A STORY The National and informed readers have been tussling with over the weekend was the one about the Scottish Government and some mounting anxiety at the economic situation it will face on day one of independence.
It is not a subject you normally hear discussed rationally in our press or TV, but I promise this column will always try to redress the balance.
The latest development is that the Government has set up a new council of advisers to examine the country’s prospects over the next 10 years, a time horizon not often used in Scotland. One member of the council will be Nick Macpherson, who has spent all his working life in London, finally as the closest adviser to three chancellors, Gordon Brown, Alistair Darling and George Osborne. Since his retiral in 2016, Nick has been in the private sector and in the House of Lords, where he sits as Lord Macpherson of Earl’s Court.
Though usually lurking in the background, Nick is the most distinguished civil servant of his generation and indeed one of the cleverest men of our age. He guided the UK through the financial meltdown of 2007/2008 – not with total success, it must be said (he says so himself). But at least it was with a degree of competence that other countries envied. He is also a son of Scotland, from a family that owns the Highland estate of Attadale in Wester Ross.
It’s a common handicap of very intelligent Scotsmen to be often misunderstood. Nick (above) is now coming under attack from people a great deal dimmer than he is. They condemn him for being against the independence of his country. In fact, the exact opposite is true.
I first met him at a dinner in Edinburgh shortly before the first Scottish referendum of 2014. He had just made a huge splash with his “strong advice” to Osborne that Alex Salmond’s scheme of currency union between Scotland and England should be rejected. It would allow English banks to take on the debt of Scottish banks too easily, so that an inflationary situation could be created so unstable as to threaten the whole system with collapse. That pointed up a problem the SNP has not yet solved, mainly because it has not tried very hard. Let us hope the 10 years of work ahead will do the trick.
At the time we met, I wanted to question Nick because I, too, disliked Osborne’s speech on the currency. I thought, and still do, that Scotland should adopt its own currency as soon as possible, with no more than the minimal delays necessary, mainly concerned with practical detail. It was intriguing to find Nick actually agreed. His objections arose from immediately obvious risks, such as that English banks might be able to create debt for Scottish banks. If such errors were to be avoided, then beyond doubt an independent Scotland should have its own currency, just as every independent country has. That is the right way for a given society to deal with its own problems, rather than depend on somebody else to solve them – a bad thing on every side.
Since his brilliant revelation of uncomfortable truths in 2014, Nick has continued to develop his views, and that is the origin of the new row that has blown up in the last few days. What Nick’s critics should note is not that he highlighted the worst possible case in 2014, but that he has replaced it with the best possible case now. That is the real reason why Nicola Sturgeon, finally finding some good rather than the usual awful economic advice to follow, has at last called him into her inner counsels.
With the UK out of the EU, here is the biggest chance Scotttish nationalists have ever had to look all over again at our economy and its outlook, undisturbed by distortions from entrusting that task to specialists from another country who do not always have our best interests at heart.
THE biggest issue at stake is whether we can quickly rejoin the EU. It is clearly not going to be done by Boris Johnson’s England, so it can only be done by an independent Scotland. It has to be done because it opens our way into the world’s biggest market and allows us to bypass the uncertainties that will burden the UK for decades as it tries to replace that market with others for its own traded goods.
So far we have only heard about New Zealand lamb and Australian beef being let in, but there is a lot more of the same sort of stuff to follow. No doubt some farmers will do well out of that, but it seems unlikely they will be the British ones.
Turning to post-Brexit commerce, few favours are likely to come the way of UK banks or insurance companies or asset managers. Added to the loss of business for the City of London, there could come much more formidable competition from its near neighbours, the canny financiers of Edinburgh. Once they are freed from a government in London that seldom heeds their interests, they will be able to bid for business that has seldom seemed worth pursuing in the past. They will by then also be able to offer locational and regulatory benefits never available from a subordinate position in the UK. Even London-based institutions will be allowed to hedge their bets with the location of staff and activities in Edinburgh for their European business.
Of course it will not all be plain sailing for an independent nation with its own currency. Our membership of the EU will need to be approved by every existing member. Spain will fear a precedent being set for an independent Catalonia, though talk of an actual veto is dying down. Officially, the EU has an enormous interest in fast-tracking membership for a country whose citizens had for 43 years been full European citizens, and who in the UK referendum voted Yes to Europe by 62% to 38%.
Then there is the question of currency. In 2014, the SNP’s proposal of a unilateral monetary union between independent Scotland and the rest of the UK was misjudged. In London, there had been too much bad experience with fixed currency regimes in the 20th century for yet another to be acceptable in the 21st century. The history of monetary unions teaches us that they require more political integration rather than less. That is true of the eurozone too.
In any case, an independent Scotland would have no interest in seeking to tie its currency to a country that wishes to put more distance between itself and the EU. It is surely time, then, for the Scottish Government to commit to creating a Scottish pound supported by its own central bank. That would not preclude the monetary authorities of an independent Scotland from shadowing sterling, just as the Danish central bank shadows the euro. Sweden is another country that shadows the euro without joining the euro. It is a piece of Nordic practicality. It would be good for us too, but requires a dose of realism we have not yet got.
Here’s the first dose: we can build on social services adequate for a small country that has renounced fairytale finance. Socialism is not included.