The debate about how much of the UK’s amassed debt Scotland should inherit as part of an indpendence settlement has raged long and often acrimoniously. “What currency will you use?” as regular a the racist gibe “Scots hate vegetables”. The base line is simple, Scotland need accept none of the UK’s debt.
The unionist line is ferociously belligerent; England will be a total scumbag in negotiations forcing Scotland to accept debt in return for chunks of territory currently under the banner of UK possession – thus hobbling Scotland to impoverish us and slow down progress, before we have a chance to begin anew and strengthen the economy. The sheer stupidity of SNP’s ‘Growth Commission,’ that we take a share of UK debt and burden ourselves from the start of independence, is the reality of Scots and self-flagellation as before.
There is a better argument. Scotland can refuse to take a share of UK debt and so begin with a clean slate. After all, for decades Scotland was a more prosperous country than England, our neighbour too busy throwing taxes at 100 year wars with Spain, France and the Netherlands, and then American colonies ….. a familiar pattern for a nation keen on remaining imperial master. Below my comments is published a paper by economist Dr Jim Walker, ALBA economic spokesperson, arguing the case for no debt.
Free and easy does it
ALBA led by Alex Salmond published their policy stating an independent Scotland should negotiate from a position of zero debt inherited from the UK.
Publication of the policy will ensure that the final days of the election campaign stay focused on the question of Scottish independence with Salmond urging the SNP to back ALBA’s negotiating position on a clean break settlement. Previously ALBA has published positions on an independent Scotland’s European policy and the scale of the investment required for economic reconstruction.
In a major shift from 2014, ALBA say that the post pandemic financial markets mean that Scotland should not take a share of UK debt as part of “building a new nation”. Nor should Scotland seek an equivalent share of non territorial assets through a sterling currency union.
The paper is published today by ALBA candidate, and world leading economist Dr Jim Walker, also sets out that, as a goodwill gesture, an independent Scotland should not seek reparations from the UK Government for the severe economic damage wreaked by Brexit.
The position puts clear tartan water between ALBA’s plans for independence and those set out in the SNP Growth Commission that proposed an independent Scotland should pay an annual “solidarity” payment of around £5.3bn to be transferred to the UK as a price for Scotland’s independence. (Nicola Sturgeon has since accepted that the proposals of the growth Commission are completely out of date. )
ALBA say that the economic negotiating position of Scottish independence is no longer equivalent to 2014 because through the age of austerity and the pandemic the overwhelming bulk of Treasury borrowing has been via the Bank of England printing money, through quantitative easing. This means that the public sector debt position balances between Bank of England assets and Treasury liabilities.
Urging the SNP to back ALBA’s position Alex Salmond has said that “ in order that Scotland’s recovery is in Scotland’s hands it is vital that Scotland now has the full range of financial recovery powers that only independence provides. “
Currently, the Scottish Parliament does not have the powers to fund a reconstructed economy.
ALBA state that their call for a no shared assets, and no shared debt position, means Scotland could utilise its resources to embark on a massive economic recovery programme “free from the shackles of UK debt, or even worse still paying billions of pounds to the UK Government in some bizarre annual subvention.”
In addition, a new Scottish Currency should be set up as soon as possible after Scotland becomes independent although sterling, as an internationally tradeable currency, could still be freely used to denominate assets and liabilities.
The Walker prescription
In the White Paper produced for the 2014 independence referendum, Scotland’s Future, the SNP-run Scottish Government proposed a currency union with the rest of the UK after a Yes vote. As part of that mature and simple settlement the Scottish Government also offered to take on board either a population share or an historic balance share of the UK’s public sector debt. The Better Together campaign, UK politicians of different stripes, and HM Treasury all rejected the White Paper proposals and declared that Scotland would not be “allowed” to use sterling post-independence. The then governor of the Bank of England, Mark Carney, was ameniable to sharing the pound, if it was the wish of Westminster. “It can be accommodated”. But the colonial tyranny closed ranks and threatened to cut off Scotland from the pound.
The Alba Party has a different outlook. At the heart of its post-independence economic proposals for the next referendum or election plebiscite is immediate moves to establish a new Scottish currency. Sterling will be used in the interim and indeed as an internationally tradeable currency can continue to value private assets and liabilities.
However the UK’s rejection of a currency union means that all facets of that previous proposal fall. In addition on 13th January 2014 the Treasury made it clear that they would honour the legal position that they had title to all U.K. debt, under all circumstances.
In addition, the then First Minister Alex Salmond specifically stated that the debt sharing offer was contingent on acceptance of the currency union proposal. He said back then, “We remain prepared to negotiate taking responsibility for financing a fair share of the debts of the UK provided, of course, Scotland secures a fair share of the assets, including the monetary assets”.
The Alba Party believes independence negotiations should be a matter for the Parliament not just the Scottish Government and that the new independence platform must be constructed with urgency. The ALBA proposal at the independence negotiations will be that Scotland will start from scratch as regards currency, debt and deficits.
In keeping with other declarations of independence the successor UK state will retain all public sector debt issued on its behalf. Scotland will only inherited debt of the current Scottish Government and local authorities.
This is a strong negotiating position but it is entirely fair for the following reasons.
First, more than 95% of the UK’s general government debt has been accumulated since 1980. More, as a percentage of GDP the debt has doubled since the financial crisis of 2008 when the government and Bank of England embarked on wholesale quantitative easing. That debt is largely owed by one branch of government (the Treasury) to another (the central bank) and therefore forms no legitimate liability for the Scottish or any other people.
Unlike the SNP’s White Paper, the Alba Party rejects entirely any obligation to share debt accrued through central bank money printing and sees no role for Scotland on paying interest on that debt which is a transfer from one government pocket to another.
Secondly, there can be no acceptance of debt liabilities without a proper reckoning, that is a valuation of the assets which back that debt. When individuals or households buy a house or a car, they often take out a loan from the bank. This debt is a liability for the household but, equally, the house or car is an asset (which either appreciates or depreciates through time). Government debt is no different. The debt position is widely reported each quarter and each year but the assets – UK embassies abroad, military installations and equipment, government buildings and publicly-owned infrastructure and land, are not detailed nor marked-to-market.
Without such an accounting the debt is meaningless.
Alba says it will waive Scotland’s claim on 8% of the UK government’s assets (from Whitehall to the UK Consulate in Hong Kong) and accept as payment for its wasted territorial resources over the last 50 years the stock of government assets – buildings and infrastructure – that currently exist in Scotland. Territorial assets will therefore be divided geographically by country.
Thirdly, the costs of Brexit, a political adventure the Scottish electorate clearly rejected in 2016, should properly form a compensation claim by the incoming independent Scottish Government on the rest of the UK. The debt that Scotland will have to accrue to rebalance its economy because of a decision imposed unilaterally on the Scottish people will run into the billions of pounds.
As a goodwill gesture the proposal is NOT to pursue compensation for this act of willful damage and will write off the consequential sums owed to the people of Scotland by the current UK government. Similarly the several hundred billion of oil and gas revenues wholly accrued by the Westminster Exchequer in the years since 1980 will not initially be subject to any similar reparation claim as this settlement proposes a clean balance sheet as a starting point.
The world has changed since 2014 and the case for independence must be adjusted to meet the new world not the old.
The rejection by the U.K. Government, and the other unionist parties, of the proposal for a currency union indicates that they have no interest in a apportioning of assets and liabilities.
The proposal by ALBA for a new Scottish currency at the earliest possible date is better suited to the new economic environment. The economic damage wreaked by Brexit will require substantial capital investment sums in the Scottish economy. Starting from a position of zero debt will be a substantial advantage in raising the capital required for this process of reconstruction at current international bond rates.
ALBA propose that the Scottish negotiating position in the independence discussions should be a clean break settlement.
Dr Jim Walker, 3 May 2021
NOTE: Sentences emphasised in bold are GB’s.