[Closed] Scotland to help pay deficit - even if independence goes ahead

One of the things he mentioned time and time again was Scotlands higher GDP per capita. I’m no economist, so could be very wrong about this but my understanding is that the majority of Scottish industry is owned by companies registered ‘abroad’ (circa 60% with up to 80% of ‘large’ companies AFAIK) so whilst the profits from these companies are included in the GDP figures, they wouldn’t be included in the GNP because the money doesn’t stay in Scotland – none of the SNP people I spoke to had any real insight into how this would affect the balance sheet, if I was in a position to vote I would want some idea of the affect.

You do yourself down as this is an important point. The main difference between GDP and GNP is how income paid and received abroad is handled. In GNP, this is netted out. In GDP it isn't. Why is that important or relevant? Of course, a GDP calculation will show Scotland around 20% better off, a GNP calculation will not. So there is no reason why the SNP would want to use the GNP data (Plus its harder to calculate!!).

This may be slightly harsh on the SNP as it is perfectly standard practice to use GDP as the basic measure of national income. Neither is better or worse, they simply show different things and give different perspectives. However, the basic point about how it affects the standard of living for Scots doesnt change - it doesn't as the GNP calculation shows. Only a minor fact though!!!

NW - leaving aside the fun and games on strating points and using stats to one's own advantage. Scottish tax revenue is in proportion to its population share of the Uk which is not surprising given the fact that GDP per cap is slightly lower/broadly the same. But expenditure per head is more albeit much less so (by about a half compared with 60s/70s). So the better off argument from a fiscal standpoint needs some work IMO.

At some point Salmond would then have to be honest about his own fiscal stance particularly given the sensitivity to volatile oil prices. But either way, he has opened up an can of worms since in the case of a No vote, the debate has already thrown up issues relating to current levels of expenditure versus actual needs assessment. As always, the law of unintended consequences rears its ugly head.....

Is it me or does Danny look like Beaker from the Muppets?

ha yes!

dragon - Member

Also Scotland has to make up the short fall in funding between what they put in and get back from the Councils. It's easy to say the money can be found, but will it when people will want it spent on hospitals, roads etc. not nebulous research done by already well off academics. Also the Scottish parliament might have very different research priorities so some groups could loose out big time.

Yup. But best figures I can find for that is that the difference is £15m (open to alternatives incidentally, that's from a UK govt source but some other parts of it are flaky. Though, flaky in a way designed to make things look bad for Scottish independence to be fair!) And in public finance terms, that's a drop in the bucket and (to play a Salmond card) massively offset by savings on for example trident, without having to mention oil and gas.

<wandering off on a tangent>

Another way of approaching this... As discussed above, the projection is that all other things being equal, Scotland's deficit would be lower than the UK's. Which is good news! But, every time someone says "You'll have to cut spending on X to pay for Y", remember that's only necessary to retain the current (im)balance of budgets. Scotland could instead increase public borrowing by (IIRC) several billion pounds, and yet still have a lower deficit than she has as part of the UK.

OK, raising your deficit isn't good news, we'd rather retain our lower deficit. So turn that around...

Because we talk about Scotland maintaining current funding levels, but we don't talk about the fact that the UK will not. Imagine the reaction if the Yes campaign said that in order to secure independence, we'd need to introduce cuts on the scale of Osborne's austerity! A double standard is applied, UK government cuts are OK but scottish independence cuts are unthinkable.

If we want to achieve a deficit reduction, we only need one cut, 96 miles long 😉

teamhurtmore - Member

The main difference between GDP and GNP is how income paid and received abroad is handled. In GNP, this is netted out. In GDP it isn't. Why is that important or relevant? Of course, a GDP calculation will show Scotland around 20% better off, a GNP calculation will not. So there is no reason why the SNP would want to use the GNP data (Plus its harder to calculate!!).

TBH this does bug me, I'd love to be able to see the same comparisons with GNP but the numbers don't seem to be out there. Did find a CPPR briefing paper that stated that GNI is similiar for Scotland and England but not convinced. There's got to be a historic impact of London being the UK capital and therefore the default "home" of companies regardless of where they actually do business- UK national companies will become effectively RUK companies in this light. So GNI is probably also skewed, in the other direction. I couldn't guess which is fairer tbh.

But the standard metrics as you say are most often GDP, so it's defensible, and probably the best we have... I just feel it might not be the truest picture. (in all sorts of ways)

NW - it's neither true nor untrue. It measures what it is designed to measure. But the correct GNP calc would be interesting

Imagine the reaction if the Yes campaign said that in order to secure independence, we'd need to introduce cuts on the scale of Osborne's austerity!

This is the irony though. You will!!! By sticking with sterling and without having your own lender of last resort you will have to accept certain terms which will inevitably involve some form of stability pact. So like it or not, you will be tied to Osborne's / Ball's future spending cuts despite having no say on them. This is the reality of Salmond's policy choice for an independent Scotland. And this is meant to be called "Indepndence."????????

Had a pleasant 20 minutes reading through this-just want to say fair play to Northwind (and others) for hanging on in on this thread and giving calm and structured responses to some of the posts on here.
Good effort folks.

The majority of us Scots don't want "independence" and are very happy within the UK. So this is all hypothetical and dull. It's going to be a very tiresome 8 months.......

At least you have got the Commonwealth Games and the Ryder Cup to look forward to......

teamhurtmore - Member

This is the irony though. You will!!! By sticking with sterling and without having your own lender of last resort you will have to accept certain terms which will inevitably involve some form of stability pact. So like it or not, you will be tied to Osborne's / Ball's future spending cuts despite having no say on them. This is the reality of Salmond's policy choice for an independent Scotland. And this is meant to be called "Indepndence."????????

Unlikely. Considering that the (alleged) point of the cuts is deficit reduction, and the RUK will have its work cut out post-independence just to close their deficit to match Scotland's, I don't think we've much to fear from convergence criteria. Certainly there is no prospect of a stability pact that says "you must match our financial policy exactly, cut for cut"- I'll file that in the THM Predictions file along with "The Bank of England might pursue policy that is directly opposed to your needs"

And this is meant to be called "Indepndence."????????

What's the alternative though?

The Euro, in which case economic policy (or at least some of its levers) is controlled by Frankfurt or float our own currency?

Sterling is a no brainer. If independence goes ahead Scotland will need a transition currency anyway - this would naturally be Sterling - it would be crazy for it to be anything else. Holding on to this transition currency for a longer time frame to allow Scotland to choose the best course of action makes sense.

Political rhetoric at some point will have to give way to this reality.

Except the Natsis will try and hijack both and spoil the enjoyment of both. I'll be too embarassed to wave a Scottish flag this year in case people think I'm a Natsi!!

And while I'm on a rant, it really pisses me off that normal people in Scotland can't wear/show/wave a Union Jack without people assuming your a Rangers fan/Orangeman/religious bigot!!

Anyway, back to work..... 🙄

In all honesty its for the people of Scotland to decide for themselves all I hope for is that they get a balanced view of the facts so they can make an informed judgement for themselves. Scotland is a truly lovely place but its a big place that needs to be maintained & unfortunately that requires money, lets all hope that the politicians can use a calculator & do their sums correctly!!

lets all hope that the politicians can use a calculator & do their sums correctly

lol! snp have been hauled up over their 'sums' before.

As have most UK governments 😉

NW, well we will have to disagree on Scotlands deficit re the rUK. I hope that you are right, but fear that you are wrong. We shall see. (Oh including unfunded liabilities as well. That's a pan-uk trend to hide that away). But explain why would the BOE agree to be a lender of last resort without assurances re Scotland's fiscal policy. That would be absurd.

Please do keep it in that file. The BOE is already doing this by massive mispricing risk and repressing financial savers. And remember what happened with NS oil and the strength of sterling when we were young???? Crippled large parts of Scottish manufacturing. And now just look into Europe...

But rich, holding on is not a free option, nor is automatic. So come independence (if that happens) Scotland would have no control over monetary policy (see Scotland's Future) and limited control over fiscal policy *. Again, is that really independence. At best the book of dreams is a manifesto for devo-max (it's original intention???).

* wee eck has committed to maintaining a gap between Scottish and rUK corporation tax, so the ceiling is set where?

Robespierre is on a rant,good job I am not a counter revolutionary. 🙂

Scotland is a truly lovely place but its a big place that needs to be maintained & unfortunately that requires money

teamhurtmore - Member

But explain why would the BOE agree to be a lender of last resort without assurances re Scotland's fiscal policy. That would be absurd.

It would- but that's not what I'm saying. You said "So like it or not, you will be tied to Osborne's / Ball's future spending cuts despite having no say on them.", remember?

There's a long country mile between agreeing a stability pact and "you will have to accept our future cuts".

There's a long country mile between agreeing a stability pact and "you will have to accept our future cuts".

Not sure the Greeks, Portuguese, Irish and Spanish would agree with that! Of course, without the details of any hypothetical stability pact it's impossible to say.

Changing the subject slightly, I've not read the "book of dreams", but how does a future Scotland plan to people its foreign and defense ministries? The embassies?

Why would the BOE allow Scotland to run a loser fiscal policy than the rUK? Ditto as McCrone pointed out it is also highly unlikely to allow salmond to undercut corporation tax v rUK. There lunches and there are (no) free lunches

Professor Gavin McCrone said the SNP policy of requesting a eurozone-style currency union with the remainder of the UK would mean Scotland having “little freedom” over its tax and spend.
Instead, he said Scotland would have to give up control over its fiscal policy to Westminster, agree a limit to its budget deficit and would be barred from undercutting the UK’s corporation tax rates.

McCrone's language is a little tighter than mine TBF NW!!! But the basic points remain, who has control over monetary and fiscal policy in an independent Scotland with sterling as a currency and BOE as the lender of last resort?

The majority of us Scots don't want "independence" and are very happy within the UK. So this is all hypothetical and dull. It's going to be a very tiresome 8 months.......

About a third of us do though and a majority may be willing to stay within the UK but whenever polled they want change in the form of much more devolved powers to be happy to do so. This currently is not on the table and from what I have seen there is no vision from Better Together as to what this would look like, probably because there would be three different versions.

To me that makes a no vote much more of an uncertainty than a yes vote. To suggest people are happy with things as they are is a joke.

A no vote which leads to the status quo remaining in the longer term would be disastrous for Scotland. You can't have a country where the democratic wishes of the majority are ignored.

To me that makes a no vote much more of an uncertainty than a yes vote.

That's quite a feat of mental gymnastics there. Chapeau!

NW, out of interest is Prof Bell a colleague/friend of yours?

( edit: ignore he's at Stirling, sorry)

You can't have a country where the democratic wishes of the majority are ignored.

China?

rene59 - Member

...You can't have a country where the democratic wishes of the majority are ignored...

most people in the uk voted 'not tory' at the last GE.

just saying....

*happy country

teamhurtmore - Member

Why would the BOE allow Scotland to run a loser fiscal policy than the rUK?

It's not so much a question of "looser", but of different approaches to the same result. Perfectly reasonable to set expectations and measurements. Nondivergence criteria is probably the term we want here. But that doesn't equate to deciding exactly how those should be met.

Gavin McCrone's an interesting if biased speculator but let's not get carried away, he's not making policy for the Bank of England just yet 😉

teamhurtmore - Member

Please do keep it in that file. The BOE is already doing this by massive mispricing risk and repressing financial savers. And remember what happened with NS oil and the strength of sterling when we were young???? Crippled large parts of Scottish manufacturing.

Ah, this is that thing where you remind us how bad things can be in the union, then say "It [i]might[/i] not be better under independence" I like that one, arguments for independence are better when they come from the mouths of people who oppose it.

Northwind - Member
But that doesn't equate to deciding how those should be met.

Well yes and no. Corporation tax being a specific case in point. It is perfectly possible, indeed probable, that you would be prescribed exactly what to do.

Is it? It's certainly something that could be discussed. What makes you conclude it's probable?

NW- sorry I am a little lost with your final point. But thanks for the counter arguments anyway. All very interesting (and civil). All my Scottish mates are in the No camp, so much better to hear the other side on here! And you arguments are always good and interesting (hope that doesnt sound wrong!!) and make me think.

sorry for the McCrone overdose, 😉 but I still find his book the best (so far) at presenting different sides of the debate in a reasonably open way. Much better info to base decisions on than the book of dreams IMO.

x-post - chats with local Economists (re corp tax) and experience of Europe. Plus despite what Salmond pretended yesterday, he does not hold the strings.

[quote=teamhurtmore ]x-post - [s]chats with local Economists (re corp tax) and experience of Europe. Plus despite what Salmond pretended yesterday, he does not hold the strings.[/s] FUD

what does FUD mean? (edit - hmm, Scottish slang???)

And in addition to my chats, I quoted one of the experts on the tax issue above. He knows this much better than me. Plus AS has committed to keeping corp tax below the rate that others decide as noted above. So the tax rate is prescribed by Westminster, if allowed at all.

Awhiles you could equally say most people in the UK voted "not labour"
As Scotroutes said

Labour/LibDem/Tory - three cheeks of the same arse.

[quote=teamhurtmore ]what does FUD mean? (edit - hmm, Scottish slang???)
😆

Nah - this one: http://en.wikipedia.org/wiki/Fear,_uncertainty_and_doubt
(I'm showing my age/IT background)

Phew, I thought that (the other definition) was a bit rich Scotroutes!!!! 😀

Gordimhor - ok, lest leave the argument about the exact debt to GDP ratio aside and agree that some further fiscal discipline will be required in both economies (ie Scotland and rUK). On idependence there are two theortetical options re debt - split it (but this is arguably a technical default by UK) or rUK covers it all and Scotland compensates financially. This is in effect what yesterday was partially about. An independent Scotland would still be responsible for paying to service the debt (otherwise it would arguably be technically defaulting), therefore the behaviour of Scotland has a direct bearing on rUK debt servicing costs which is why I get pissed of when Salmond talks BS since it affects our borrowing costs as well as a potentially independent Scotland. From both perspectives he is irresponsible. Second, the BOE would have to play the role of lender of last resort in the absence of an independent Central Bank of Scotland. To do this, it would need to be happy with Scottish policy mixes.

Plus, I would assume that Scotland would want to be on good terms with Europe. Judging by Europe's hostility to Ireland's corp tax policy, it would be an "brave" step for a brand new nation with European intentions to start off with an aggressive corp tax rate policy. if anything Europe is moving towards tax harmonisation - the goolge, amazon debate.

Gordimhor - sorry on re-reading that is not that clear. Let me give a hopefully clearer example. Assume independence, Scottish banks will have to meet certain liquidity buffers. To do so they will have to hold a certain percentage of their assets in domestic (Scottish) government bonds. Ultimately, as lender of last resort, the BoE is at risk if the credit worthiness of Scotland deteriorates. Put simply, upon independence the BoE would be exposed to the credit risk of an independent Scotland. The BoE has already made it clear that, in order to manage this risk, the UK government would require limits on taxation and spending in Scotland.

If Scotland established its own Central Bank ( a requirement for European entry) then this issue would be avoided. But that is not the current proposal.

Thanks THM I hadnt picked up that there were 2 ways Scotland could continue to repay its debt. Given that the BofE is currently the whole of the UK central bank is it not in part Scottish, Welsh and Northern Irish,if Scotland continued to pay the debt etc would Scotland not be entitled to a representative on the monetary policy committee? (An independent rep not a scottish govt rep).
Edit I suggest this might be a temporary situation, with currencies separating when Scotland joins the Euro

Quite possibly yes....again my understanding is that this is another issue for debate.

The two debt paths is very interesting actually and there is lots of debate on what constitutes default etc. Most assume that the debt would be split and Scotland would be responsible for x% and the rUK for Y%, Of course, that ignore what the bond holders would think and could in theory be classed as the Uk defaulting!!!! The more likely outcome was laid out yesterday but without the "representation" bit (unless I missed that) !!

edit for edit. Agreed (assuming the € still exists by then!)

[i]The majority of us Scots don't want "independence" and are very happy within the UK. So this is all hypothetical and dull. It's going to be a very tiresome 8 months....... [/i]

Can I just remind folk that it isn't the 'Scots' who are voting, but those of us who live in Scotland. And, AFAIK there is no such legal person as a 'Scot'; just for this vote, it's people who are residence in Scotland.

my understanding is that the SNP would prefer not to do this because of the negative impact it would have on Scotland's financial services industry

how does a future Scotland plan to people its foreign and defense ministries? The embassies?

The majority of us Scots don't want "independence" and are very happy within the UK. So this is all hypothetical and dull. It's going to be a very tiresome 8 months......

I'm unsure. Certainly the polling shows that at the moment, the majority of scots will not vote Yes. But that's not quite the same as being anti-independence. There's a lot of people who're basically unconvinced by the current arguments- they're open to the idea, but not sure it's the right choice.

I certainly wouldn't agree that not wanting independence means you're happy within the UK! I think a lot of No voters are pretty fed up within the UK, but still consider it the better or safer option from the 2 on offer.

I suspect that people who are against independence full stop are in the minority, along with those who want it at all costs. Anyone seen any decent polls of that? It's all very referendum focused rather than principle focused.

When we changed the name of our shop it cost a fortune with new signs, business cards and stationery.
How much will it cost to rebrand not only Scotland but also Ruk?

How much will it cost to rebrand not only Scotland but also Ruk?

(PS stationery costs peanuts. Signage has a price, true. How much did you spend?)

Scotland is already pretty much branded as Scotland, what do you envisage it being rebranded as?