Don’t You Trust the Banks? That’s why we need a lender of Last Resort! #indyref

The Banks have not exactly demonstrated their interest in providing a quality service to  their customers in the past several years. As corporations, they have a duty to their shareholders but also a duty of care to us.

The Endowment Mortgage scandal, the PPI scandal, LIBOR rate rigging – for which large fines have been imposed on some of the big banks, and the toxic loans which led to the banking crisis in 2008, leaving many banks  being bailed out by governments in UK, USA and other countries around the world,  clearly show that bankers have been focussed on profit, huge bonuses and personal gain at our expense – as customers AND taxpayers. They invested recklessly within their investment arms for the bank, not us. It is not clear if their behaviour has changed in any meaningful form yet, judging by the excessive salaries and packages that they still pay themselves.

When a bank gets into trouble, even temporarily, they can go to the Bank of England for instant liquidity. That is one of the roles of the BofE in UK, and the Federal Reserve in America. They act as lenders of last resort. Without this guarantee, investors and depositors (you and me and all the businesses in the country) would not feel confident in leaving our cash, our wages, our pensions, our savings in that bank. This was demonstrated by Northern Rock back in 2007 or 2008 when they had to close their doors to halt a run on the bank. Remember the TV News images of long queues at branches whose doors were closed?

Imagine suddenly discovering you could not access your own money; at an ATM, say. Imagine discovering, just after your salary had been paid into your account by your employer, that none of your direct debits had been paid. That’s what happened to customers of Northern Rock. How would you cope today if that happened to you?

It took some time, but the Government intervened through the Bank of England. Confidence was restored then, though much worse was to follow; and we are still paying for it now. As we know from the bailing out of Royal Bank of Scotland and Bank of Scotland.

But an individual bank might have temporary liquidity problems which you and I may never ever be aware of, thanks to the banking system.

An Independent Scotland needs a Lender of Last Resort.

It’s been made patently clear that in the event of Scotland becoming independent, a currency union is not a viable option, for Scotland or the rest of the UK.  It is not scare-mongering to keep saying this, it is not a threat, it is reality. Only the nationalists cannot see this.

You could hardly expect the Bank of England to underwrite the Scottish Banks. The remaining 58 million people in England, Wales and Northern Ireland would hardly agree to it – and it would surely be appropriate if the question does come up, that they have their say in their own referendum.

There are two ways for Scotland to have a lender of last resort (LOLT).

  1. VOTE NO on 18th September; with no cost and no risk – we stay in the UK; or
  2. Vote Yes:  this would require a separate Scottish currency (Sterlingisation – using the pound informally does not achieve aLOLT); create a banking regulatory framework  and establish an equivalent to theBofE. Many experts have already demonstrated that this is possible, but at huge cost and risk.That cost would be paid through taxation by the 5 million people living in this country.

Scotland is a great nation, contributing significantly  to the greatness of the United Kingdom and benefitting from the security provided by Great Britain and Northern Ireland.

Let us keep it that way for the good of us all. VOTE NO on 18th September.

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I’ve been away but back in time for the great Debate #indyref

I’ve been travelling around France in our motorhome since early April; enjoying fabulous weather, rural french countryside and wonderful seaside towns and villages. This was our 2nd year of springtime adventure since I retired. It is a great way of life; plenty of fresh air and ozone to make us feel good and healthy. Travel blog and photo albums at for anyone interested.

I have been following the Independence debate but had no time nor the inclination to write and post to this blog from France. However, I’m back; just in time to watch the great Television debate between Alex Salmond and Alistair Darling last night.

If people were expecting to find out, at last, what the currency is going to be in an independent Scotland then they were sorely disappointed. There is still no Plan B; there was no acknowledgement from Mr Salmond that there was even a remote possibility that there might not be a currency union. We all should know that iScotland will only be able to use the pound sterling informally; a dangerous and expensive option leaving no lender of last resort. Back in January 2014 I wrote about the Pros & Cons of the Pound in an independent Scotland – worth revisiting now.

The winner of the debate was Alistair Darling by 56% in a follow-up poll. Predictably, Blair Jenkins and the Yes Campaign, announced they had won! I can understand that – their skill with statistics matches the poor maths and economic knowledge that led them to conclude that a currency union with rUK would be in the best interests of both Scotland and England. Nonsensical!

I wonder whether a 2nd debate will take place? I’ll not be holding my breath.

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The ‘Our Money gets sent to London’ nonsense #indyref

Twitter 140 character limitation is frustrating when a topic thread develops and you want to answer several questions or points at once.

The Nationalists, yet again, have drawn me into their pathetic ‘we just get the crumbs from London’ nonsense (follow link at top). For   (who are not going to change their minds about anything) and those who follow my blog with a genuine desire to understand the real issues I respond in a medium that offers room for discussion and comment. 

Quotes from   

>> So sending all revenues to London then waiting cap-in-hand for some Barnett pocket-money is “partnership” is it? <<

>> It truly is “Scotland’s Shame” that we allow ourselves to be ruled by another country. <<

>> hate the thought of going cap in hand ‘Oliver Twist’ like to UKGov – we must have Indy to do/have it all ourselves <<

.. Yes, I do hate that all our revenues are sent elsewhere for disbursement. You endorse this? <<


We are not being ruled by another country, for goodness sake! The Westminster Government is elected by all who are franchised and care to vote across the whole of the UK, and it legislates for the UK; that includes Scotland. After 300 years, I think we should understand at least that. Now I realise that such statements are made emotionally so I guess I should be a bit more sympathetic. 

Believe it or not, central government in any country has to be located somewhere and it was not deliberately decided one day to screw the Scots and put it in London. Over hundreds of years this country – Great Britain – has grown and developed – with major centres being created where the most people gathered for work and economic benefit. Major population centres grew up organically. Historians will be better able to describe this process of evolution. Suffice to say that London grew where it is, on the Thames, and over time the seat of Government was located there as being the largest centre in the country.

Scotland’s centre of devolved government is in Edinburgh. Why was it located there? It is the capital of Scotland, just like London is the capital of England AND THE UK.

The functions of government are to some extent devolved; to Holyrood, to the Welsh Assembly, to local and regional councils. Some powers of taxation and expenditure are devolved to these bodies.

The function of collecting taxes is entirely separate from the mechanisms of determining tax rates, budgets etc.. It is delegated to HMRC and other bodies. The revenues are collected and banked for later disbursement through authorised channels.

So, why do the nationalists bleat about how London gets all the money? If it all went to Edinburgh, would it make any difference? Well, YES, I hear the Nats say, but no, it is academic where.

What matters is how it is distributed; through welfare programs, capital projects, environmental needs, roads and transport, defence, pensions, and all the other myriad of things that have to do with public services and the people of this country; and that disbursement varies by and large by population distribution. You would expect, surely, that England, with 60 million people would consume more resources than Scotland with 5.3 million?

Every area in the UK could put a case for additional funding to right some perceived wrong and Scotland is no exception. That’s just human nature. 

Scotland has had some tax varying powers since the Holyrood Parliament opened, but it has never used them. The Scotland Act 2012 will deliver more in 2016 – up 10% of income tax to be determined by Holyrood – and decisions on how they are spent made in Scotland. Not enough, perhaps, but it is a start. Greater decision-making in Edinburgh is desirable and will come in time.

Further tax raising proposals are being developed by all the major parliamentary parties now, or in the next month or so for both Wales and Scotland. The Nats will say that they don’t believe any promises, but we all have the power of the ballot box if we don’t like things.

Scotland are not hard done by. Poverty is bad wherever it exists, and it is not all in Scotland. It needs stamping out everywhere, though it is not that simple.

In every society, there are people who are very poor, poor, slightly better off, better off, well off, rich and super rich. That is an economic fact of life. Society does what it can to lift the poor out of their desperate circumstances; and punish the rich with much more taxes than we are charged in the middle. That’s the way the world goes around. Governments do what they can to change things for the better but do not always get it right; and that would be as true if it was the SNP Scottish Government or Westminster.

The Childcare proposals of the Scottish Government is a case in point; today we find out that there are not enough mothers who might go back to work to actually fund the cost of this programme!

This will never change; there will always be rich and poor. Nature is about the survival of the fittest but we humans have tried to change that over the centuries, rightly so. In times past, it was the Church, charities and local society who helped the poor from bequests and donations from the better off. 

There is an essential thing to understand though; economically we are dependent on the rich and super rich – it is their taxes, their investment in industry, through the Stock Exchanges and other centres of investment, along with the creativity, skills and hard work of the rest of us that have built this country and made it what it is.

We all have our part to play; that will be true whether we stay in the UK or become an independent Scotland.





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The Sums don’t Add Up for an Independent Scotland #indyref

In each of the last 5 years Scotland has been in deficit, even when including North Sea Oil revenues.

Table 2.1: Current and Capital Budgets: Scotland 2008-09 to 2012-13 (Source GERS)

                                                                        £ millions

2008-09         2009-10         2010-11         2011-12         2012-13

   -4091             -14354            -12322             -8554          -12058

Including North Sea revenue (geographical share)

That’s -£12.1 billion in 2012-13!

If Scotland votes yes on September 18th, then the Scottish Government thinks we’ll be independent within 18 months! That’s April 2016! Very ambitious, an unlikely timescale, but current projections of Scotland within the UK for 2018-19 suggest a deficit of £5.3 billion. The UK for that year should be in surplus.

Oil Revenues; propping up current account, not improving reserves

Now, volatile North Sea Oil revenues account for Scotland’s deficit to some extent; but should we be relying on a declining fossil fuel to balance our books? It would be a crazy strategy if we were.

The volatility arises from five variables – exchange rate fluctuations; the moving price, in US$, of oil (outwith our control); new investment to replace ageing infrastructure and develop new technologies to make smaller fields viable (which will reduce the tax revenue in the years it occurs); the variability of oil yield and higher maintenance costs for old infrastructure.

There is an oil business cost benefit analysis and strategy which must also be considered. Will the Oil companies opt for large investments in existing North Sea fields for a marginal gain to extract remaining oil reserves; or will they prefer to invest in other parts of the world on new, more certain, oil fields with vast reserves? There would be greater profit potential in the new fields. I know where my money would go, if I had any!

Mr Salmon keeps telling us he’ll be establishing a North Sea Oil Fund for the benefit of future generations of Scots; but we are actually using oil revenues for normal housekeeping! So, another pipe dream from the SNP Government is laid bare!

Going it Alone

For as long as we are in the UK we are shielded by these fluctuations, but suppose we do become independent; on our own; no one else to balance our books? Scotland really will need to borrow shedloads of money to add to a sizeable debt that will arise just from the fact of becoming independent.

Now, I am no politician; no economist; no international lawyer; nor any kind of lawyer for that matter! I am a Scot with a vote, seeking to find  reasons to vote for Independence but having found none!

One thing I do have is common sense and a reasonable level of knowledge from reading from many sources about the implications of going it alone.

Set Up Elements and Costs

I’m sure I’ll miss out some vital stuff, even get cost estimates wrong – but I think I’ll be more accurate than the SNP Government with their rose-tinted glasses version in their publication, “Scotland’s Future”. One thing I can be sure of, Independence will not come cheap.

Scotland’s GDP in 2012-2013 was £144.672 billion; 9.19% that of UK’s GDP (including geographical share of North Sea Oil). As stated above, its deficit was £12.058 billion; 8.3%.

However, let’s assume the 2018-2019 deficit forecast is correct at £5.3 billion.

What needs to be taken account of in start up?

    • Central funding (from UK Government) stops
      • iScotland will have no money and will have to buy some from the Bank of England. What with?
      • The Scottish Government will not have any money, except what’s in government bank accounts ( in £ sterling), and will have to borrow billions. They’ll do this by selling Government Bonds on the financial markets (Scottish Gilts?) at an interest rate determined by the markets. If they don’t buy at the initial offered rates, the rates will have to go up until they do. Simple market dynamics.
      • So, no control over interest rates.
    • Currency / Money
      1. Sterling / Monetary Union: I do not think the people of England and Wales would agree a currency / monetary union. Why would they want to bankroll an independent Scotland? Sterling is an institution that stays with the UK when iScotland leaves.
      2. Sterlingisation: The next best thing, accordingtoAlexSalmond would be a Panama-style informal use of the pound. That would be possible, though very risky as we’d be tied to the exchange rate of the pound with no control and no lender of last resort. The Scottish banks, with balance sheets 12 times larger than Scotland’s economy, could not be guaranteed by the State – UK or Scotland.RBS andLloyds might well have had to move into England, but have a continued presence in Scotland. They still could not be protected without huge cost.
        1. Share of Debt: The Scottish Government glibly says that iScotland will not accept a share of the UK debt unless it gets full monetary union because it is the UK’s liability. That’s true, but Scotland is part of the UK now and benefitted from that borrowing. However, I guess that means they would not get a share of the assets either, other than those already located in Scotland; though not including Faslane & Coulport which in international law would be designated as UK sovereign territory! The money markets will see such action as a default and act accordingly, making iScotland’s borrowing more expensive than the UK’s.
        2. Sterlingisation works for the Isle of Man and Channel Islands because they are so small; it would be a very different kettle of fish for Scotland.
        3. What will happenwithSterlingisation?
          1. We will continue to use the pound. Fine for the people. Our bank accounts will already have funds and liabilities in pounds, except that future interest rates may be less favourable.
          2. Our savings will be with UK institutions, but we could choose to switch them to new or existing Scottish finance companies.
          3. Paying for pensions, public service costs, public service wages, suppliers, welfare benefits, defence, capital projects, the deficit, etc, etc – all from day one, will have to come from borrowing to start with and eventually from tax revenues.
          4. What about tax revenue – income tax, national insurance, VAT, corporation tax, all the other taxes and revenues? We all know from simple household budgeting that income and expenditure comes in at different times and at different rates. Wages & Salaries will need paying every week and month.
          5. They’ll have to establish a new regulatory framework and the institutions that run & protect government & the country – e.g., the Scottish Revenue & Customs to collect taxes, defence, and all the other things that are currently reserved to Westminster. How long will it take to establish systems and services to collect our taxes? Again, some of that will occur beforehand but at a significant cost.
          6. Monetary reserves will have to be created immediately, coming from initial borrowing and is likely to be a multiple of forecast revenue + deficit (respectively £53.1 billion + £12.1 billion in 2012-2013). Even if iScotland’s immediate debt becomes 72% of GDP (similar to UK) then that is £104 billion. Three times forecast revenue + deficit would amount to £196 billion!
          7. Add to that the start-up costs of becoming independent! A potential range of £100 billion and £250 billion!
          8. Potentially the interest cost of this at say, 4%, would be £4 to £10 billion per year. More than the Scottish allocated cost of debt while in the UK.
      3. A new Scottish currency:
        1. A Scottish Central Bank and monetary framework needs to be established. Some of the preparation, of course, will be done during the period between September 19th 2014 and the eventual date of independence. But, what will that cost?
        2. Most of the sterlingisation items above will apply to our own currency too, except it will be denominated in the new currency – the Salmond? ..or the Sturgeon? ..or the Groat? ..or the Scottish Pound? Call them Monetary Units (MUs) for now.
        3. The currency could be pegged to the £ Sterling, or free to float. The currency markets will determine its value ultimately. It will not be cheap!
    • Defence
      1. In the scenario we are considering, the SNP Scottish Government has repudiated any share of the UK’s debt. As stated, they won’t get any of the assets either, then. Defence must develop from nothing, therefore.
      2. What defence assets will we require?
        1. Ships
          1. We’re building two huge aircraft carriers for the UK but we won’t be able to afford the one they’re thinking of mothballing!
          2. We’ll need some coastguard ships to protect our coastline.
          3. Fisheries protection will require some frigates or some similar kind of warship, won’t we?
          4. Sub-contract to the Royal Navy or build our own? Either way, billions of MUs!
          5. Submarines. We’ll need to keep tabs on trident won’t we? More MU billions.
        2. Aircraft
          1. Scottish Airspace will need protection from the UK; and the rest of the world!
          2. We could sub-contract to the RAF or build our own? Either way, billions of MUs!
        3. Armed Forces
          1. Tanks, ordnance, (S)SAS.
        4. Forces Infrastructure
          1. Military bases. Maybe we’ll be alright with this; the UK ones are still in Scotland!
        5. Security Services
          1. GCHQ ‘á laEcosse’
            1. Sub-contract to GCHQ or build our own? Either way, billions of MUs!
          2. MI5 á laEcosse
            1. Sub-contract to MI5 or build our own? Either way, billions of MUs!
          3. MI6 á laEcosse
            1. Sub-contract to MI6 or build our own? Either way, billions of MUs!
      • OK, I’ve had some fun with defence but it’s not all a walk in the park.

Does any of this make sense? I think not. As a strong and contributing country within the UK we can be much better than on our own as a small but uninfluential independent state.



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Central Government is always the ‘Them’ that ‘Doesn’t understand our needs’

The Scottish Government, the SNP and the Nationalists are always bleating about how unfairly Westminster treats Scotland; that London gets all of the wealth; that ‘we’ contribute more in taxes per capita but get less back in expenditure; that they don’t understand Scotland’s needs; that the Westminster Government gives crumbs to Scotland.

Isn’t that the kind of language used by every region in every country when referring to its central government, whether it’s Provence to Paris, Bavaria to Bonn?

If, big if, iScotland came into being it would not be long before Caithness, or Shetland, or Orkney, or the Western Isles was saying exactly the same thing about Edinburgh;

It might actually turn out that Shetland & Orkney will decide to remain within the UK; rumblings have already been heard that they feel they would be much Better Together.

Where would that place the geographical split of North Sea Oil assets left to iScotland? Significantly smaller for sure. Even less viable for an iScotland economy.

Anyway, back to the point: we know that the dyed in the wool nationalists firmly believe this rhetoric, they’ve been peddling it for so long that they ‘know’ it to be the truth and will not change their minds, regardless of how much evidence and logic is presented; but, there are a significant number of undecideds who are being swayed by this nonsense and are not being provided by the Better Together campaign with the positives of, and the strengths of Scotland and its contribution to the United Kingdom.

Scotland is a great country. It has great and innovative industry, spectacular scenery (well, it does where there are no wind farm developments), lots of history and an excellent tourist industry, and much, much more. So does England and Wales.

Unfairness? The wealth is all in the South of England! London has the greatest share of investment! Why is that a problem then? That does not mean that up north we are all poor.

London is one of the main financial services centres in the world; it generates billions in investment and income from around the globe and consequently makes a significantly higher contribution to the country’s taxes than elsewhere. London and the south probably do have the wealthiest group of households. But their success is also our success across the whole of the UK, Scotland included; and we should be happy about that.

What about Aberdeen? Along with Edinburgh they are the wealthiest parts of Scotland. Should we who live and work elsewhere be envious, jealous, resentful at their success and wealth? I hope not. As a country and as citizens we share this success and benefit from North Sea oil, our financial services industry, etc. If you are envious, then get off your butts, move to Aberdeen or Edinburgh and work long and hard to aspire to that monetary wealth, and pay your taxes as everyone of them is doing.

As individuals who have the ability & incentive to work and contribute to this great society, we are every bit as important to the economy. We cannot all be entrepreneurs, captain’s of industry; our varied skill sets make the country stronger than the sum of its individual parts.

So, we all have our part to play; whether we are in a country of 5.325 million or 66.3 million people. Within the UK we are better placed to weather the challenges and recessions that will come our way in the future, as we have in the past.

Where we want to change or influence the political decisions that are made at Westminster and Holyrood, we can follow the democratic process, but lets stop the envy and bitterness that does nothing but weaken our society.

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#indyref The Status Quo will not be an option!

The Scotland Act 2012 already provides for further devolved tax powers to Scotland from 2016 in which the Scottish rates of income tax will be reduced by 10% at all levels; allowing the Scottish Government to determine what the Scottish add-on % would be, either higher or lower.

We are hearing now that further tax changes are being contemplated for Scotland to give it greater control of finances. The status quo is therefore not going to be the outcome of a NO vote.

I am sure that we will be hearing more from the Government and political leaders in the months to come.

The certainty, for me, is that staying with the UK and looking forward to more devolution and say in our own affairs in a currency we are secure in is better than the unknown risks we’d take in independence.

I’m voting NO to independence.

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We cannot afford to take such a huge Risk! #indyref

Wouldn’t it be nice if we could just be presented with a document telling us, in clear and absolute terms, what independence would do for us; what it would cost in both start up  / set up terms & in the operational sense; what the effect on our economy would be; what the differences would be; like a pros & cons chart! It would be an awfully big one!

OK, no one could possibly forecast with complete accuracy the economic conditions that would follow independence but evidence-based predictions rather than woolly ideals are essential surely.

Mr Salmond, the SNP and the Scottish Government will tell us that we already have that – it’s  ‘Scotland’s Future – your guide to an Independent Scotland’, published with great fanfare by the Scottish Government, at our expense, last November.

Unfortunately, it provided in 600+ pages a wonderful list of proposals and promises. Many of the fundamentals on which their vision is predicated is not in their gift to promise; they depend on negotiation with others, who might be willing to consider but would not grant if not in their own interests. Everyday we read from more experts explaining why it might be good for iScotland but not for rUK.

What might they be?

Number one, currency.

Mr Salmond insists that an Independent Scotland (iScotland) would use the pound sterling in a monetary union with the rest of the UK (rUK). The UK has made it painfully clear that they will not allow an iScotland to use the pound. The Bank of England will not be the lender of last resort to iScotland.

The Scottish Government continues to insist that iScotland will use the pound. They offer no alternative in the event that rUK declines to cooperate.

Shouldn’t we be very worried that we are being asked to vote in the Referendum without knowing what currency we’ll be using, or what it will cost us?

I, for one, will not be prepared to  take such a huge risk without knowing the fundamentals.

#2 membership of the EU. 

The SNP’s original proposal was that we would continue to be members of the EU, inheriting all the rights, opt outs and rebate enjoyed by the UK. Many experts, including the EU itself, have shown that this would not be possible and that iScotland would have to apply for membership as an independent nation, having first joined the ERM and demonstrated that their currency (?) & economy qualified it for inclusion. Oh, and would then require to adopt the Euro within a given timeframe.

iScotland would probably then gain membership but not for several years! Joining the Euro would not be in iScotland’s best interests, though access to the european markets would.

The Scottish Government ditched the idea of the Euro (their original currency choice) some years ago after the southern european countries began to require bail outs. It is now clear that without fiscal integration the Euro and Euro members will continue to be in trouble.

Being in the EU, I believe, is an advantage and Scotland would continue to enjoy that advantage if it stayed within the security of the UK.

Do we want to risk losing EU membership and the pound? I’ll be voting NO unless I hear something more realistic and certain from Mr Salmond & co. 

On past form that will not be happening anytime soon; but they, and we, are running out of time!

#3 potential exodus from Scotland of global businesses.

We have heard in the past week or so that many global businesses, like Standard Life, Alliance Trust, RBS, Lloyds Banking Group and others would seriously consider having to move their Headquarters out of Scotland in the event of independence if iScotland was not an EU member and did not have the pound sterling. They would have to because of the financial regulatory framework and because their largest proportion of customers were in rUK and elsewhere. Financial institutions are required to have their Headquarters in the same country in which they are incorporated.

That would involve the loss of a huge number of Scottish jobs!

I read one ludicrous response from the YES campaign that these weren’t real jobs and that iScotland would be creating manufacturing and industrial jobs to replace them. A noble aspiration, but why have these not already been created then? However, the reason I laughed  was the implication in their response that the financial sector did not matter and were not ‘real’ jobs.

The financial sector is a huge part of the UK economy, centred both in London AND Edinburgh. Scotland’s financial & insurance sector contributes over 9% of Gross Value Added (GVA).

Without the pound sterling, would our financial & insurance sector be decimated?

Perhaps not in the long term but we would need everything from day 1. It would require the iScotland government to create a new regulatory framework; a central bank to become the Scottish lender of last resort. How much is that going to cost and how long will it take? More than the 18 months Mr Salmond thinks it will take to create an iScotland, I think.

In the meantime, what would happen to yours and my pensions, savings, money, insurance policies, mortgages, bank accounts? What would happen to the iScottish economy meanwhile?

I think there are too many uncertainties that need to be clarified before 18th September – it will be too late afterwards!

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