to the assets of the Rump UK, post independence….

    Its widely acknowledged that 9% of those assets, that would be Scotland’s per-capita share, far outweigh any debts that we would inherit…

    Just saying…

    Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 10:38 pm

  7. just one more wee point Lizzie

    You mention budget deficits, can you name me one country in the world that doesnt have a budget deficit, with the obvious exception of Norway…

    They are normal things that normal countries have…

    Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 11:16 pm

    • I know they’re normal – it’s the size that matters (no innuendo intended btw!). As I mentioned before the United States had a budget surplus – and that freaked them out lol! But the bigger the budget deficit the more nervous investors are – look at the panic caused by the US rating downgrade. As a shiny new country, Scotland with a large deficit and no real credit history as such will be viewed with suspicion by investors – who would really want to buy our bonds unless they were at extortionate interest rates? And I’m sorry, but the Euro will be discredited for a long time yet, if not disbanded. There’s just too much fiscal uncertainty for me to be convinced.

      Comment by Lizzie — 14/08/2011 @ 11:27 pm

      • Taking your point onboard Lizzie, thats hardly an argument for staying in the current Union…

        The most successful countries in the world are small, adaptable and can change quickly to adapt to situations as and when they arise

        Given tha the UK economy is run to satiate the city and the SE of England, I cant understand how that benefits Scotland at all

        Having been told for years that it is running out, there are well over a hundred years worth of oil and gas revenues in the North Sea…

        http://www.telegraph.co.uk/news/uknews/2131258/North-Sea-oil-will-last-for-100-years.html

        and thats before we look to the Kilbrannan Sound and further west

        Many people forget that the Norwegians only established their oil fund in the nineties and it is now only second in size to the Kuwaitis…

        Is Scotland incapable of doing something similar for her future generations?

        Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 11:49 pm

  8. “As regards to setting up a new state – functions which are devolved already are not funded directly by the Scottish taxpayer. They are funded via our settlement from Westminster. So yes, we would need to set them up again from scratch. The wages bills alone would be huge.”

    There is currently no such thing as a Scottish Taxpayer Lizzie, only UK taxpayers and we (those who currently live with the nation of Scotland) contribute more than our fair share to that central pot (the treasury)

    Are you suggesting that it is beyond us, as Scots, to change the Accounts to a Scottish Treasury?

    As for setting everything up from scratch again, thats a wee bit disingenious…

    Things will continue as normal and accounting entries will change behind the scenes

    We currently contribute £154bn a year to the treasury and receive £30bn a year back

    The remainder goes on Social Security, Defence, funding nuclear weapons on the Clyde… things which could be perfectly well run from here in Scotland, or maybe we’re too wee and too poor and too stupid to cope with the responsibility

    Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 11:28 pm

    • we’re certainly not too stupid – but we are too poor.

      Comment by Lizzie — 14/08/2011 @ 11:30 pm

      • How can we be too poor Lizzie when we are, and have been, in surplus for so many years?

        How does that work then?

        We should stay part of a union that makes us poorer?

        Comment by Gavin Hill (@Gaavster) — 15/08/2011 @ 12:01 am

  9. “Reserved departments – do you honestly think Westminster would allow us to just snip them off and run them? Using the Forces as an example – we would still have to feed, clothe & equip them. We would have to purchase MoD land & buildings. Will join NATO and possibly have to fund ourselves through a conflict?”

    I’m not sure where you are going with this argument Lizzie. Surely we are currently part of Westminster, and will continue to be so until independence…

    Are you suggesting that the RUK would somehow deny us what is rightfully ours?

    The UN and the EU, etc might have something to say about that….

    Also, as a Scotsman I have no interest in fighting foreign wars, legal or not, on behalf of America or whoever…

    Look no further than our Scandinavian or Irish cousins to get an idea of what our defence force would look like

    Bear in mind that we are entitled to 9% of the hardware of the army, navy and air force

    Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 11:33 pm

    • I’m not sure where you are going with this argument Lizzie. Surely we are currently part of Westminster, and will continue to be so until independence…

      Yes but I’m talking about post independence. Who’s being disingenious now?

      Are you suggesting that the RUK would somehow deny us what is rightfully ours?

      Rightfully ours? If it’s funded by the entire UK what makes you so sure they’ll just write off the financial losses to them? I’m sure the UN and the EU would also have plenty to say about that.

      Bear in mind that we are entitled to 9% of the hardware of the army, navy and air force

      Is that entitlement legally enshrined?

      Comment by Lizzie — 14/08/2011 @ 11:40 pm

      • Thats why we will have negotiations over the settlement post independence Lizzie

        These negotions will most likely be overseen by the UN as is normally the case

        I suggest having a wee look at the Vienna Convention for legally enshrined entitlements as regards treaties in international law… that after all is what the UK is…

        I’ll think you’ll find that we will be just fine

        Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 11:57 pm

      • After all this debate (which I’ve really enjoyed by the way!) we’re going to have to agree to disagree… although we probably knew that anyway. I’m really knackered Gavin, I have to go to sleep! Thanks for the chat x

        Comment by Lizzie — 15/08/2011 @ 12:05 am

      • PS not wimping out on you – had the toddler from hell last night and I really am shattered!

        Comment by Lizzie — 15/08/2011 @ 12:05 am

  10. “And as for RBS/HBOS – we would still need to buy back the “Rump UK”‘s share of them. And it’s nice to think that the share sell off would raise some cash – but with the global economy being as shaky as it is, that’s not something to bet on.”

    Lizzie, you are allowed to own shares in foreign countries, so we would be under no obligation to buy anything from RUK

    We would inherit our share, as we have already paid for them, and we could sell them as and when we desired…

    Comment by Gavin Hill (@Gaavster) — 14/08/2011 @ 11:35 pm

    • Scotland did not refund RBS/HBOS – the UK did. So if we want to become independent we will have to pay back their share.

      Lizzie, you are allowed to own shares in foreign countries, so we would be under no obligation to buy anything from RUK

      Ignoring the patronising first part…. and the RUK will have no obligation to buy from us. But we would have an obligation to reimburse them. Land in Scotland owned by, say, the MoD is owned by the UK – not Scotland. British taxpayers bailed out Scottish banks. There is no way RUK will just let us swan off without some form of reimbursement for their losses or investments.

      Comment by Lizzie — 14/08/2011 @ 11:58 pm

      • Last time I looked Lizzie Scotland was part of the UK, or have I missed something?

        Comment by Gavin Hill (@Gaavster) — 15/08/2011 @ 12:03 am

      • And Scotland wont just swan off without her share of the assets either…

        We’ll negotiate like grown ups when the time comes…

        We’ll still have to live next to each other…

        Any disagreements will be arbritated on by the UN as part of the laws laid out in the VC of which the UK is a signatory…

        Comment by Gavin Hill (@Gaavster) — 15/08/2011 @ 12:06 am

  11. “PS not wimping out on you – had the toddler from hell last night and I really am shattered!”

    Got one of them too.. 🙂

    Thanks for the chance to chat… night night

    Comment by Gavin Hill (@Gaavster) — 15/08/2011 @ 12:09 am

    • night night – and next post will probably be slagging off the Tories. Maybe we’ll agree then 🙂

      Comment by Lizzie — 15/08/2011 @ 12:12 am


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