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A new currency, a new border, and massive austerity.
We waited years for the SNP's Economic Plan. We should make sure everyone knows about it.
In the years since announcing her intention to rerun the referendum she lost, Nicola Sturgeon has been constantly pressed by journalists on the difficult economic issues around leaving the UK: currency, funding public services, borders. Each time she has evaded these questions with the same response: just wait, those answers will be there when we publish our economic plan. Yesterday, after years of waiting, that plan was published. What did we get?
Just ten pages on how Scotland’s economy would operate without a currency of our own, on setting up a central bank and establishing a new currency.
Just six pages on how we would ensure we could still fund our public services like the NHS after giving up our share of UK funds.
Just three pages on how their new hard border with England would operate.
Fundamentally the problem with this document isn’t that the case isn’t convincing, it is that the case isn’t there at all. We were promised a blueprint for a new state but this was barely a brochure.
This is a document on the Scottish economy that refused to put numbers on the public finances of Scotland. Even the video accompanying the launch has graphs and pie charts with no labels on them.
However, in the few pages they have provided, the SNP have somehow managed to make their case even weaker in each of those areas. Let’s take them in turn.
Currency: Giving Up the Pound after Years Without a Central Bank
This document, for the first time, commits the SNP Government to leaving the UK’s currency union and giving up the pound:
“We propose that, on independence, Scotland would continue to use the pound sterling for a period before moving to our policy of adopting a Scottish pound. The change would take place as soon as practicable”
For the first time in more than three hundred years there would be different currencies on this island - a huge change that will impact on the cost of living, mortgages, trade and jobs. Having warned dozens of times about the huge costs that would place on everything bought and sold between Scotland and England, Nicola Sturgeon suddenly developed amnesia on the issue.
One significant change from the previous attempt to explain their currency policy, The Sustainable Growth Commission, is that the SNP are no longer committed to pegging the value of a separate currency to that of the UK Pound:
“Decisions about the Scottish pound would also be made by the elected government and parliament at that time. Those would include the precise form of the currency regime for a Scottish pound – for example, a fixed or floating exchange rate – informed by analysis and advice from the Scottish Central Bank.”
This means incomes and expenses in different currencies, with the value of mortages salaries, pensions and everyday bills becoming a matter of foreign exchange.
The paper suggests giving up the pound “as soon as practicable” but when pressed at her press conference on whether this meant 3 years, 5 years or 10 years of Sterlingisation and without the protections of a central bank, the First Minister wouldn’t say. The paper is just as mysterious saying only that the length of the period of Sterlingisation would “guided by criteria and economic conditions rather than a fixed timetable”.
What is clear is that however long we operate without a real central bank, we will have to have tighter public finances. Having no control over monetary policy:
“would place a greater emphasis on the use of fiscal policy to ensure the overall strength of the economy, and on fiscal sustainability to provide confidence to financial markets.”
This means austerity.
On one of the most crucial roles that a central bank plays, that of ‘lender of last resort’ in a crisis, the paper offers this sentence:
“The Scottish Central Bank would also act as a lender of last resort, where necessary, to the financial system in Scotland in line with current UK practice.”
But a real central bank has control over currency, and so when its crisis functions are needed (as in the financial meltdown of 2008, covid, or the last few weeks) it can undertake quantitative easing. To provide the kind of facility that a real central bank provides without control over a currency, it would fall on the public purse to offer this funding. That means austerity.
If this didn’t already sound like a lot of pain, we haven’t even reached the section on creating reserves to stand behind a new currency. The paper says would could expect to inherit $14 billion of reserves as our share of the UK assets. It then lists the level of reserves held by other small countries with a currency to defend. For example Denmark and Norway both hold about $80 billion of reserves. How will we make up that extra $60 billion? The report shrugs its shoulders and offers the most remarkable eight words in the whole document:
“Borrowing would be used to secure additional reserves.”
In 2014 Nicola Sturgeon built her campaign on economic stability, signified by keeping the pound. Today she is offering years of chaos without the protection of a real central bank and then taking away our pound.
Public Finances: Austerity So Severe It Cannot Be Named
The last attempt to address this issue in the Sustainable Growth Commission set out fiscal rules intended to get Scotland’s unsustainable deficit under control so that a separate currency could be established. It’s authors and the SNP Ministers who commissioned it denied that the spending restraints of the plan meant austerity though it clearly did. Part of the reason that report recommended a lengthy period of Sterlingisation was to stretch out that austerity over a longer period to try to present independence as less of an economic shock.
This time around the SNP have decided the exam question is too hard to even attempt. They have simply deleted all numbers. Whereas both the 2014 White Paper and the 2018 Growth Commission both used GERS as the starting point for discussing the finances of a separate state, now they just don’t bother:
“No estimate of the fiscal starting position is set out in this document”
Where the Growth Commission told us what the fiscal rules were so we could work out the size of austerity, this paper says there will be strict fiscal rules, but they can’t tell you what they will be:
“We would set out the proposed fiscal rule in advance of Scotland becoming independent, to allow it to be scrutinised and understood in advance of it coming into effect.”
Note: it will be published before independence but not before we are asked to vote on Scexit. You’ll have to leap off the fiscal cliff to find out exactly how far you are going to fall.
This paper also announced the death of the SNP’s pet project of an oil fund. Last week the SNP said that oil revenues in future would be put into a special fund. The problem with this is that, even with every penny of taxes from the North Sea allocated to Scotland, we still spend billions more than we raise. All oil taxes are already spent on public services like the NHS. The report acknowledges that oil revenues can’t be counted on to make up the fund:
“we would, if necessary, borrow to invest to meet the remaining element of the Fund and ensure investment needs are met.”
Is an oil fund created by borrowing rather than oil revenues really an oil fund?
Within the report we have borrowing to fill the existing deficit, borrowing to support bank deposits, borrowing to be lender of last resort, borrowing to build up currency reserves, and borrowing to build up a non-oil fund. All borrowed in the currency of another country. An amount of borrowing that is barely credible to start with, but add to that the fact that we would be borrowing in pounds and paying back in a new unproven currency, and it starts to look beyond ridiculous.
Nicola Sturgeon who built her previous referendum campaign on the promise of an escape from austerity cannot now find any way to present a plan which avoids years of austerity and cuts to public services like the NHS.
Borders: Checks on the Roads into England
The document, again for the first time in a Scottish Government publication, admits that the SNP’s new hard border with England will require border checks. But don’t worry, they say, it will only be on the main roads you use:
“Any actual physical checks would likely only be undertaken on the two main trunk routes between England and Scotland or at rail freight terminals”
Think of the the huge queues of lorries at Dover and ask yourself why moving that chaos to the A74 or A1 would make anything better. Especially when the border impact would be far greater.
The SNP are so angry about the borders erected to £16 billion of EU trade thanks to Brexit that they are going to erect a hard border to £52 billion of UK trade. Throughout the document the SNP are desperate to avoid this comparison and so they add the value of trade with the rest of the world onto the value of trade with the EU. As with the fiscal question they simply don’t want to engage with real numbers.
Within the generous three pages of planning for drawing a border across this island, one whole page is devoted to plans to help Scottish businesses with the increase costs and complexity of turning transactions into exports. As with needing to borrow tens of billions more, or having to impose austerity, or having to change currency, it simply doesn’t occur to the nationalists that rather than spending so much effort on mitigating problems that only exist because of leaving the UK, we could simply not leave the UK in the first place.
In 2014 Nicola Sturgeon promised a renewed friendship with our family across the UK. Today she is planning to erect border checks with England and bringing the chaos and queues we see at Dover North to a new border at Gretna.
Never Mind the Critics, What About Her Pals
The reaction to the First Minister’s report has been brutal.
The Institute for Fiscal Studies criticised the SNP Government for not even attempting to put any numbers in this report. Yes, they said, this is a volatile time but:
“Scotland’s much higher levels of public spending and slightly lower levels of onshore tax revenues mean that it is highly likely an independent Scotland would need to make bigger cuts to public spending or bigger increases to taxes in the first decade following independence than the rest of the UK would need to”
Economist John McLaren in the Scotsman concluded
“The report is incoherent as it refuses to acknowledge exceptional circumstances and necessary trade offs.”
However, the most damning criticism of the paper came from those who should be Sturgeon’s allies.
Richard Murphy has been one of the few economic commentators willing to entertain the SNP’s nonsense. No longer it would seem. Here are a few snippets from a lengthy Twitter thread on the First Minister’s paper:
“this is another debacle in the making…There is no data in this document to persuade you of the case…faintly ridiculous…I was expecting something better than this, and have not got it…disastrous for Scotland…madness…written for the benefit of the small number of people who make up Edinburgh’s financial elite…this paper lays out a policy that would be disastrous for Scotland. It could even crush it….”
Robin McAlpine, who normally has a similarly high threshold for economic absurdity, has also had enough:
“dismal…Scotland the country has no lender of last resort under SNP plans…the Scottish Government has republished the Growth Commission but has taken out all the numbers that proved the Growth Commission was a manifesto for austerity…doesn’t really have any solution for the border…the whole thing is utter pish.”
Make Sure People Know This
As she stood there selling the removal of the currency she once told us was ours, the erection of a hard border she once denied was needed, and hiding austerity she once claimed to oppose, Nicola Sturgeon must have been relieved that Jeremy Hunt’s reversal of the budget was taking the spotlight away from her.
The proposals the First Minister outlined are *deeply* unpopular. The SNP will want this to be a painful moment they can tick off, without voters noticing, so they can move onto other issues that suit them better. Remember that, for undecided voters, these are the issues. Keep talking about what Nicola Sturgeon has announced here because people are not going to vote for the economic upheaval described in this document.
For obvious reasons I thought about Psalm, By Wisława Szymborska this week - especially the opening line:
How leaky are all the borders
we draw around our separate nations!
How many clouds cross those boundaries
daily, without even paying the toll!
How much desert sand
simply sifts from country to country,
or how many mountain pebbles
hop down slopes on to foreign turf, just like that!