Tuesday, 14 January 2014

By 2016 Investors may prefer Scotland to the Rump.

I may mistaken  but the  Treasury’s announcement that it will underwrite Scottish debt after a Yes vote. Does not mean that a Independent Scotland will be debt free . Rather  as First Minister Alex Salmond  claims, an indication of the UK government’s willingness to ‘pre-negotiate’ the fiscal terms and conditions of Scottish independence. Making sure that in either case (YES or NO) . There will not be a financial crisis  as the "markets" the real people who run our economy get jittery .

Some like ,George Eaton in the New Statesman says, it is a reflection of the lack of confidence investors have in the Scottish economy to cope with the effects of independence. The Treasury’s pledge is an attempt to ward-off a rise in UK borrowing costs precipitated by a Scottish credit downgrading.

And he may have a point  but  to what extent are the Unionist side potentially undermining the Scottish economy with their constant negative attacks on the Scottish Economy and the future of an Independent Scotland.

Take Eatons appraisal

Owing to Scotland's weaker fiscal position, investors would demand higher returns on debt held by its government, which is precisely why the SNP was wrong to greet the announcement as a vindication. As the IFS (which has no stake in the race) recently noted, Scotland's lower birth rate and lower immigration rate means it automatically incurs a larger "fiscal gap" (the difference between spending and revenue) of 1.9%, compared with 0.8% for the UK. Even in the most optimistic scenario, Scotland would need to raise taxes or cut spending by an additional £2bn (such as through a 8p rise in the basic rate of income tax or an increase in VAT to 27%, or a 6% reduction in public spending) to achieve a sustainable debt level. Should oil revenues prove less buoyant and borrowing less cheap than the SNP anticipates, this figure could rise to £9.4bn (the equivalent of an 18p rise in the basic rate or a VAT rate of 36%), a scale of austerity that makes George Osborne look like a Keynesian. This doesn't mean that an independent Scotland wouldn't be economically viable, but it does mean that most voters would be worse off.

And yet as James Maxwell points out  the Unionist argument is not the only one that the "Markets may be considering"

 Firstly (and I may be wrong about this), but I think the Scottish government’s oil revenue estimates are based on an aggregate of revenue projections. So they don’t, as George and the IFS suggest, offer “the most optimistic scenario” – they are in fact tempered by the highly conservative estimates of the OBR. More optimistic estimates can be found in the work of Alex Kemp, professor of petro-economics at Aberdeen University (and official historian of North Sea oil). In 2011, Kemp estimated that oil would generate between £50bn and £100bn in tax over the next 10 years alone. I trust his judgement on these things more than I do the OBR’s – in 2011/12, North Sea revenues were £11.3bn.

Indeed the Treasury announcement, may be have had one eye on the fact that the rump of England,Wales ,Northern Ireland and not forgetting Cornwall, will have lost a huge amount of revenue after 2016 when or if Scotland becomes Independent. 

One wonders if there are investors just waiting for the chance to move on a New Norway and that the future might well be there, rather and a tired UK bankrupt of ideas other than promoting the City of London .

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