Taken from another area of the internet:
A vision of the re-validated United Kingdom:
Firstly Scotland, the new powers promised (yet to be confirmed what exactly they are, or could be possibly), after much wrangling and watering down due to the Westminster back benchers refusing to tow the (official) party line, are granted. Crucially these include tax raising powers,ability to borrow funds against assets, and the ability to ring fence healthcare spending and hence prevent ( or seemingly prevent) the stealth privatisation of these services happening elsewhere in the UK. One power that will not be on the table is to have any increased representation regarding negotiations with the EU on common policy’s.Bear in mind that privatisation of nationalised industries/services is not a UK government policy as such, but a direct result of the conditions designed to create a free marketplace imposed by the IMF et al when lending money to bail out the UK from the late 70’s onwards. Now this is a very important point as we will see.
Returning to the powers granted to Scotland, in return for these powers ( which will come with the caveat, as is now, that the Westminster government can over rule the Scottish parliament at any time it chooses if the policy in question does not suit it’s own agenda),the current Barnett formula will be abolished. Again this is a very important point for the rest of the UK, but not for the reasons you may think, we will come back to this later.
There will be, for a time, a block grant allocated for funding in Scotland until such time that all the mechanisms for the collection and distribution of taxes are in place, then this will be ended.
Now the Oil question, regardless of what the Yes campaign told us about oil revenues in an independent Scotland, the truth is that it was the cornerstone of their funding plans in the short to medium term. Without the oil revenues an independent Scotland could never have managed to convince any lender to fund the start up costs of a new country with no assets. An asset is in the eyes of a lender a tangible thing, that if worst comes to worst can be appropriated in order to cover the debt owed, the intellectual ideals, or the amount of wind and waves around a country is not a sufficiently tangible asset for a lender to take a chance on!
These oil revenues and reserves will be classed, as they are now, a UK asset, and will continue to be used as a financial lever for borrowing and taxation will continue to go to the UK government to be distributed as they see fit.
Back to taxation powers, from the taxes raised by the Scottish parliament, an expectation will be made by the UK government that from those tax revenues, payments will continue to be made against our shared outgoings/ debt repayments i.e. military, defence/ offence capabilities ( 2 totally separate things),etc based on percentage of population of the UK as a whole. If the UK borrowing continues to increase despite austerity measures, as many experts predict it will, then Scotland’s expenditure on its share of the debt repayments will increase also. Now this becomes a catch 22 situation for Scotland. In order to provide income to service it’s debts and social responsibilities, the money has to come from somewhere. Three options present themselves, increased taxation in whatever form, go cap in hand to various financial institutions for funding, or request that the UK government and the Bank of England intervene with bail out finance.
Increasing taxation overtly is never a popular choice with politicians, so to begin with there would most likely be an increase in stealth taxes along with cuts in public services, as is currently the case. This will only slow down the rate of decline for a while and then the choice of 3 will return. The most likely choice will depend on the make up of the Scottish government at this time, a predominantly nationalist government will likely approach alternative lenders for funding due to sheer resentment at their treatment during the 2014 referendum (and would likely have little other choice than to do so, although with no tangible assets to use as a lever, not sure who would be willing to lend), a more UK leaning government would approach their natural bedfellows and go to the UK government for a bail out. Either way the end result would be the same, as any lending from either source would result in the same conditions being imposed re privatisation of public services etc and an inevitable rise in taxation to cover the costs of increased borrowing,and so the cycle continues. Of course, if Scotland had voted for independence and had control over the oil revenues,it would be in the same situation re privatisation of public services etc as it would have still had to have borrowed in order to set up the required infrastructure to run a successful independent country, but at least the revenues MAY have been enough to pay of this debt within a reasonable timeframe IF managed correctly, and at this point possibly started to enjoy a relatively decent level of prosperity.
Now for the UK.
Firstly the Barnett formula. Contrary to what people think, this formula does not apply only to Scotland but to the whole of the UK, it was designed in an attempt to equalise the distribution of public spending by giving a higher proportion of funding to areas that were deemed to be “poorer” as an average at the expense of the “richer” areas to give all areas a more level playing field,(very much a simplification). What this means is that places like the North East of England received a higher level of public funding than the relatively more prosperous South East of England as did Scotland. With the abolition in Scotland of the Barnett formula, it would be inconceivable that this formula as is could remain in place for the rest of the UK, as Scotland,although with ‘devo max’, is still part of the UK,and rules must be applied evenly across the board.
The Barnett formula could conceivably be replaced with another method of funding distribution within the rest of the UK, but if so would probably not be as generous to some areas in these times of austerity as previous. This would again lead to further cuts in public expenditure in these affected areas with the inevitable loss of vital public services and associated private supply business and hence jobs. These areas are then into the cycle of having to increase public spending on the benefit system, but with less funding to do so. Without the powers to increase income taxation directly, these areas will have to resort to yet more stealth taxation on the populous, for example increasing the council tax on private property,increasing tax in business property etc.
This then becomes a problem for the UK government,reduced level of tax revenues but an unwillingness to borrow more money to keep the country afloat. There is no gold reserves left to sell as a short term fix,if corporation tax is raised it will deter investment and possibly force companies that can to relocate to more ‘suitable’ territories, what to do? Raise individual tax rates will be the answer to that, raid the pension pot again a la Gordon Brown and hope that gets the UK by for a while.
Eventually at sometime in the future there will be 2 options available, to start printing money again in the hope that it does not cause hyperinflation and basically devalue the currency, which it will. The crash and burn of Greece’s economy will be nothing compared to the UK in this scenario.
The other option is that the EU will come to the rescue with a bail out at this point, but there will be serious concessions to be made for this due to the fact of the 2017? Referendum on EU membership will have been held by then. This will be a vote to stay within the EU, but again by a narrow margin, and the EU commission will be in no mood to play nice with a country that only just wants to stay within its organisation. One of the condition of this bail out, where it to happen, will be to join the common currency with all the loss of control over interest rates, taxation etc that that entails.
Meanwhile in the UK, the rise of the politically far right leaning parties in (coalition?) power will lead to a corresponding rise in radicalisation and separatism of disaffected ‘minorities’ with the inevitable results but at least the security services and police will be busy.
Anyway, many other things that I have left out in my rant, I’m sure people will point out where I’m wrong, but hey nobody can predict the future and I sure hope it does not turn out as grim as I write here.
Have a nice day
