The next UK general election will be a referendum on independence for Scotland. This is according to First Minister Nicola Sturgeon, after the ‘disappointing’ Supreme Court ruling last week found that her administration did not in fact have the power to unilaterally rewrite the UK’s constitution.
Will the people of Scotland really accept that the ballot box outcome in 2024 will represent a ‘de facto’ referendum that could lead to them being removed from the UK? With no legal or historic precedent for such an undertaking, the arbitrariness of the proposition would be comical if it were not so serious.
But perhaps equally comical is the idea that Sturgeon’s team is developing a serious plan for implementing economic independence. Principally, how it will manage a sudden move outside the sterling currency zone without creating an economic crisis for the new state. The plan is to unofficially use sterling in a similar way to how Panama uses the dollar, or Montenegro the euro, but then move to a new Scottish currency. Does that sound credible?
Many will have their doubts, especially as a newly-released freedom of information response has established that the Scottish government has done zero – I repeat, zero – modelling of the potential transaction costs that a new currency will inflict on businesses and consumers. The response to Sam Taylor, who heads up These Islands, reads: ‘The Scottish government does not have the information you have asked for because no modelling of increased currency transaction costs due to an independent Scotland having a different currency was commissioned or was underway between 6 May 2021 and 31 October 2022.’ It adds: ‘There was also no record of internal Scottish government discussion on this subject found in staff inboxes or saved documents over the time period specified.’
The lack of discussion on currency transaction costs is on a par with Nicola Sturgeon’s recent constitutional gamesmanship.
This is curious. In the run up to the 2014 independence referendum, the Scottish government did manage to model the transaction costs businesses in the rest of the UK would face under a new currency scenario when importing and exporting to Scotland. The analysis showed that businesses in the remainder of the UK would have to absorb costs of approximately £500 million as a result of foreign exchange transactions linked to Scottish trade.
The SNP at the time was arguing against a new currency. Instead, they were in favour of a formal sterling monetary union with the remaining UK – which might explain why the Salmond administration was happy to conduct and publish the analysis.
But now the Scottish government has changed tack, instead arguing for a new Scottish currency after a period of ‘sterlingisation’. This might explain why the Sturgeon administration is reluctant to delve into the reality of what currency transition would actually mean for businesses. Salmond’s team did not outline the costs to Scottish businesses of operating with a new Scottish currency. Considering analysis has shown that one in four jobs in Scotland are supported by demand for Scottish goods and services from the rest of the UK, and that the vast majority of Scotland’s imports and exports are with the rest of the UK, it seems to follow that those costs would be considerable.
But it’s not just businesses who need to fret: on the consumer side, the impact of a new currency could also have major downsides. There are over 700,000 households in Scotland with sterling mortgages. If Scotland launched its own pound, then a great many of those householders would suddenly find their wages denominated in that new currency while their mortgages and other debts would likely remain in sterling. It’s hardly the most straightforward solution.
Recent history shows us how damaging currency risk can be for regular households. As an example, take the case of east European borrowers who took on Swiss franc-linked mortgages a decade or so ago. Attracted by lower interest rates, mortgage holders subsequently saw their payment liabilities skyrocket due to currency moves. Struggling homeowners ended up taking banks to court. The SNP plan threatens to introduce similar risks to Scottish households.
The lack of discussion on currency transaction costs and other currency risks is on a par with Nicola Sturgeon’s recent constitutional gamesmanship: the Scottish government’s latest paper making the economic case for leaving the UK failed to provide any fiscal modelling for the new state. It seems the Sturgeon administration really is intent on whitewashing the economic risks of leaving the UK. Perhaps they already know it will be a disaster for Scottish businesses and households – but are swivel-eyed enough to push the case regardless. Perhaps the latest manoeuvres (from the court case to the white papers) are intended to keep the populist bandwagon rolling with no real secession intent.
Regardless of the motivation, this further highlights to the Scottish people that they are being led by a party, a movement and a first minister that is tired, out of ideas and drained of credibility. That’s one upside, at least.
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