Thursday 9 July 2020

The British bailout

Why is it possible for Rishi Sunak the British Chancellor to continue to announce new ways to prop up the British economy? Can Governments just spend as much as they want when they want by borrowing?

A Government can borrow as long as there is someone willing to lend. Recently the cost of borrowing fell and even turned negative. This means that investors are paying the British Government to be allowed to lend to it. Why would people do that? In a crisis investors look for safe places to invest. There is nothing safer that gilts. They are willing to pay to lend because they know they will get their money back whereas if they invest in other areas, they might lose the lot.

 The argument for Britain has therefore never been stronger. It is because the world sees us as a safe place to invest that we can continue to borrow at a rate that is not merely affordable but beneficial.

Could we continue this borrowing spree indefinitely? Why not just continue borrowing ever more money in order pay everyone ever higher wages? Well eventually the money has to be paid back. If it were not paid back we would we would not be able to borrow at all let alone at a negative rate. The cost of paying it back is part of the Government’s balance sheet. Economic growth, revenue, taxation, plus inflation over the next decades will gradually pay back the debts of the past.

 After the EU referendum in 2016 Nicola Sturgeon called for a second independence referendum. If it had taken place in 2017 and if the SNP argument had won, Scotland would have transitioned to independence and would have become independent perhaps eighteen months to two years afterward. This means we would have become independent perhaps in 2019. There would have been big celebrations, perhaps Nicola Sturgeon would now be head of state. But Covid would still have happened.

What currency would Scotland be using? According to the last SNP plan we would be using Sterling unofficially. This means that Scotland would not be able to increase the money supply, nor would we have any say whatsoever over macroeconomic policy. So, when the biggest economic crisis in 300 years hit us, we would have had perhaps a newly established Scottish Central Bank trying to persuade world markets to buy Scottish debt. But we would have had absolutely no track record of repaying debt and we would have had a 7% deficit between what we spend and what we earn. Not only this we would have seen the price of oil collapse and Scottish tourism would have had no visitors.

If we had voted for independence in 2017, we might or might not have been an EU member state right now, but the EU would not have done what Rishi Sunak has done since March. It would not have paid our wages, nor would it have propped up our companies.

The citizens of a newly independent Scotland this last March would no doubt have entered lockdown perhaps earlier, perhaps later it would have been Sturgeon’s choice with whatever experts she could find in Scotland. But after a few weeks there would have been no money left to pay our wages. We would have had to go back to work because we couldn’t have borrowed at an acceptable rate.

Nicola Sturgeon’s ability to keep Scotland in lockdown longer and ease it more slowly than in other parts of Britain depends on the fact that the British Government is paying our wages. If that had not been the case, we would have had to go to work even if it meant spreading Covid.

Under those circumstances it is likely that more people would have died in Scotland precisely because people in 2017 had voted for independence. You really don’t want to be living in a newly established sovereign nation state without its own currency when a crisis hits?

Have we seen any evidence of repentance from those who wanted Scotland to be independent in 2019? But really if you could change the past would you really want Scotland right now to be independent? We would have been facing Covid alone with hardly two bawbies to rub together.

But what about Britain. I come across a lot of English people who treat the loss of Scotland as something to be welcomed. They think they would save the money that is spent on Scotland. They get to stick two fingers up at Sturgeon and it feels great.

What would have happened to Britain if Scotland had voted for independence in 2017? It would have ceased to exist. There would have been no United Kingdom of Great Britain and Northern Ireland. Great Britain includes Scotland and whatever resulted could hardly be called United.

How would this have affected Brexit negotiations? Well there would have been no Brexit. Brexit requires Britain. The clue is in the BR.

My guess is that Scottish independence would have made Brexit impossible. We could not both have negotiated Scexit and Brexit at the same time. The loss of Scotland would have so weakened Britain and so damaged confidence and our international reputation that would have given up on leaving the EU.

Great some people will say. But what would have happened to Britain reputation if we could neither manage to hold our country together nor implement our intention to leave the EU. We would have been a laughingstock. Rule Britannia, Britannia doesn’t even rule Britain.

What would have happened to Britain’s financial reputation if Scotland had become independent in 2019. Well the rump of Britain, (South Britain and Northern Ireland) would not have been as financially sound as it is at present.

Britain would have lost a third of its territory. Our internal market would have ceased to include Scotland. The British Army would no longer exist, because there would have been no Britain left for it to defend. The northern flank would have been exposed, and our island would have been partitioned. Anyone who welcomes this is a fool and worse.

Would Rishi Sunak have been able to borrow at negative rates this year if Scotland had become independent last year? The world’s confidence in Britain would have been as shattered as Britain. Whatever remained and whatever it was called would have been viewed as something partly new. It would take time for South Britain to restore economic confidence. But we didn’t have time.

So English, Welsh and Northern Irish people might have found that Scottish independence meant that they too didn’t have their wages paid for quite so long during the Covid crisis. They too might have been forced to go back to work while the pandemic was still at its peak.

The argument for Britain has never been stronger, but there is no one willing to make it. The destruction of our country would diminish all of us and would have consequences none of us can imagine. It would have been the height of folly with hindsight for Scotland to have voted for independence in 2017, but who knows what crisis may hit us in 2021, 2022 or later.