Sunday, 7 September 2014

thinking about financial independence: The Scottish referendum and the future of the pound.

There are lots of things that are of concern to both sides in the Scottish referendum debate which is going on at the moment. Some things are less worrying than others. To be honest, there seems to be plenty of scaremongering which is best left alone.

When there was a fuss in the news about the future of the pound in Scotland, I thought that that was another one of these things where the No campaign was trying to cause a stir over not much.

I was wrong.

If Scotland becomes independent, the UK would be foolish to maintain financial union.  They would have no control over Scotland's finances, and all the main parties have stated clearly that they would not maintain the financial union. With a general election on the horizon in England, they're unlikely to change their minds.

But so what? Scotland could keep the pound, and just connect it to the English pound. This has been done before. Alternatively Scotland could use the dollar, or look into joining the Euro (although I can't see that one getting very far).  We could even create our own currency if we want to. The money in our pocket is not the issue that matters here.

Scotland is a fairly well off part of the UK. There are three primary income sectors. Firstly the gas and oil sector, which is subject to fluctuation, and we cannot guarantee the income it could generate. Secondly, the financial sector (so we should have some useful expertise), and thirdly, a really strong university sector, but that relies on people coming in from outwith Scotland to generate funds.

Scotland could generate income well, but she has an ageing population and also believes in more public spending than the rest of the UK. The ageing population is a problem everywhere, although there's a higher proportion of older people in Scotland (is this because we export our young people?).

Borrowing is an important consideration for all of the UK, but If Scotland needed to borrow she'd be in a worse position than the rest of the UK, having no track record - no credit rating. We would be able to borrow less, and would need to pay more.

The SNP have described continuing complete financial union as Plan A. The main UK parties have rejected plan A. So what's plan B? And can Scotland afford it?

What do you think? Please note that any nasty comments will be removed, so just be nice :-)

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