Thursday, 25 June 2020

Kate Twist wants some more

Kate Forbes the Scottish Government Finance Secretary has asked the British Treasury for the power to borrow an extra £500 million this year. Scotland has already been bailed out by the Treasury’s furlough scheme and increases to the Scottish budget owing to the UK’s increased spending due to Covid. But Kate Twist wants some more.

I am of the view that each part of Britain should get as much as it needs to deal with Covid. None of us are going to be asked to pay back the wages that we received except through taxation and contributing the to Britain’s economic growth in the years ahead. But here we immediately come up with the issue.

 Kate Twist supports Scottish independence and wanted a second independence referendum to take place this year. After this demand was postponed due to Covid we may assume that she wants it to take place next year. But she now wants to take out a loan that is repayable over ten years. What happens to the loan if Scotland votes to become independent?

The Treasury has been investing in all of Britain so that our economy remained intact while we were stuck inside. But borrowing is not free. Government’s borrow by issuing gilts (debt) to investors. The Government pays interest on gilts and pension funds buy the gilts because they are very safe investments. If a Government failed to pay back its debt none of us would have pensions.

But the rate at which a Governments can borrow is not the same all over the world. Britain can borrow at a low rate because we have an historic record of paying back debt and because we have a sustainable deficit (the extra we spend over what we earn from taxes etc) that markets believe will allow us to continue repaying our debts in the future.

But the confidence of the markets in the British economy would be undermined if Scotland became independent. English people frequently maintain that they are indifferent to Scottish independence. Some even welcome it supposing that it would save them money. But they forget that the UK would cease to exist if Scotland became independent. It wouldn’t be possible for British people to even continue to call themselves British, because the north of Britain would have gone.

There is no guarantee that what was left would maintain its seat on the Security Council, nor its soft power nor its reputation as a safe place to invest. The UK would become a laughingstock the world over. Who would respect a United Kingdom that could not remain united? The price of borrowing would also increase as investors waited to see what consequences the breakup of a three-hundred-year-old country had for debt repayment. Any English person who thinks he would be better off by the departure of Scotland understands nothing about economics.

Kate Twist is asking the Treasury for permission to borrow because it is the Treasury that will be backing up the debt. Scotland on its own with a 7% deficit could not issue debt on the open market without paying a punitive interest rate. Twist therefore is in effect asking the Treasury to borrow for her. But is Scotland a good risk?

Last year Scotland had 13.6 % higher spending per head than the UK as a whole but collected 2.6% less per head than the UK average. Scotland’s deficit is 7 times Britain’s and half of Britain’s deficit is due to Scotland. This year the situation will be worse. The oil price has crashed so that it costs more to dig it out of the North Sea that it is worth. Scottish tourism has been destroyed by Covid and SNP mismanagement. How much more will we spend than we earn this year Kate?

But worse than this Kate Twist only wishes to borrow more because she doesn’t want Scotland to return to austerity. Scotland in fact has not had any austerity, which means living with your means. We have for years spent more than we earned. But how does Twist think we can repay debt if we neither raise taxes nor reduce public spending?  

So, in effect Kate Twist is asking for more even though Scotland’s deficit, which was unsustainable last year, will this year be even worse. She is doing this knowing that it will be Britain that incurs the risk, but that she and the SNP plan to make it more difficult for Britain to borrow by destroying not merely our country but our credit rating. She is asking for more knowing that the last SNP plan for independence involved walking away without paying Scotland’s share of the national debt. The minimum I would ask her for her 10-year debt is a 10-year promise for the SNP not to campaign for independence.

Kate Twist is going to the bank manager asking for a mortgage telling him I spend 7% a year more than I earn and I’m planning to leave the house without paying the debt and will burn it to the ground. Kate knows all about flitting. Her degree is in Diaspora and Migration History. If she asked me for more, I’d tell her to come back when she had read Economics for Dummies.