It will be hard to build the Socialist Republic of Scotland if you are relying so much on other peoples’ moneyLeave a comment
September 10, 2014 by Paul Goldsmith
One of the reasons for the momentum that the “Yes” vote has been gaining has been the switch of allegiances of those who would normally support Labour. In the absence of Ed Miliband doing what he should be doing right now, which is to constantly refer to himself as the next Prime Minister (which is perfectly plausible the way things are going down South), Scottish Labour supporters seem to have decided that independence is the only way to rid themselves of the curse of Tory rule. That, plus the promises of free education, childcare and everything else that Salmond is making as part of the socially just Xanadu that he will create. Only, will be be able to create it if he wins? I rather think, like Francois Hollande in France, that the reality of free movement of people and capital will make that impossible. Here’s why:
Scotland becoming independent will not put up Berlin-like wall between the two countries. If, as is suspected, the Tories will end up dominant in the rest of Uk for a while due to the loss of Labour’s 41 seats from Scotland, then the rest of the UK is likely to see lower public spending and lower taxes than Scotland. Now, if a Salmond carries out his promise to make Scotland “fairer”, what he means is a package of redistributive policies that will include higher rates of tax on higher earners and better benefits for non-earners and low earners. The consequence of that may just be the loss of those high earners (and their tax revenue) to the South, and the influx of non and low-earners (and their demands on public spending) into Scotland.
If you think this won’t happen, ask the estate agents and private schools of London whether the higher earners of France were prepared to stay and put up with Hollande’s 75% income tax rate. It will make it more difficult to balance the books.
And balance the books they must, because in the absence of a currency union, Salmond is left with ‘sterlingisation’, which is where Scotland uses the pound like Panama uses the dollar. If that happens there will be no central bank, no control of monetary policy, no access to printing presses, and no lender of last resort. The latter will particularly affect the financial institutions of Scotland. Without a central bank to lean on in the case of another sudden economic downturn, Scottish banks under sterlingisation would need to have more stringent capital requirements and lending controls. They would also find it very hard to borrow at the lower rates of interest that banks within the UK can borrow at. So would the Scottish government should they want to try and finance a deficit. If they can’t finance a deficit easily, then where will they get their money from to provide the “free everything” that Salmond is so certain an independent Scotland will provide?
Oil? Even if Salmond’s claims about the extent of oil in the sea are correct, he needs to persuade multinational firms to invest in getting it out of hey he North Sea instead of elsewhere (like high earners, they too have a choice of where to work). To do that he will need to lower petroleum revenue tax considerably. That will affect his revenue plans, and his spending plans too.
To paraphrase Margaret Thatcher, “the problem with a Socialists is that eventually they will run out of other peoples’ money.” So, what are the actual chances that the promised Socialist Republic of Scotland can actually be built? It will be a lot, lot harder than the Scottish people about to vote ‘Yes’ are being told.
Category: Economics, Politics | Tags: Alex Salmond, central bank, independence, indyref, scotdecides, Scotland, socialism, sterlingisation