NICOLA Sturgeon and Jeremy Hunt spoke within an hour of each other earlier today: the First Minister to set out her economic prospectus on independence, the Chancellor to stem panic in the markets over the government’s catastrophic and now deceased mini-budget.
The coincidence of the two statements helpfully sets out the two frames through which the independence debate in Scotland is being fought.
On the one hand, there is the SNP framing. This argues that Scotland should leave the UK because the UK has gone mad, and that an independent Scotland could do better on its own.
On the other, there is the counter point that, having watched the UK leave its largest trading partner in a long acrimonious split and then, in the last few weeks, having seen the UK Government’s wild economic experiment hurled back in its face by international bond markets, it would be inadvisable to decide to copy this exact same approach – but with bells on.
This morning, Nicola Sturgeon was understandably keen to reinforce her own framing and capitalise on the chaos in Westminster. She is, of course, right to say that the UK is in a worse state economically than it was eight years ago when Scotland said No to independence the last time. There seems little point pretending otherwise.
In essence, the SNP’s case now boils down to: “The UK is a mess: yes, we might have some turbulence too, but at least it’ll be ours to manage and it’ll all be fairer/greener/nicer in the long run.”
Ms Sturgeon was, however, rather less clear when answering questions on the counter argument. Scotland has now seen what happens when you put sovereignty before cooperation across a wider union. We have also, in the last few weeks, seen what happens when you sell an undercooked economic plan to sceptical creditors whose money you need if you don’t want to go bankrupt.
And while those creditors are not focussed on Scotland – for the good reason that nobody expects independence any time soon – the problem for the SNP is that we can predict with some degree of certainty how they might react if, in some parallel universe, the SNP’s plans ever did make contact with reality.
In this world, the SNP has confirmed today that Scotland would aim to set up its own currency. But, for an undetermined period to begin with, it would kick off an independent nation without its own currency, using the pound ‘informally’.
We would have a central bank but no ability to print pounds.
At the same time, we will need a lot of them.
Here’s graph one showing our fiscal deficit: it’s £23 billion.
Here’s graph two showing our current account deficit – the gap between what we export and import. It amounts to around £10-11 billion.
If lenders are going to give us pounds, they will want to know they are going to get those pounds back, with a return. But given we will need a lot of pounds to fill that fiscal deficit, and given we are exporting a lot of pounds to pay for all those imports, there is a big question about where we are going to build up cash to hand back to our creditors.
Scotland would, let’s assume, get a share of the UK’s reserves – the Scottish Government today estimates it would get $14bn of the UK’s $171bn reserves.
Perhaps Scotland could also squirrel away a few billion pounds by implementing austerity measures, though savings will be needed just to keep current spending going.
Today, the Institute of Fiscal Studies confirms Scotland would “need to make bigger cuts to public spending or bigger increases to taxes in the first decade than the rest of the UK”.
So, Scotland’s foremost currency expert Prof Ronnie MacDonald argues that it won’t hold. he argues that our twin deficits – the fiscal deficit and the current account deficit – mean creditors won’t have confidence we can repay them. They will also be worried that even if we do pay them back, it’ll be in new Scottish pounds, which will be worth less.
His view – and he is the expert on this – is that markets will bring this to a head on day one, or perhaps even beforehand, forcing Scotland to adopt its own currency. This will be worth less than the pound: perhaps by as much as 30%, estimates Prof MacDonald.
Doubtless the SNP will argue all this is “Project Fear”. It really isn’t. It is the reality that flows from our underlying economic position.
However, given the state of the UK, it isn’t enough simply to knock down the SNP’s prospectus. Simply saying to people across Scotland that independence is a bad idea and they’ll just have to accept things as they are is not a convincing political argument.
This is why a positive case for change needs to be made – as Our Scottish Future intends to do.
Scotland should not be forced into deciding between two bad choices. There should instead be a more hopeful vision of an empowered Scotland within a reformed Union.