Wednesday 18 August 2021

Saintly Sturgeon has bankrupted Scotland


Scotland has a nominal deficit of 22.4%. The UK as a whole has real deficit of 14.2%. This is no cause for celebration either in Scotland or the UK generally. We are all spending more than we earn and we will all have to contribute to get these deficits back to manageable levels. That will mean spending less and taxing more. The reason these deficits are so high is due to the exceptional circumstances of the pandemic. At no time in history prior to this were so many British citizens kept locked up at home unable to live and work normally. It cost us a fortune to do this.

Covid has been a wartime situation without our being at war. Fortunately, the markets are still willing to allow the UK to borrow at historically low rates of interest. They trust that we will pay it back. We always have. For this reason, while the economic situation is concerning it is not really serious. Over time the UK deficit will be reduced just as it was reduced after the First and Second World Wars. There is no danger of the UK going bust because we borrow in our own currency and our own central bank can print money. There may be inflationary dangers ahead, but we can deal with these also because we control interest rates.

Nicola Sturgeon and Kate Forbes argue that Scotland’s deficit is not a barrier to independence. They point out that lots of countries have deficits. This is true. But it would be quite impossible to establish a new independent country with a 22.4% deficit. It simply would not be able to afford to borrow even if anyone were willing to lend to it.

We will go through the usual tedious arguments from Scottish nationalists which purport to prove either that the Scottish Government’s own economic figures are somehow false, or that independence would immediately and miraculously turn a 22.4% deficit into an equally large surplus. We will also hear from SNP supporters that the fact that Scotland is doing so badly economically shows that the UK doesn’t work or somehow damages Scotland. But all of these arguments are either in denial or else fail to take responsibility for the SNP’s mismanagement of the Scottish economy. Scotland is paying the price for the uncertainty caused by the fact that we are continually threatened with a referendum and independence that would have devastating consequences for Scotland’s prosperity and jobs. Economic uncertainty does not prosperity make.

Scotland’s deficit will come down as we recover from the pandemic, but it is not going to happen quickly. The SNP’s last plan for independence was that it would use the pound unilaterally. But this is completely incompatible with a deficit as large as Scotland has at present. A Scottish Government under these circumstances would not be able to control monetary policy including interest rates. We would have no lender of last resort and we would be unable to print our own currency. But it is just these abilities that the UK will use to manage its own deficit. For the SNP to propose that Scotland becomes independent while using the pound unilaterally is economically illiterate. It would be like going into a fist fight with your hands tied behind your back.

All of the SNP’s previous calculations about the costs of independence and the economic plans that it made are now obsolete. Yet Sturgeon is still suggesting that we have a second referendum in perhaps two years. Will she make new plans, or will she go into the campaign without one? Like setting sail without a tiller and a compass.

Sturgeon might like Scotland to join the EU, but the EU requires new member states to have a deficit of just 3%. We are more than 19% short. How does the SNP intend to reduce our deficit? Will it raise taxes, cut spending or discover a range of gold mines in the Highlands? It has already said that it no longer wants to drill for North Sea oil and has partnered itself with the Scottish Greens who are opposed to economic growth in principle. It’s not at all obvious how Sturgeon proposes that Scotland earns enough to be able to actually afford independence.

Scotland’s deficit is entirely nominal. Whereas EU member states which are struggling economically might receive help from the EU, this usually takes the form of a loan with strings attached. It’s only when the UK borrows that it actually has to pay the money back. Scotland can live beyond its means without anyone telling Sturgeon to pay up and the Chancellor of the Exchequer sets no conditions whatsoever. Of course, Scots pay taxes just like everyone else in the UK, but the UK Government pays us more than we raise. If that were not the case, we would not have a deficit.

In order for Scotland to become independent tomorrow we would have to find a way to raise nearly a quarter of our income. If we couldn’t do that immediately we would have to borrow. But how could independence on its own make Scotland nearly 25% wealthier? Would we all work 25% harder, sell 25% more abroad, or would we instead have to cut spending by 25%?

At the moment because we are all British citizens, wealth is transferred freely from the UK as a whole to those parts that have a nominal deficit. It is this and this alone that enables us to enjoy the standard of living that we do. The SNP want to turn off this tap by having Scotland leave the UK, but it has no obvious way of replacing the wealth that we would lose. Worse it would have Scotland start life in a straightjacket borrowing in someone else’s currency and in a different trading bloc to our largest trade partner.

If we had voted for independence in 2014 the pandemic would have left us bankrupt. The billions we have received from the Treasury could only have come either from the EU as loan or from the IMF. But the circumstances today are much worse than in 2014. The deficit is higher and we would end up with a hard border and tariffs with the former UK if we decided to join the EU.

It is time for the SNP to admit that however much they would like independence, it is simply unmanageable until the deficit is reduced to around 3-5%. This will take many years. Removing the threat of another referendum, would enable all Scots together to concentrate on making our country more prosperous. The truth is whatever the SNP says there isn’t going to be another referendum until the economic conditions massively improve. Why not at least be honest about it?

To even think about independence when your solvency depends on being a part of the UK is folly. It would be like volunteering for a 25% pay cut. The Scottish economy would crash if it were even attempted.

But of course, quite soon we will have endless Jacobites marching under one banner and the SNP will try to stir us all up again with talk of independence being only a year or two away. None of us will be remotely grateful for the furlough money and the vaccines that were given to us from over the border. Instead, we will give credit to Sturgeon and blame Tories while ignoring the fact that we keep choosing to re-elect a party that would have already bankrupted Scotland if it wasn’t for the free money it was given by those same wicked Tories.