That Scottish Debt

Whilst, seventh, whatever is owing must be agreed to be due in Scottish pounds, fixed at independence.

Err, why should a foreign currency debt not be in the foreign currency?

So let me offer some rational comment on this situation.

This’ll be good, right?

There should also be common ground on another issue. And that is that there is actually already agreement that Scotland will have no liability for any of the debt of England, Wales or Northern Ireland (although for all practical purposes, this is English debt) if it chooses to become independent. We know this because the UK government issued a publication on this issue in 2014 under the title[1]:

UK debt and the Scotland independence referendum

In this the UK government, based in London, said:

In the event of Scottish independence from the United Kingdom (UK), the continuing UK Government would in all circumstances honour the contractual terms of the debt issued by the UK Government. An independent Scottish state would become responsible for a fair and proportionate share of the UK’s current liabilities, but a share of the outstanding stock of debt instruments that have been issued by the UK would not be transferred to Scotland. For example, there would be no change in counterparty for holders of UK gilts. Instead, an independent Scotland would need to raise funds in order to reimburse the continuing UK for this share.

They added:

An entirely separate contract between the continuing UK Government and an independent Scottish state’s Government would need to be established. The respective shares of debt and the terms of repayment would be subject to negotiation.

In addition they said:

In the event of independence, the full spectrum of assets and liabilities – past, future and contingent – would need to be considered in negotiations between the continuing UK and Scottish Governments, on a case-by-case basis. This means that the negotiations would need to cover the arrangements for all forms of debt covered in this note, not just gilts and Treasury.

I think this really rather helpful because much of it summarises what appears to be legally, practically and politically both true, and necessary. In the process it resolves the first question. The UK government has said Scotland will not be liable for debts managed by London before independence. Instead anything owing is entirely down to negotiation.

Err, no, that’s not what has been said. Rather, to reassure the holders and buyers of gilts – where that’s not the BoE – they’ve said that the UK, or England if you prefer, will continue to honour them. That the UK, or England, will then go after the Scots. Rather than current holders of gilts having to watch their Scots share of the pile being inflated away by the porridge wogs.

That isn’t the same as declaring that there is no debt due by Scotland, it’s a comment about who to.

They say that the UK debt is as follows

He’s used gilts there, instead of the useful number from government accounts of total liabilities.

The rest of it is just the pursuit of verimine from a party that doesn’t recommend for it.

34 thoughts on “That Scottish Debt”

  1. The Jocks could try to evade their share of the UK’s debt (correctly stated as being owed to rUK not to gilt holders direct). And to seek to do so would be a political miscalculation of the ‘1941: Let’s go East’ variety. An ‘independent’ Scotland whose first act was a declaration of economic war against its major trading partner would be ‘brave’.

  2. I’ve often thought that the SNP don’t want independence, because then they’d have nobody left to blame but themselves.
    The proof is they campaign for Ref2 in Scotland, where too many of the people who’d vote know where all the money to pay for Scotland comes from.
    If they were serious about independence, they’d campaign for Ref2 in England, where too many of the people who’d vote know where all the money to pay for Scotland comes from.

  3. On a lighter note: what would a Scottish currency be called?
    My contributions:

    The Jockstrap: because they’re a bit boracic at the moment….
    The Jocular: rhymes with ‘dollar’ but whose value is laughable…(H/T Mr Lehrer)

    Just make sure their part of the UK National Debt is payable in Sterling, Gold or 12+-Year old malt.

  4. So Much For Subtlety

    The levels of debt coming out of Covid-19 are just too high. There is no realistic chance anyone will pay them back. They will be inflated away.

    So obviously he means the Scots should be free to de facto default – print enough money to pay it all off with worthless currency.

    But he needn’t worry. London will do that just as well.

  5. Second, it must be adjusted for oil surpluses.

    What surpluses? Petroleum Revenue Tax is zero, the majors have left or are trying to leave Aberdeen, and the North Sea industry is fighting for its life. Loss-making companies don’t contribute much to the tax base, and neither do unemployed geologists.

    True, the current slump probably won’t last forever, but there’s also a finite economically viable lifecycle for all the yugely expensive physical infrastructure that makes production in the North Sea possible. The industry has been chasing ever more marginal fields for decades now, and has done great work on reducing operating costs, but there’s diminishing returns to all this clever boffinry – at some point the rigs and pipes need to be replaced and/or decommissioned, and that’s an ever dicier prospect as the giants are replaced by much smaller companies eking out smaller profits from smaller plays.

    It’s not true to say that the oil is all gone, but its best days are behind it. The Forties boomtown years aren’t coming back, ever.

    Meanwhile, Ritchie is also fully in favour of Green New Deal bullshit that will permanently reduce domestic demand for hydrocarbon products.

    So what surplus is he talking about? The only surplus in the sector’s near future is their storage facilities filling up with unsold oil products. Even the SNP has stopped talking about Scotland’s oil, it’s too embarrassing after their 2014 projections of $100/bbl.

  6. More brilliance:

    Given the phenomenal contribution North Sea oil made to the UK as a whole, which it can reasonable be argued was squandered outside Scotland, does Scotland have any liability for the debt, come what may? I am aware that Business for Scotland argue very strongly that it does not. It argues Scotland is owed money[4].

    Steve is not one of those people who believes Jocksit is impossible or whatever. Of course Scotland could leave the UK. Cloth would have to be cut, like in Ireland, which (unlike the UK) had real and terrifying levels of austerity where health spending fell by about 25%, but it’s doable.

    It’s a bad plan that will deliver the precise opposite of what the SNP claims – would lead to less real autonomy and less public spending – but it is possible without people resorting to eating deep fried tree bark or whatever.

    However, imagine thinking the Rest of the UK is going to agree that you’re “owed money” for imaginary alternate history oil surpluses that Scotland might’ve enjoyed in 1986 if it hadn’t consistently voted for Unionist parties.

    This is like demanding back payments from the Tooth Fairy, it’s just not gonna lead anywhere except to David Frost micturating with mirth.

  7. SMFS ‘They will be inflated away.’

    Not so simple. Borrowers have wised up to that shit and most gilts are now index linked. The ugly truth is that we (and the rest of the developed world) cannot afford the welfare state we have promised ourselves. If we are to avid a financial meltdown we will have to cut our cloth. Real austerity. The horror!

  8. “The rest of it is just the pursuit of vermine from a party that doesn’t recommend for it.”

    In the absence of vermine, maybe he’s hoping for a posthumous statue in the Royal Mile, as the second father of Scottish economics, alongside Adam Smith

  9. @ Patrick
    The UK (or rUK) has index-linked gilts, but Scotland does not and the debt that SNP-land shall owe to rUK will, according to Murphy, be fixed in Clydesdale Bank £5 notes which will be depreciated (“inflated”) away to Weimar Republic-type levels. [not RBS or BoS notes because RBS now calls itself NatWest and BoS is owned by Lloyds after Gordon **** twisted the arm of his friend Victor – consequently Lord – Blank to make Lloyds Bank rescue it].
    This will probably expand the tiny section of the economy devoted to manufacturing wheelbarrows (except thevonev invented by James Dyson because he is persona non grata in “Remain” circles).

  10. Unless the SNP are got rid of Scotland has no future.

    Their plans to abolish what remains of free speech up there mean that the place will be East Germ on the Clyde. There is no economic dynamism under socialist tyranny.

    The fact Uk gov sits and does nothing to stop SNP bullshit up there does not bode well for down here either.

  11. @ Mr Ecks
    What good did Obama’s intervention in the Brexit debate do for “Remain”?
    The FT journalists announce that Boris’ visit to Scotland has helped the SNP (personally, I doubt this but even the left-centre, as distinct from centre-left, journos wouldn’t say that it if it immediately provoked guffaws). So leaving the SNP to build its own gallows may not be as stupid as you think.

  12. J77 They’ll owe us in Sterling not Groats. Scotland would have a substantial foreign currency debt at birth.

  13. @Tim the coder

    Devolution means the the SNP have inevitably just become the trade union for Scottish public spending.

    Game theory means that it’s sensible for them to keep threatening independence, to maximise the resources they can extract for staying, almost whatever the populace actually believes.

    And if independence never comes, they can console themselves with the public sector payroll they generate.

  14. @ Patrick
    Murphy wants the debt to be in Scottish paper. What makes you think that SNP will choose to acknowledge that the debt is in English currency?
    FYI Sterling is a City in Scotland to the north of Glasgow and Edinburgh.

  15. BF: If that were to happen, I suspect Adam Smith would get down off his plinth & go give the Auld Tattie the Edinburgh equivalent of a Glasgow Kiss.

  16. It’s like a cross-border commuter earning in CHF and spending in EUR who gets a CHF mortgage on their home in France and who then suddenly decides it should be re-denominated in EUR at a time convenient to him.

    Isn’t going to happen… The bank would only laugh…

  17. J77 What makes me think…? ! Erm…The rUK has a Sterling liability and needs a Sterling asset (from Scotland) or else the rUK would be running the FX risk. So HMT and any Chancellor really has no choice but to tell Scotland to pay up in Sterling or fuck off profoundly – and forget using Sterling, or a free trade deal, or open borders, or having a friendly neighbour. It’s the arrogance of the SN\p that only the will of the Scottish people counts. The will of the rUK people counts too. Try to avoid paying at all or to avoid paying in Sterling leads immediately to a total collapse of goodwill and a viable exit.

  18. @ Gurzel Wummidge
    Yes – it is now called Stirling BUT Stirling Silver refers to that CITY (not town).

  19. @ Patrick
    SNP will say “it’s only what we want that counts”
    Argentina on Clyde.
    But the Peronists repeatedly get re-elected so the progressive relative impoverishment of Argentines/Scots doesn’t/won’t matter to the SNP.

  20. It’s like me saying:
    Buy my shop, yes there are some people who owe the business money and people the business has borrowed from, but don’t worry, I’ll take those on and make them my personal problem, leaving the business clear, and chase the settlement through the courts myself as my personal issue.

  21. Stirling Silver may well refer to Stirling, but the common grade of silver called St*E*rling Silver has nothing to do with Stirling, and is most likely a corruption of easterling, meaning, silver use by those who traded from the east, the Hanseatic League, who made sure not to debase their silver, so it grained a reputation for quality and stability, so leading to traders demanind payment in “easterling” silver.

    Being a Stirling alum, I dug through this decades ago. When I read the Foundation novel set in “Striling University” on Trantor, I kept picturing Stirling.

  22. I sneeze in threes

    Set the Orkney and Shetland isles free of the mainland if they wish. Wouldn’t that take most of the oil and fishing rights?

  23. And that is that there is actually already agreement that Scotland will have no liability for any of the debt of England, Wales or Northern Ireland

    Given that Scottish government (and its welfare state) is basically funded by England, Wales, and Northern Ireland – I would have thought that *most* of UK debt is already Scottish debt.

  24. And that is that there is actually already agreement that Scotland will have no liability for any of the debt of England, Wales or Northern Ireland (although for all practical purposes, this is English debt) if it chooses to become independent.

    Am I missing something? (probably am)
    This seems correct.
    If the Scots end up leaving, the debt gets split between the rUK and Scotlandia on a per capita basis, maybe according to the Barnet formula which governs public spending (or something).
    Then, after Freedom Day, Scotland is no longer liable for the debt of the rUK and rUK isn’t liable for the Scottish debt.

    This is still true even if there are shenanigans mentioned above with rUK taking the debt and New Scotland just starting with a big debt to rUK alone.

    Or is he saying that if it becomes independent, Scottyland will have no liability for any debt at all?

  25. The great advantage of Socttish independence is that if people want to go their own way on minimum wage laws, or alcohol duty, or decrimimalising brothels (not sure as might already be LA devolved), or recreational drugs, or fisheries policy, or landowner handouts going in the direction of EU or NZ, or anything else we might want to do and feck up at the first iteration of doing so, then at least we only have to persuade 70 odd MSPs and not 326 Westminster MPs to get the change done.
    I realise this is an argument for Scottish independence without the people mostly campaigning for it being in charge, but the argument for independence itself is still impeccable.

  26. Bloke in North Dorset

    Whatever happened to the plan to go straight in to the EU? Won’t the constraints mean they can’t inflate away the debt?

    And if they don’t join the EU straight away and decide to inflate away the debt first, won’t that be the death knell of them joining, at least until they’ve shown they can be trusted again?

  27. “Or is he saying that if it becomes independent, Scottyland will have no liability for any debt at all?”

    Even in that scenario they’d soon have a lot of debt, because they are spending far more money than they raise in tax revenue. They’d need to raise money from day 1, unless they plan to implement austerity on stilts, and cut public spending by c. 7% of GDP overnight. Borrowing money would not be very easy if they have just stiffed the rUK for their share of the UK’s National Debt. Its entirely possible that lenders would refuse to buy debt denominated in Bawbees or whatever they’d call their paper currency, or demand massive interest rates to compensate for the risk, and they’d be forced to borrow in hard currency anyway.

  28. So a debtor can change the currency of debt? Does that mean we can now pay our Scottish bills and taxes in Smarties…?

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