The finances of an Independent Scotland.

antrobus

HAMISH_MCTAVISH wrote: »

Well, yes.

It would seem the sensible thing to forecast for oil prices of around $50 and be in a position to cut less if oil prices rise...

Something like that. And even if oil prices do rise, they may fall again later.

HAMISH_MCTAVISH wrote: »

..Back to the point in the OP however - and as nobody else has really taken up the challenge.....

I think that even the nationalistic zealots are somewhat put off by the prospect of a line by line analysis of a Scottish budget.

HAMISH_MCTAVISH wrote: »

....There do seem to be some options for closing that £9bn gap.

1. Spend less on defence in the short term -

The UK defence budget for 2015-16 was £34.3 bn. Scotland's 8.3% share of that would be £2.95 bn.

HAMISH_MCTAVISH wrote: »

....I'd personally hate to do so but there's zero prospect of the rUK leaving it's Northern shoreline undefended against potentially hostile aggressors. ..

The rUK might well wait for the emergence of a potentially hostile aggressor, before spending a penny on defending someone else's shoreline. They might be better of spending the money on regarrisoning Hadrian's Wall.:)

But since that £2.95 bn is merely an allocation, this iScotland could spend diddly-squat on defence and keep its fingers crossed. Although I suspect that this rUK would close every military base in Scotland and shift the kit and personnel elsewhere, so there would be some blowback.

HAMISH_MCTAVISH wrote: »

....You could quite easily spend a billion per year instead of 3 billion by maintaining a small standing army, a couple of fisheries patrol vessels, a limited airlift/helicopter capacity and a handful of fighter aircraft. The really expensive bits - subs, a fighting navy, and an advanced air force could be deferred. NATO would get miffed for a while - but an intention to improve would probably be enough.

Possible savings - £1.5 to 2bn per year for the first decade or so. ..

Or you could quite easily spend £2 bn or £3bn per year. Military kit isn't cheap. I think Tornados are about a £100m a pop. I suppose it depends on what capabilities this iScotland desires.

P.S. Fisheries patrol vessels and aircraft aren't defence. Besides, Scotland already has some.

HAMISH_MCTAVISH wrote: »

....2. Share of Uk national debt - Scotland could of course walk away from it. But make borrowing to close the rest of the gap unlikely for a number of years.... Not ideal.

Would save around 3 billion per year though.

I don't believe UDI is an option. (Which is what walking away means.)

HAMISH_MCTAVISH wrote: »

....3. Energy transit tax. 45% of the UK's gas supply transits through Scotland. Press a button to shut down those pipelines and the rUK gets very cold, and very dark, very quickly, and it would take a decade or more and tens of billions in investment to rebuild the capacity elsewhere. Now shutting those down may not strictly be legal - but that's never stopped Putin - as the Ukrainians found out several winters in a row.;)

Hw much is energy security worth to rUK?

A lot...

Since you have already decided not to have any military capablity, you wll not be able to stop the UK sending in the RN, the RAF, and the Army to take control of the pipeline. Or alternatively, to blow up every Scottish North Sea platform. I understand that it gets cold in Scotland as well.

Although alternatively, blocking Scottish access to the UK banking system, or even simply blockading the A1 and the M6 etc might be just as effective and less brutal. If the HGVs can't get to Scotland, whatcha gonna do?

HAMISH_MCTAVISH wrote: »

....4. Trident basing rights. How much is keeping an independent nuclear deterrent worth to rUK?

Well it's not quite priceless... But it's close. Somewhere around £3-£5bn per year for up to a decade I'd guess. As there just aren't any other even remotely feasible options... .

No idea. I expect it will be covered during any hypothetical independence negotiations. I would expect that Scotland might ask for some money, and the UK will want to retain the Clyde base as a sovereign base area. There will be a food fight for a few years.

HAMISH_MCTAVISH wrote: »

...Anyway.... I doubt we'd end up actually doing all (or even many) of the above -

So do I.

HAMISH_MCTAVISH wrote: »

.but an iScotland does not have quite as weak a negotiating hand as many on here assume - it would be in both parties best interests to come to a fair and amicable deal...

The trouble is that people often have different views on what is 'fair and amicable'.

HAMISH_MCTAVISH wrote: »

...That deal would certainly require Scotland to live more within it's means than it does today - but it's frankly nonsensical to suggest Scotland doesn't have the ability to negotiate away some of that £9bn gap before having to start cutting spending or raising taxes.

That £9bn gap is a consequence of independence. This iScotland loses the subsidy that Scotland now receives from (mainly) English taxpayers. To 'negotiate away' some of that away would require an agreement to continue to subsidise what is now a foreign country. I'm not convinced that is very likely.

antrobus

Shakethedisease wrote: »

..This 'but Scotland's trade to rUK is worth 4 times what it trades to the EU' line is repeated, complete with the above unsaid implication..

I have made the implication very clear.

You ask; What effect would a hard Brexit have on GERS figures? I point out that leaving the UK would have an effect on GERS figures. Since Scotland exports more to the UK than it does to the EU, surely the ecomomic impact (and potential damage) would be greater for the former?

Thrugelmir

Shakethedisease wrote: »

What effect would a hard Brexit have on GERS figures ?

What plans do the Scottish Government have to improve productivity and increase output per head in the years ahead?

Shakethedisease

Thrugelmir wrote: »

What plans do the Scottish Government have to improve productivity and increase output per head in the years ahead?

Independence ? The Scottish Govt simply do not have the macroeconomic powers to do anything significant without them, not on any real scale. Income tax powers are a political trap and the SNP know it well.

But the plain fact is that on here we do tend to discuss iScotland v's a UK within the EU status quo context. Or, a UK as a whole outwith the EU context. Rarely do we ever consider how Brexit will directly affect the Scottish economy and finances over the next few years should Scotland stay in the UK. Yet this is the choice people will have should an second independence referendum occur.

What difference will a hard Brexit make to that oh so accurate GERS balance sheet come 2019/2020 ? There's a chance it will make for much worse reading than now, yet with very little control, economic levers nor say in where to take Scotland next (as happens now). Risky, especially given Scotland's need for more immigration due to an aging population and referencing again that income tax.

antrobus

Shakethedisease wrote: »

.....What difference will a hard Brexit make to that oh so accurate GERS balance sheet come 2019/2020 ? There's a chance it will make for much worse reading than now, yet with very little control, economic levers nor say in where to take Scotland next (as happens now). Risky, especially given Scotland's need for more immigration due to an aging population and referencing again that income tax.

And what difference will independence make to that oh so accurate GERS balance sheet come whenever? There's a good chance it will make for much worse reading than now.

You can waffle on as much as you like about economic levers, and the need for more immigration, but that 'black hole' of £9 bn is still there. That's about 6% of Scottish GDP. It's a big number. And what's more we have a good idea of what the number is. On the other hand, nobody knows what the Brexit number will be. It's all speculation.

davomcdave

antrobus wrote: »

And what difference will independence make to that oh so accurate GERS balance sheet come whenever? There's a good chance it will make for much worse reading than now.

You can waffle on as much as you like about economic levers, and the need for more immigration, but that 'black hole' of £9 bn is still there. That's about 6% of Scottish GDP. It's a big number. And what's more we have a good idea of what the number is. On the other hand, nobody knows what the Brexit number will be. It's all speculation.

The reality is that the black hole is much bigger than the UK deficit spending level suggests.

Scotland's part of the deficit is subsidised by the UK's good name. The UK has only defaulted on debt twice that I am aware of, both times forced debt conversions in extremis (after WW2). Scotland would be looking to borrow with no track record and either in a currency that she can't print (Euro or Sterling) or that has no track record either (Scottish Quid).

Seriously, if someone came to you and said, "I have no credit rating, I spend substantially more than I earn, my principle source of income (oil) is in decline and I'm not sure what currency I'm going to repay you in. Please lend me billions of pounds", would you reply:

1. No
2. I'm an idiot. Of course I will.

I know we all like to appease our Nationalist friends a little as they get cranky if we point out that Scotland is most definitely not the UK but come on, nobody actually believes Scotland could run a deficit of 4% of GDP. They'd be borrowing 5-6% of GDP, gross, in year 1. Nobody is going to consider lending them that sort of money. (Tax receipts are lumpy so even if you run a small surplus you still need to borrow short term to ride you through).

TrickyTree83

davomcdave wrote: »

The reality is that the black hole is much bigger than the UK deficit spending level suggests.

Scotland's part of the deficit is subsidised by the UK's good name. The UK has only defaulted on debt twice that I am aware of, both times forced debt conversions in extremis (after WW2). Scotland would be looking to borrow with no track record and either in a currency that she can't print (Euro or Sterling) or that has no track record either (Scottish Quid).

Seriously, if someone came to you and said, "I have no credit rating, I spend substantially more than I earn, my principle source of income (oil) is in decline and I'm not sure what currency I'm going to repay you in. Please lend me billions of pounds", would you reply:

1. No
2. I'm an idiot. Of course I will.

I know we all like to appease our Nationalist friends a little as they get cranky if we point out that Scotland is most definitely not the UK but come on, nobody actually believes Scotland could run a deficit of 4% of GDP. They'd be borrowing 5-6% of GDP, gross, in year 1. Nobody is going to consider lending them that sort of money. (Tax receipts are lumpy so even if you run a small surplus you still need to borrow short term to ride you through).

It's straight forward isn't it...

Misery, or remain in the UK. In fact it shouldn't even be up for discussion.

Herzlos

Unless of course you view remaining in the UK to be misery, too.

So it's "Misery of our own making" or "Misery of someone elses making". Which one gives us the best option to improve things?

TrickyTree83

Herzlos wrote: »

Unless of course you view remaining in the UK to be misery, too.

So it's "Misery of our own making" or "Misery of someone elses making". Which one gives us the best option to improve things?

OK, assuming you're right, the best option to improve things is a question way down the list of priorities.

Like say if you lose your job, what's to go first, the car or the house? Both will result in an amount of misery, but one will result in less misery. If you assume that Brexit cannot be anything other than bad, how bad for Scotland? How bad is independence for Scotland? Economically the question is as easy to answer as 1+1.

antrobus

davomcdave wrote: »

The reality is that the black hole is much bigger than the UK deficit spending level suggests...

Well yes, but it's hard enough getting the zealots to understand that there is a £9bn annual subsidy is going to disappear, without depressing them even further by pointing out that having your central bank etc comes with a price tag.

davomcdave wrote: »

..Scotland's part of the deficit is subsidised by the UK's good name. The UK has only defaulted on debt twice that I am aware of, both times forced debt conversions in extremis (after WW2)....

I'm not aware of "forced debt conversions in extremis (after WW2)". I believe that the two 'defaults' that are sometimes referred to were in the inter-war years. One of the was the conversion of War Loan conversion of 1932, which was not a default, merely the government exercising an option.

davomcdave wrote: »

.. Scotland would be looking to borrow with no track record and either in a currency that she can't print (Euro or Sterling) or that has no track record either (Scottish Quid).

Seriously, if someone came to you and said, "I have no credit rating, I spend substantially more than I earn, my principle source of income (oil) is in decline and I'm not sure what currency I'm going to repay you in. Please lend me billions of pounds", would you reply:

1. No
2. I'm an idiot. Of course I will....

I wouldn't say that this hypothetical iScotland would be unable to issue debt. The reply might be, "of course, but only in dollars, at 10% for five years." After all, not everybody can get a loan from Nationwide for 3.5% or whatever, some people end up with Quick Quid at 1300%.

davomcdave wrote: »

...I know we all like to appease our Nationalist friends a little as they get cranky if we point out that Scotland is most definitely not the UK but come on, nobody actually believes Scotland could run a deficit of 4% of GDP. They'd be borrowing 5-6% of GDP, gross, in year 1. Nobody is going to consider lending them that sort of money. (Tax receipts are lumpy so even if you run a small surplus you still need to borrow short term to ride you through).

It would be important to appreciate that in order to run a deficit, you need to be able to fund the deficit, which means somebody must lend you that money.