Are we really about to split up our country?

Suddenly, London has woken up to the prospect of a Yes vote in the Scottish referendum. Its two centres, the City and Westminster, are both in a panic. Even opinion poll guru Anthony Wells, who, until last week, was convinced the No camp would win, is now not so sure.

There is a serious chance, then, that we could be about to witness one of the most catastrophic acts of self-sabotage in our nation’s history.

This country faces some difficult challenges over the next decade or so. We are still reeling from a severe economic thumping during which one of our most profitable industries collapsed and from which the path to recovery still looks unclear. Whoever wins the election next year faces the difficult task of balancing fiscal deficit reduction with tax increases and spending cuts. Wages are stagnating, tax receipts are disappointing and the social security bill remains stubbornly high. Another £33bn a year, or possibly more, in extra borrowing or taxes has to be found just to prevent the cuts to public services from getting any worse. Even then, the NHS will start to run out of money by the end of the decade. Politicians avoid talking about this because the size of the problem is huge and they don’t want to scare the voters.

However, there seem to be some people in Scotland who think they can walk away from all this. One of my posts was quoted recently by a Yes campaigner as an argument for independence, the implication being that these problems would magically disappear if Scotland became independent.

It’s rubbish, of course. These are problems that face all developed economies. As Edward Hugh said in his wonderful Last Days of Pompeii post a couple of years ago, we have a generalised debt, demographics and growth crisis:

The point to get is that it isn’t simply the level of debt that is the problem, it is the level of debt in the context of the implicit liabilities (in terms of health and pensions) which such population ageing represents, and the reduced growth outlook that having declining and ageing populations represents.

Europe’s leaders are essentially in denial on the extent of this problem, and are putting all their eggs in the “structural reforms to raise trend growth” basket.

The next few decades will see an unprecedented ageing of populations and, in all likelihood, much lower rates of economic growth. We don’t know how low but it will almost certainly be lower than that which we got used to in the last half of the twentieth century. The financial crisis has made this worse, leaving all developed economies with much higher levels of public debt that they had anticipated.

In some form, most developed economies face the 2015 dilemma. The numbers are different but the combined pressures are the same.

Public Spending Venn 2015 - Plain-3

Scotland’s position is particularly bad, as Tomas Hirst explained last week.

Public sector net borrowing, the amount the country has to borrow on top of what it raises in tax revenues, is projected to leap from around 4% in a decade to over 10% by the middle of the century. This would send public debt rocketing up to 200% of GDP.

That’s a larger hole than the one Greece is in.

As the IFS said, Scotland’s ageing problems are likely to be worse than the rest of the UK’s and its tax revenues weaker. Diminishing North Sea oil would not make up for that. As a result, Scotland would need an even greater level of austerity, or else it would rack up an even larger debt.

scotland-net-borrowing

The IFS conclusion:

Our model suggests that public sector debt across the UK will decline from 2017–18 until the end of the 2030s. However, all but one of the scenarios we have presented for Scotland suggest that Scottish debt would rise as a share of national income every year, in the absence of further policy action. The fiscal pressures facing an independent Scotland would therefore be more immediately pressing than those facing the UK as a whole.

That’s calm, measured think-tank speak for ‘your economy will most likely be a basket case’.

But what if an independent Scotland were to simply walk away from its share of the national debt, as some in the Yes camp have suggested? Wouldn’t a debt-free country be in a better position? The general consensus of opinion (and we don’t really know because no-one has tried this recently) is that such a move would be seen as a default and lead to Scotland facing much higher borrowing costs. A country running a deficit with high interest rates doesn’t take long to build up a significant public debt, even from a standing start.

As Tomas says, Scotland has similar structural problems to the wider UK, only worse, so it could end up needing to implement more severe austerity measures than the rest of the country. Far from turning its back on the 2015 dilemma, Scotland could end up with one that is even worse.

What’s this got to do with the rest of us? Wouldn’t it just be a problem for Scotland?

We should be so lucky. The UK’s recovery is very fragile for a number of reasons. The Eurozone’s recovery has ground to a halt. The US economy looks stronger but even there, things look a little shaky. Last week, Goldman Sachs warned of severe consequences for the UK as a whole in the event of a Yes vote. Already, Sterling and share prices are taking a hammering.

It’s worse still, though, because untangling our 300-year-old state is likely to take up much of the next parliament’s business. The SNP’s March 2016 target date has been called risible and preposterous, not by politicians but by academics and former civil servants. The best analogy I have heard was from a senior Scottish soldier interviewed on Radio 4. “You can’t unscramble a scrambled egg,” he said. And he was just talking about the military aspects.

It will be just as much of a headache for businesses. A friend of mine who works for a financial services company reckons that all the money they have earmarked for investment over the next 3 years will have to be diverted into re-organising their company to operate in two different countries, one inside and one outside the EU (maybe) and with two different currencies (maybe). It’s no wonder shares in Lloyds and RBS have taken a hit. Remember, these are banks in which the state owns a substantial share. In one sense, then, you’ve already taken a hit from a potential Yes vote.

Financial markets don’t like instability. The amount it costs governments to borrow has as much to do with political stability as its levels of debt. One of the reasons the UK has such low borrowing costs is because it is a long-established state. It’s the dividend we get for a relatively high level of political and social cohesion. And it seems we are just about to piss that all away. Borrowing costs are already edging up. Not by much but it’s a sign of what’s to come.

The most important task for any government during the rest of this decade is to come up with a plan for dealing with the considerable challenges we face. What will be the consequences of an ageing population? What can be done about wage stagnation? How will we manage increasing public service demands when there is less cash available to spend on them. What will be the implications of a much lower growth rate than the one we got used to during the last half of the twentieth century?

At least, those ought to be the priorities. Instead, though, most of the government’s time and energy will be spent trying to unscramble the egg. That will take at least half of the next parliament, if not longer. As I, and others, keep saying, the task of the rest of this decade should be designing a state that is able to cope with the next one. Instead, it looks as though we will spend most of it dismantling the state, rather than redesigning it. That won’t solve the problem though. It will just put it off until a later date. By the time it’s all sorted out, the pressures on both the UK and the new Scottish state will be that much more severe. The 2015 dilemma will become the 2018 dilemma. And it will be that bit worse, for both countries.

This isn’t about England versus Scotland. It’s about how we will cope with the next few decades. A stable and united country has a far better chance of managing the challenge.

If Scotland does become an independent country, the problems we face won’t go away. They will just be split between two states instead of being shared by one. And they’ll be that bit worse for being left to fester for another few years. Scotland might have enjoyed a post-independence party but we’ll all have the hangover afterwards. When you consider what we are up against, splitting up our state is sheer folly and self-indulgence. In the face of the most severe economic challenges we have faced for generations, we are about to break up one of the world’s most stable and prosperous states. It’s absolute madness!

This entry was posted in Uncategorized. Bookmark the permalink.

28 Responses to Are we really about to split up our country?

  1. David Widdowson says:

    Indeed it is not about “England versus Scotland”. If there is any conflict it is England, Wales and Northern Ireland versus Scotland. It is precisely this impression of Anglocentricity which fuels the Yes campaign and which is causing the possible break up of the UK.

  2. Steven says:

    David, if you can find me any Scottish person who complains about ‘Wales and Northern Ireland’, I’ll give you my firstborn child (and I’m Scottish myself).

    • David says:

      I’m sure they don’t. The issue is the perception – real or imagined – that the UK is run from the South East of England primarily for that region’s benefit. Personally I very much hope Scotland does not vote for independence as I strongly believe in the concept of Britishness but the argument of the Yes camp that Scotland is being run by a Tory party that has one seat north of the border is a pretty powerful one if it is coupled by a feeling that the UK Parliament is doing little for country and its Parliament has insufficient powers to correct that. The same might be said of Wales (where I’m from) or indeed some regions of England.

      • John says:

        A rejoinder to the SNP might be that Labour and the Liberals are doing the job of representing the Scottish people and their interests at Westminster. Just because the Scottish people do not trust the SNP at Westminster, that is no excuse for breaking-up the United Kingdom.
        Perhaps if Alec Salmond spent less time grandstanding and more time promoting the interests of Scotland at Westminster his party might then get a decent mandate from the people of Scotland?

      • JREwing says:

        Boom, there it is. Democracy.

  3. John says:

    If the Scots vote for independence we should perhaps welcome it.
    Their perpetual whinging will at least come to an end for a few years.
    No one so far has mentioned why the Act of Union was passed in 1707.
    It was a device to unite Scotland with England and Wales under one crown.
    More importantly, it was necessary to bail out Scotland after most of their people had invested heavily in a failed attempt to rival England and Wales in setting up separate colonies.
    The Scots decided that the Isthmus of Panama was a good places to start.
    To be fair, nothing was known in those days about the role that mosquitoes played in the spread of malaria. Nevertheless, it had a devastating impact on the would-be colonists, with most of them dying and simply disappearing.
    As a result, virtually every Scot became a bankrupt.
    Westminster agreed to bail out Scotland to the tune of £396,000 as part of the deal to unite.
    If Scotland wants now to dis-unite the United Kingdom, then they should be made to pay a severance amount, to be agreed between the politicians of Scotland and what remains of the UK.
    Part of that deal should be that while the newly indendent Scotland will exercise sovereign power over the mainland of Scotland, their territorial waters – including oil and gas instrallations, wind and wave power, as well as fishing rights – should remain under the control of the remaining UK.
    Your other points about public finances are valid and I would mention that the Scots are currently subsidised in this regard to a far greater amount than any of the other nations in the UK.
    If they decide to go, those of us who remain in England, Wales and Northern Ireland will actually be the better off for their leaving, as it will free up commitments to Scottish services and enable the remainder nations to enhance the quality of the public services provided, as well as cut the rUK deficit on a more speedy basis.
    Freed from the requirement to fund more costly services in Scotland, the future would more closely represent the “Things Can Only Get Better” musical theme – in my honest opinion.

  4. Daiv Widdowson is absolutely correct. Complete with syntax like “…most catastrophic acts of self-sabotage” This over-wrought, fear mongering blog piece is a telling and instructive example of why the prospect of a vote for Scottish independence has actually become tenable – indeed why we ever even ended up having a referendum. What prospects for any future form of the UK if this is the kind of sentiment that lies behind it.

  5. Shane O'Mara says:

    Interesting set of thoughts, and v scary on the fiscal/financial front. Any comment on this: http://www.theguardian.com/money/2014/sep/09/couples-retiring-wealth-ifs?CMP=twt_gu

    • John says:

      Shane,
      I have left the following response at The Guardian:-
      I am 69 and finally fully retired. I do not recognise the account above.
      While I am receipt of both a state pension and a retired teacher’s pension, it is only sufficient for me to live a lifestyle which is much less than I was used to while I was working, when my regular income was much higher.
      While I too own my own home and have paid off the mortgage, that only makes me asset wealthy and not cash wealthy.
      It is true I could sell off my home and the use part of the proceeds to move down the housing ladder into a smaller and cheaper property, possibly in another part of the country, as a way of freeing up some of the cash tied-up in my home.
      However, that would involve having to get all my “stuff” sorted – mainly to throw a lot of it out – and get my home fully redecorated and possibly have new units installed in the kitchen and bathrooms.
      It is a lot of hassle – frankly – and for what?
      I am reasonably happy living in the area I live in and in the home I have lived in for over 20 years. I don’t much feel like moving, if I am honest.
      Where this article perhaps does have a point is that younger people are saving less in pension schemes so that when they reach retirement age they may find they simply cannot afford to stop working until very much later than the current retiree community.
      What has to be faced is that growing inequality in our society is resulting in lower real levels of income for a majority of the presently working generation, and it is the fact of low pay – from which it is much harder to save and invest in pension schemes – that is generating the real future problems of the next generation to join the retirement community.
      There is virtually nothing our generation can do to assist the rising working generation – unless sometimes to act as “the bank of mum and dad” – and to bequeath them whatever resources we may have left after we kick the bucket.
      It is down to the current working generation and the current crop of politicians to make sure that when their turn comes to join the retirement community that they have sufficient value invested in pension schemes to be able to guarantee a level of decency and dignity in retirement for themselves.

      • SK says:

        For people in your generation there is something that they can do.

        By abstaining from BTL they would allow house prices to drop and allow more young families to buy without getting into serious debt or pushed into expensive renting for ever.

        But obviously this is very difficult, specially when BoE pushes older generations into BTL with their low base rate.

        • John says:

          I am not involved in buy to let (BTL) schemes. I just own my own home – nothing else.
          You are right about older people being forced to watch their savings – and the interest paid on them – being reduced in real terms because the available rates of interest are lower than inflation.
          Like everyone else, we are having to tough it out to some extent during this austerity period.
          We are no happier about it than anyone else.
          The only thing to do is to vote out the austerity parties at the general election next year.
          Higher house prices does not benefit us at all unless we sell up at the artifically inflated prices and move either to a cheaper part of the UK or move abroad to somewhere where the cost of living is – and will remain – far lower than in the UK.
          Either way, it entails having to abandon a way of life established over many years.
          For what? Why do it?
          The real reason that house prices remain high is because not enough new ones are being built at a time when inward migration continues to increase year-on-year, boosting the population levels in the UK to historically high levels.
          That and the fact that developers are sitting on extensive land banks and not building on them and that a small number of wealthy individuals – not all elderly by the way – are snapping up homes to rent out and exploit for their own personal financial empire-building.
          Finally, let us all get away from this artificial “battle of the generations”, which is designed to operate on the “divide and rule” principle, whereby those who hold real power and influence encourage younger and older people to argue over minor differences when what unites them is far greater than that which nominally divides them.
          Don’t let the clowns grind you down!

          • ChrisA says:

            John I think it is a common problem that you face, being cash flow poor but asset rich. In France it is quite common to have reversion or viager sales of houses. In essence the owner of the house sells at significant discount but retains possession until their death. The amount of discount depends on the age of the person (so an 80 year old will get less of a discount than a 60 year old). Often there is a lump sum element and a monthly annuity payment as well (in the order of 2 or 3 thousand Euro’s). This seems to me to be a good approach and I wonder why we don’t do more of this in the UK.

  6. Pingback: Fairy Tales | Views From The Boatshed

  7. Bert says:

    Alas, in the 21st Century bigger (UK) is certainly not better. Small is beautiful and much better in a networked age. An independent Scotland will survive. Bert, professor/change agent and Dutch🙂

    • John says:

      Of course a semi-detached Scotland will survive – but in what manner?
      Think on this: if Scotland votes to leave the UK, it will then have to negotiate with Westminster as to the actual terms of its departure; only a UK Act of Parliament can provide the legal basis for any agreement. The Scots representatives may demand all they like but it will be the London based politicans who will decide what they get.
      It can be argued that with the three main party leaders bending over backwards to accommodate the Scots, now is the very best time to stay inside the union and obtain really good concessions.
      The alternative is that Scotland will have to negotiate to join the EU – at which the rUK will retain a veto over their possible membership – and, in the event they are allowed into the EU as a separate member, they will be required to join the euro and agree to join the Schengen bloc.
      The UK is not part of the euro and not signed-up to Schengen. As a result, Ed Milliband’s observation that we would need to have a real physical border with Scotland is not as strange as it might seem. Scotland could end up becoming the Calais of the North as masses of illegal migrants try to enter England through the border with Scotland.
      I suspect many people in Scotland have barely – if at all – thought these aspects through yet.

  8. P Hearn says:

    The irony of all this is that just 8% of the UK population will make a decision that could see it broken up for good. No English, Welsh or Northern Irish voters will have had a say, neither the hundreds of thousands of Scots living outwith Scotland itself.

    If they go, they must go, lock stock and barrel. There will follow a period of turmoil and financial unrest which will cost the rUK very dear indeed, so it’s to be hoped it’s all worth it in the end.

    To think the noble Scots, a few of whom I’m proud to count as friends, would fall for the lies of the Yes campaign is hard to believe, yet the polls indicate otherwise.

    As a final thought, what happens to the Union Flag if it ends? That’s one of the world’s most powerful marketing logos, so who gets to keep it?!

  9. Al says:

    It would have been nice if the referendum was taken as an opportunity for a long and considered discussion about the future of the U.K and the obvious disillusionment with status quo – shared across Scotland and rUK. Instead we got a campaign of scaremongering and condescension. Now the unionist parties are looking down a barrel of a gun and the best they can offer are some vague and disjointed commitments for further powers which essentially repeat the anemic proposals for greater devolution already set out months ago by scottish labour and the conservatives. Can you really blame the Scots if they decide to leave?

  10. 0olong says:

    ‘A stable and united country has a far better chance of managing the challenge’ – yes! If only we had one of those! But the UK is neither stable nor united, and very little of that is Scotland’s fault.

    As for redesigning the state – I strongly agree, that is an urgent and vital task… But it’s one which Westminster is manifestly not up to. There’s already far more momentum behind the idea in Scotland than we’ve seen in the parliament in England for nigh on seventy years.

    I hope you turn out to be right in your implicit belief that Westminster is somehow just about to get its act together and work out how to deal with this island’s present and future social and economic problems, but from where I’m sitting there seems to be an awful lot of evidence against the idea.

  11. Tony Hughes says:

    Lots of people will be very angry if Scotland goes and will feel emotionally betrayed.
    It will become a very nasty bitter divorce , don’t the would be yes voters realise that the British loyalty to British products, holidays, events will collapse. Scotland as a trade mark will be damaged.
    Yes there will still be trade but the good will , will be non existent.

  12. Jez says:

    Look on the bright side (literally): without their wining, we may not have to put the clocks back for much longer.

  13. ChrisA says:

    Myself I am mildly supported of independence. On the negative side I don’t like nationalism of any kind, and I especially don’t like the anti-English nature of some of the supporters. Also I think the initial thinking about the implementation is hopelessly confused. For instance the idea is that the Scots will have more ability to make their own decisions is totally undermined by the SNPs pledge to continue using the pound. All monetary policy for the independent Scotland will then be managed by RUK, with no input from Scotland representatives (unlike today). Also, the idea that the Scots are some how oppressed in the UK is pretty laughable. With the strength of Scottish Labour arguably they have much more control over the UK policy than their share of the population warrants. So given all this, why do I still support independence? To me there is value in having representatives as close as possible to their constituents. The current mess with the Scots having their own parliament but also representatives at Westminster encourages the blame game, and avoidance of responsibilities. If you want something doing the fewer people involved the better. It is also inequitable, with the English not allowed a say on many Scottish affairs, but the reverse being true. Another factor for me is the possibility that the RUK politicians can now be more focused on delivery of good living standards, like Switzerland, rather than thinking that they have a world role to play. Jet setting around solving world problems is nice work for the pols but don’t actually provide much benefit for the country. And its not like all these international interventions have been particularly successful.

    I think we need to put aside our emotional feelings about this (its not like countries are people) and be supportive if Scotland does decide this way. The way the UK handled de-colonisation is generally something to be proud of and we should approach the separation in the same way.

  14. David says:

    Quite the best blog for some time and by some margin Rik , thank you very much . So much material that has needed airing for a long time . I’ve passed it on to many friends both sides of the border(‘s) . My view (for what its worth) is that it’ll be decided by a late emotional and juvenile barrage of unpleasant racism and I’ll happily eat this iPad if I’m wrong . Slangevar !

  15. Luis Enrique says:

    the only solution is to normalize euthanasia / assisted suicide once quality of life has deteriorated without realistic prospect of recovery.

    yes I am suggesting mass murder of the elderly. Economics will trump morals, or rather reshape them, you mark my words.

    I won’t be around to see whether I am right, having been put to sleep forever at the age of 85

  16. Dipper says:

    I agree with all your analysis, which is why if was living in Scotland and had a vote, I would vote yes.

    Britain is in a hopeless economic position, pumping financial heroin into our veins with borrowing of £2K per person per year to avoid facing reality. The reckoning is coming. Scotland’s only chance of avoiding this is to cut itself free and use the oil money to rebuild the country as a modern high-education entrepreneurial country, as it once was. It will be hard, and many voters may not see the benefits in their life times, but with each year the debt gets bigger, and the oil reserves get smaller, so better now than later.

  17. John says:

    I had loosely assumed a No vote would be the outcome but watching TV earlier today I heard something which now raises a clear question in my mind.
    It was an interview with a young male Scot, in which he made the point that he would be voting Yes. He went on to say that he had grown up in a family which had always voted Labour (and ought, by implication, to vote No) but he and his entire family would be voting Yes.
    The reason he gave for his family switching – and for many others in Scotland switching to the SNP – was the invasion of Iraq in 2003, since when his family and large numbers of other Scots had abandoned Labour and switched to the SNP.
    What he said makes sense. How else is it possible to explain the way in which the SNP have grown to become the largest party in Scotland?
    I watched the Foreign Affairs debate in Parliament yesterday, which went on for more than 4 hours, largely discussing the current situation in Ukraine, Iraq and Syria, and Israel-Palestine.
    Time and time again, MPs talked about the “long shadow of Iraq hanging over Westminster”.
    It seems that Tony Blair’s untruthful assertions are coming back to haunt us all not just in terms of election results in Scotland but in rendering asunder the entire fabric of the United Kingdom.

  18. Pingback: Why the Scottish Should Vote 'Yes' on Independence

  19. Bob says:

    It is interesting to compare this with Another Angry Voice’s shilling for Scottish independence.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s