I have no doubt that should Scotland’s voters decide to plump for independence on 18 September, Scotland would become a functional nation state. For unionists to claim that Scotland isn’t capable of governing itself, or that it would immediately become a celtic version of Greece is insulting, inaccurate and unlikely to marshal any votes into the No column. Though I believe we are better together, unionists need to make a positive case in addition to exposing the SNP’s wilful distortions and wishful thinking.
That is why I welcome the clarity from the Chancellor (pdf), Ed Balls and our own Danny Alexander about the future of the pound. Contrary to Nicola Sturgeon’s shrill complaints about “bullying”, the decision that a Currency Union (CU) with an independent Scotland is a non-starter highlights the central truth of Scottish independence: independence means that both countries will pursue their own interests. And a CU without a fiscal or banking union – in other words, repeating eurozone’s original design flaws – is emphatically not in the UK’s interest (pdf). It would require UK taxpayers to underwrite Scotland’s banks without any controls over them, and if a Scottish government were to suffer a fiscal crisis due to debt or an oil price fall, to bail Scotland out. Whilst neither is particularly likely, it wouldn’t be in the UK’s interest to expose itself to these risks for precious little benefit.
Worse for the SNP, the obvious alternative is pegging a Scottish pound to sterling, as Ireland did from 1922 to 1979. However, this means ceding control of monetary policy to London without representation in the Monetary Policy Committee, which would be tasked with maximising economic performance of the UK. A peg also means running a tight fiscal ship to demonstrate that Scotland can afford to maintain to the peg, further eroding the benefits of independence. Finally, a peg also means that the UK gets all of the trade benefits of a common currency with Scotland without any of the risks inherent in a CU. Therefore, if I were a UK minister maximising my national interest, an independent Scotland forcing itself into a currency peg represents a win-win proposition.
The SNP’s initial – and petulant – response was that the failure to agree a CU would mean that Scotland would refuse to pay its share of the UK’s accumulated debt. This fails to convince. First, Scotland in 2016/17 will, like the rest of the UK, be running a deficit. Based on the 2015/16 deficit of 5.5%, Scotland would have to raise taxes/cut spending by more than 10% to balance the budget – neither attractive – or to borrow on the markets, which is made much harder if your credit record consists solely of an effective default.
Second, the SNP seeks to take Scotland into the EU; there is no reason that Scotland shouldn’t be an effective EU member. However, EU accession requires the approval of all of the existing EU members, and if Scotland refused to take a proportional share of the UK’s debt, the UK could reasonably block Scotland’s EU application – pursuing the UK’s national interest. Scotland would therefore of necessity be forced to take on a proportionate share of the UK’s accrued debt.
All of this would leave a very bitter taste. Fortunately, with a positive proposal for the Union none of this needs to happen.
In the same spirit of unionist cooperation that sees Osborne, Balls and Alexander ruling out a currency union, I’d like to see Cameron, Milliband and Clegg propose devo-max to Scotland – and the other UK nations – this spring. Devo-max would deliver local autonomy for all but foreign affairs, defence, environment, national infrastructure and trade policy to all of the UK’s countries. In doing so, it would deliver long held Lib Dem policies on localism, and would probably ensure the defeat of Scottish independence.
Devo-max for all would also deliver balanced devolution by solving the West Lothian question with an English Parliament to match the Scottish, Welsh and Northern Irish legislatures. In short, it would recognise and celebrate the diversity of our United Kingdom, and bring power closer to our peoples. This is a prize worth fighting for.
* Toby Fenwick is a Research Associate of the British American Security Information Council (BASIC), has written extensively on the UK Trident programme, and served on the party’s last Trident Working Group. This article is written in a personal capacity.
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20 Comments
Agreed with you entirely until you mentioned an English parliament. I just don’t see the need for one – a needless level of bureaucracy given that English MPs make up the vast majority at Westminster. I’d agree with devo-max for Scotland if that’s what they want – and I suspect many do. But I wouldn’t enforce it on the English or Welsh if that’s not what they want.
Hear, hear.
Loved the first paragraph about the need for a positive case – and agree with all the points you made up to the last para – they just weren’t a positive case ! Lets not mind if the SNP call it bullying, it won’t be a happy divorce. Something UKIP voters need to accept too.
Devo max carries with it problems. I don’t think there was ever a real west lothian question, and it doesn’t need a solution, we just accept the minor anomaly as we do with so many other things. An English parliament creates its own anomalies and they would be worse.
There needs to be a balance between localism and efficiency. This affects rUK businesses too.
A better way of saying my criticism would be devo-max would have negatives for Scottish businesses too. This is why we like the EU.
I agree on the need to burst the nationalist bubble though. This would have to be done with a federal UK – but not necessarily devo max :).
If sharing the pound is ruled out then sharing the ‘debt’ becomes a problem. For a start, what debt? Debts are specifically arranged with a time table for repayment and who to pay it too. A solution would be if rUK held the debt but found an agreement whereby Scotland agreed a pro rata debt to the rUK, but presumably in Scotland’s own currency that does not exist.
Claims that by refusing to agree on anything that accounts for the debt amounts to default is manifestly false: it is nothing of the kind, unless the rUK also refuses to repay the debt, in which case the whole area is in trouble. A problem could be a lack of financial infrastructure, but Scotland’s natural resources are likely to be reassuring for lenders.
In any case the Scots will be able to use the issue of nationality to muddy the waters sufficiently to nullify most threats. Who will be Scottish, who will remain a UK/EU citizen? I suggest that it will be impossible to deny dual nationality and if there is any suggestion of Scotland not being allowed to continue as part of the EU, it would be sensible for all Scots to retain both citizenships.
The reality is that there would have to be negotiation, compromise and shared agreement. Therefore I find that these statements from Osborne, Balls and Alexander are posturing. That Alexander as a Scot and a Scottish MP should go along with this (is it a case of bullying the Scot?) is disappointing and in my view not in Lib Dem, particularly Scottish Lib Dem, interests. In fact I suspect that a Yes vote is a quicker and surer way of achieving ‘devo max’ than a No vote.
See quite a few references across posts today about Scottish Banks being bailed out. Leaving aside the question of why they only became “Scottish” banks after the economic crisis it’s worth noting that Osborne’s portrayal of the bail out of UK/Scottish banks as Westminster largesse is far from the truth.
As Andrew Hughes Hallett, Professor of Economics at St Andrew’s University, put it:
“The real point here, and this is the real point, is by international convention, when banks which operate in more than one country get into these sorts of conditions, the bailout is shared in proportion to the area of activities of those banks, and therefore it’s shared between several countries.
“In the case of the RBS, I’m not sure of the exact numbers, but roughly speaking 90% of its operations are in England and 10% are in Scotland, the result being, by that convention, therefore, that the rest of the UK would have to carry 90% of the liabilities of RBS and Scotland 10%.
“And the precedent for this, if you want to go into the details, are the Fortis Bank and the Dexia Bank, two banks which were shared between France, Belgium and the Netherlands, at the same time were bailed out in proportion by France, Belgium and the Netherlands.”
Did you know that RBS was also bailed out by the American Federal Reserve and the Australian Central Bank? The UK government bail out of RBS and HBOS amounted to £65bn a lot of money but the US federal reserve made emergency loans available to RBS of £285bn and to HBOS of £115bn and $552.32bn to Barclays – sorry who bailed out the British banks again?
Toby said “I’d like to see Cameron, Milliband and Clegg propose devo-max to Scotland – and the other UK nations – this spring.” Sorry there is about as much chance of that happening as being able to watch pigs fly. Cameron and Milliband don’t want thins, and Clegg probably believes in Home Rule (or ‘devo max’), but will say nothing as the three unionist parties are all in alliance together as part of ‘better together.’
Power will remain where most MPs and Whitehall Mandarin’s want it – in SW1. If your in any doubt just listen to Pickles’ disctating to local councils today!
“However, this means ceding control of monetary policy to London without representation in the Monetary Policy Committee, which would be tasked with maximising economic performance of the UK”. How is this in any way different to the current situation. Monetary policy is currently geared to the interests of the city of London, not Scotland. Also, Scotland has 1 Tory MP yet the Tories are the ones in charge and setting the agenda for the BoE. Scotland using the pound without a formal CU is effectively the situation they are in right now, and is why the whole independence debate was started in the first place. Westminster just doesn’t get it.
I think devo max would be a very bad idea. Firstly it would do huge damage to Wales and Northern Ireland who are plainly not capable of being self-financing. Secondly England would be far too dominant within the UK. I don’t think federal structures work when you have one entity that is so predominant. Let’s just think about it. Different tax and benefit policies for each UK nation. Different levels of corporation tax? That would be fun.
Liberal romatics seem to have this obsession with ‘home rule’ – a concept that belongs to the Imperial age. The 19th C issue with Ireland is not the same as with Scotland and Wales today. Of course the UK in over-centralised, but let’s not hollow it out. Once Westminster rids itself of the neoliberal disease – which could be sooner than you think – much of the passion driving Scottish separatism could dissipate.
Sorry for the delay in reverting; apologies for the length of this response. Thanks to all for your interest, and a saner debate than seems to happen elsewhere.
@Steve; @ Julian @ Frank:
I should be clear that I don’t think that Devo Max for all is likely: rather an aspiration and it would require a local vote. As it happens, I think it would comfortably pass, and as the US shows, there’s no reason why Devo-Max is inconsistent with transfer payments for less wealthy regions.
I do think that the West Lothian Question remains relevant: it isn’t so long ago that Labour needed Scottish votes to ram through NHS Foundation Trusts and Higher Education Fees through for England without a majority of English MPs supporting them. Under a Milliband Government with a small majority, the same is likely to happen, and against a backdrop of further austerity cuts.
This is corrosive of the body politic, and would be easiest to deliver in England by making it a subset of the Commons sitting as unicameral chamber.
@Martin: I’m a bit confused by the SNP/Yes notion that “Scotland has no debt”. I suppose that this is literally true, but it is a bit like saying that Suffolk County Council doesn’t issue gilts, and could therefore sail off into the sunset debt free. The UK national debt is the sum total of Government actions since 1707 and as Scotland has been fully part of the body politic that ran the debt up, a proportionate amount is “Scottish debt”. Indeed, were it not so, presumably Scottish taxpayers would have a lower set of taxes because they weren’t required to repay the UK debt service (some £70bn this year).
What really concerns me about Salmond/Sturgeon’s bombast on this issue is not simply that they’re knowingly telling fibs: it’s that they may actually try it, in which case the UK government would have every incentive not to cooperate on international issues, starting with EU (and as a P5 member, ultimately UN) membership. If I were a UK Cabinet Minister negotiating this, I’d make that crystal clear to the Scottish negotiation team – and they’d be left with no choice but to climb down. Such a nuclear option would be likely to poison relationships here for a long time – which is why full and fair information should be provided, and why I applaud Danny et al for laying out why a currency union wouldn’t work today.
@Alex: The technical answer to the question of who is responsible for a bailout to date has been the home state government of the Bank’s domicile. This is what lead to catastrophe in Ireland and Iceland, where the assets and liabilities of the financial sector were out of all proportion with GDP, leading to bailouts that led to effective national bankruptcy. IIRC, the RBS and the Scottish financial sector have assets something like 12x Scottish GDP, which in the case of a collapse implies a terrifying burden. In real terms, the £45bn injected into RBS alone would have been 37% of total Scottish GDP last year – or not much less than total Government spending. To have to borrow at that sort of level would be catastrophic.
On the US point, the UK and German banks were not bailed out by the US Government per se; to save the US banking system, the US Government bailed out AIG, and in doing so, paid out AIG’s liabilities. It was these liabilities in the form of insurance that form the major part of the amounts you cite, I believe.
The t
“Once Westminster rids itself of the neoliberal disease – which could be sooner than you think – much of the passion driving Scottish separatism could dissipate.”
What surge in popular opinion leads you to the conclusion that we might soon witness a sea-change in societal ideology?
” Devo-max would deliver local autonomy for all but foreign affairs, defence, environment, national infrastructure and trade policy to all of the UK’s countries. In doing so, it would deliver long held Lib Dem policies on localism, and would probably ensure the defeat of Scottish independence.”
I rue the day that we dropped Devo-max from the referendum … I think that option would have won hands-down. Which full-blooded Scot could be against Devo-max. Devo-max will happen if there is a no-vote to independence … things have gone too far down the road. Can those (who like myself) passionately believe in the Union convince Scotland about this? I love Scotland, love the Scots, believe we can achieve so much more together, that a modernized unity is in the best interests of Scots and all the other nations of the UK. Moreover, like Toby, I believe that Devo-max for Scotland would force us by implacable logic to reform the arcane and antiquated structure of the “state” inthe United Kingdom of Great Britain & Northern Ireland. As it is, we are dicing with death (of the UK).
The debate is not going to be won by dry and tedious (sometimes specious) economic arguments – it can easily be lost if it is characterized as London bullying the Scottish nation, or union guaranteeing an unelected Tory hegemony in Scotland. Neither of these are true, and we must counter them effectively. It can be by presenting an attractive and authentic vision of us working together for a reformed and effective UK which contributes significantly to the EU and the wider world, but with devolution of all powers to the constituent nations apart from foreign affairs, defence, macro fuscal policy,environment, national infrastructure and trade policy.
Toby you are absolutely right to spot that any stable constitutional solution for Scotland means establishing an English parliament. I would add that the seat of English government has to be well away from London. At the moment any self-respecting Scottish or Welsh Labour, Lib Dem or Tory politician seeks to make his or her career in London, heavily involved in English affairs. These parties leave their second team to handle local politics. This is completely corrosive. In Wales it is leading to a completely third-rate government; in Scotland it is leaving the field clear for the SNP. Until the English realise that the “Scottish problem” requires a big change to English politics we will not find a lasting solution. English complacency and arrogance is destroying the union.
jedi – we don’t need a sea change in societal ideology just one in Westminster! The Lib Dems fought the 2010 election campaign to the left of Gordon Brown – the third such election as noted by Tony Blair – and together the parties got over 50% of the vote. The Tories no longer seem capable of winning a majority or getting above 36%. We could have had 13 years of non-neoliberal government after 1997, either with Labour or Lib/Lab coalition in government. Unfortunately for one reason or another it didn’t happen. Greedy Blair preferred to focus on winning in Tory areas so he could satisfy his ego and have huge Blairite majorities.
The polls repeatedly show peoples’ opposition to selling off the royal mail and re-privatising the East Coast mainline. Why do you think Ed Miliband keeps going on about bankers’ bonuses? He knows it’s popular rhetoric.
I am open to establising an English parliament, however, England is larger and seems more diverse than Wales, Scotland and Northern Ireland. I wonder if it is worth establishing regional parliaments based in Anglia, Mercia, Umberland, Wessex etc. These can work simular to the setup in federal Germany where they nominate to the 2nd house in the federal parliament.
I am open to establising an English parliament, however, England is larger and seems more diverse than Wales, Scotland and Northern Ireland. I wonder if it is worth establishing regional parliaments based in Anglia, Mercia, Umberland, Wessex etc. These can work simular to the setup in federal Germany where they nominate to the 2nd house in the federal parliament.
“We could have had 13 years of non-neoliberal government after 1997, either with Labour or Lib/Lab coalition in government.”
Instead we got New Labour, followed by the Tories (in coalition), that should tell you something.
Is anyone saying Scotland would be unable to govern itself ? I think what they are saying is that Scotland might become like Southern Ireland from 1922 until the 1980s – desperately poor. I know the situation is not entirely comparable as there is no Scottish Republican Army attacking British troops and Unionists but if Southern Ireland had remained in the UK it would have benefitted from our prosperity in the 50s and 60s etc and from being part of the welfare state although it might have sufffered even more in the Second World War.