2007 - 2020

The Pound In Your Pocket

Going nowhere

Better than a “Winston”

 

On 19th November 1967 Prime Minister Harold Wilson made his famous “Pound In Your Pocket” speech.  His government  had just announced a devaluation of sterling and Wilson was anxious to reassure Joe Public that the everyday value of their wages and savings would remain unchanged.

Wilson went on national TV that night to explain that his clever devaluation measure – opposed by his own Chancellor – would allow the UK economy to “break out from the straitjacket” of boom and bust economics.  Chuffing on his famous pipe he explained to a confused and alarmed public:

“From now the pound abroad is worth 14% or so less in terms of other currencies. It does not mean, of course, that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.  What it does mean is that we shall now be able to sell more goods abroad on a competitive basis.”

We know now that Wilson’s fiscal adjustment was grasping at straws. The cost of imported goods rose, inflation soared, and the “pound in your pocket” did indeed lose value. In many ways November 1967 was a turning point in British politics. The Bank of England made it clear in no uncertain terms they were dictating economic policy and Wilson’s  government were made to implement unpopular indirect taxation measures, cuts in public spending, and an attack on workers wages. All of which brought the UK’s golden age of post war social democracy to an abrupt end.

What followed the currency devaluation of November 1967 was an economic dark age of inflation, industrial decay, national strikes, power cuts and even an imposed 3 day week. By 1976 the British economy was in such a catastrophic mess the UK became the first advanced western economy to be rescued by an IMF bail out.  Three years later Margaret Thatcher was elected and a neoliberal counter-revolution against social democracy rolled into town. Despite thirteen years of New Labour this is the political cul de sac we’re still parked in today

The lasting impact of November 1967 was to elevate a popular sensitivity to the trials and tribulations of the British currency on the international money markets. The phrase “the pound on your pocket”  stuck although it’s a phrase more associated with fear than with any notion of national pride.

The last seven days in Scottish politics have been dominated by debate around currency, much of it absurd and irrational. A mature fact-based debate has been absent on the pro-Union No side.  George Osbourne and Brian Wilson have joined hands to whip up a climate of fear and uncertainty over a future Scottish currency.

What ‘s been missing from all this is a useful Timeline.  Like most on the Yes side I’m quietly confident that when the day arrives Scots will vote our country into existence and the celebrations will last long into the night.  But then what?

The day after a Yes vote I’ll probably be out celebrating with friends, buying fizzy drinks with any pounds still left in my pocket.  Our currency won’t have changed the morning after.  What would follow the hangovers should be interesting, to say the least, perhaps the most politicised era in Scottish history, as a period of intense negotiation between representatives of Scotland and the British state commence, followed closely by the public . During this period 2014-2016 there is no dispute that sterling will still be in use.

At some point in 2016, according to the Scottish government’s timeline, negotiations will be concluded, Independence will be officially declared, and the first elections to an Independent Scottish parliament will take place later that year.

Even were it an Independent Scotland’s desired option immediate entrance to the Euro in the first few years of Independence is ruled out by the EC’s own rules which state a participating member state must first join the ERM II  for at least two years in order to satisfy requirements to join the Eurozone. Under these rules Scotland would first need to introduce its own currency and then join the ERM II. So we can leave the Eurozone out of the equation for the time being.

I’d personally like to see Scotland move away from sterling and adopt our own currency.  Its a good solid viable option which would create a stable currency as the backbone of our economic life.  But should Scotland choose to use a separate Scottish currency this would take considerable time and planning to set up. The change from sterling to a Scottish pound would also require the consent of the governed through a post-Independence national referendum.  The democratic and economic timelines complicate the idea of a Scottish pound in the first few transitional years.

So you don’t have to be an expert in economics or banking to conclude that the Independence timeline means that sterling will remain Scotland’s currency from Sept 2014 through most if not all of the first term of an Independent Scottish Parliament. It’s in everyone’s interest that this initial transition period – which will last for most of 2014-2020 – should go as smoothly as possible.

This isn’t delusional naivety on the part of us Scots, hoping London will fall into line, as has been suggested. Its  common sense. The movement of people, goods and capital between Scotland and rUK will not stop  after 2016.  A British Chancellor, acting out of churlishness, wishing to undermine or jeopardise cross-border trade, or put obstacles in the way of families and friends moving between Scotland and England, would soon be shown the door of 11 Downing Street. For once thing its a near certainty the financial and corporate elites who bankroll the Tory party, and who rely on the unrestricted movement of their capital and goods, would hang him out to dry in the blink of an eye.

This was always going to be a silly debate based on fear from the No side but its better we have it now.  The Great Currency Uncertainty is being cleared from the political field early in much the same way as The Great Euro Scare.  Soon the No campaign will be trapped into a corner of their own making and forced to come out and explain their potential narratives for a devolved Scotland trapped inside a failing debt-ridden British state. They will soon have to explain the harsh realities ahead of a devolved Scotland locked into the wrong type of economy: one based primarily on banking and financial services rather than making things.  Good luck to them with that.

KW

FURTHER READING:

Currency Choices For An Independent Scotland – a Scottish Government paper

Euro, Pound Sterling or Scottish Pound by Gordon MacIntryre-Kemp

The Pound Is Scotland’s Currency by John Swinney, 28th April 2013

Comments (0)

Join the Discussion

Your email address will not be published. Required fields are marked *

  1. Les says:

    The pound Scots (Scots: Pund Scots) was the unit of currency in the Kingdom of Scotland before the kingdom unified with the Kingdom of England in 1707. It was introduced by David I, in the 12th century, on the model of English and French money, divided into 20 shillings each of 12 pence.

    http://en.wikipedia.org/wiki/Pound_Scots

  2. Niels Gray says:

    If you read “Time & Chance”, him Callaghan’s autobiography, low productivity, combined with a rise in unit costs, was the main factor behind devaluation. Funnily enough, the reverse is said to have been the case in Germany and Japan. Productivity is about more than machines. It’s about attitudes.

    People will pay top dollar, to buy a German car. When my mother grew up in Denmark, after the war, people would pay extra for the quality of British goods. Not so by the late 1970s. The Morris Ital wan’t a big seller there!

    The same people who complain about Thatcjer cutting off subsidies, are the same ones, who want Scottish Independence, it would seem. A contradiction, which makes about as much sense, as “Turkey’s voting for an early Christmas”. I would pass a No-confidence motion in this.

  3. Andy Anderson says:

    The one significant factor in economic history in the 1970’s which you left out was the new income from oil which saved the Thatcher Government at the end of its first term and which has been keeping the pound afloat ever since.
    When the Scottish people vote for independence you are right it will not effect the pound in our pocket the next day, but it will effect international money markets the next day. They will be worried, not about Scotland’s future, but about the pound sterling’s future if Scotland comes out of the sterling area. The RoUK negotiators will be desperate for Scotland’s representatives to make a public announcement that Scotland will stay in the sterling area in a frantic effort to save the pound. The British Chancellor will be begging Scottish negotiators to stay in the pound under almost any conditions Scotland wants. Our Task is to draw up the conditions we require, and the first of these is a reformed Scottish banking system under Scottish Government control.

    1. Albalha says:

      I listened yesterday to Dr Simon Lee of Hull University on GMS. His take made sense to me.

      Simply put, looking ahead the rUK economy will tank, Scotland would be better out if it with their own currency.

  4. Lorraine Fannin says:

    Very clear account of the facts – thank you. Also alarming that George Osbourne is so unclear about the facts, or alternatively that he’s threatening to pull the plug on Scotland if the nation defies him. It shouldn’t be forgotten that Ireland was permitted to retain the pound when the Republic was set up.

    1. bellacaledonia says:

      Thanks Lorraine. The Irish transitional use of Sterling seems to have been forgotten. Along with the Australian one, etc.

      KW

  5. ronald alexander mcdonald says:

    Well said Kevin. I agree entirely with your sentimemts. The No camp are allready repeating their scaremongering. It’s very important the YES camp keeps it’s powder dry and remain disciplined. The referendum is too far away to show your hand. That’s exactly what the No camp want and are trying every trick in the book via their MSM pals.

    I’m also confident of a YES vote. Unfortuneatly, a lot less confident about the Hibees chances in the cup final.

    1. bellacaledonia says:

      Cheers. I wonder what odds William Hill will give on the double…

      KW

  6. Those who think Scotland has anything to fear in terms of currency would do well to look at this news article: http://www.scmp.com/news/hong-kong/article/1224903/scottish-independence-gets-boost-hong-kongs-money-markets

    Already, Hong Kong money markets are showing more confidence in the Scottish pound than the English pound. Imagine what would happen if we suddenly removed ourselves from Sterling now?

    A Scottish currency should be the long-term goal, but doing it now would create needless problems. We could do it, but it’s better to keep Sterling in the meantime and people really need to recognise that 2016 will not be the permanent state of Scotland – it will be the beginning of a transition period. Far better to get the powers first before worrying about changing other stuff.

    Years from now, people who weren’t sure about independence will look back at this time and think “what the fuck were we on?!? Why on earth did we think Scotland couldn’t do it? Why did we take so long???”

    Incidentally, I wish more articles on the currency would highlight the Euro fallacy. It irritates me that supposedly seasoned journalists don’t even understand such a basic point.

    1. bellacaledonia says:

      Absolutely. The oft-repeated claim that Scotland will be “forced to accept the Euro” defies the basic ABCs of the Eurozone rules.

      KW

  7. KW-

    ‘This was always going to be a silly debate based on fear from the No side but its better we have it now.’

    Kin right.

    And, like every other scare BT have launched, the ‘debate’ lasts all of 24 hours before – smoke cleared, mirrors shifted – it’s plain that there really was nothing to debate in the first place.

    If they’re up for a real debate, let’s get back to Taylor, Vitol, Brian Wilson (especially him) and see how they handle something with actual substance.

    1. bellacaledonia says:

      Fair point Ian. The meeja still carping on about Alex Salmond and his EC claim. But they’ve got memories of goldfish when it comes to stuff that matters. Lockerbie, Vitol…

      KW

  8. florian albert says:

    The reason the pound was devalued in 1967 was that it was over-valued – just as it was in 1931 and 1992. On each occasion the devaluation helped bring about an economic recovery. One of the reasons why Greece, Spain and other countries are in such an economic mess is that they can not devalue their currency. The historian Tom Devine noted recently that the failure to achieve devolution in 1979 led to a ‘semi-nervous breakdown’ amongst its supporters. It looks as though there may be a repeat in 2014. It was clear in 1979 that most people did not regard devolution as an urgent priority. In 2013, there is a wealth of evidence that those proposing independence as a solution to Scotland’s problems are not winning the argument. If Kevin Williamson is confident of a ‘Yes’ vote, he should take his money to Paddy Power. There will be a red carpet rolled out for him.

  9. Martin Pratt says:

    If the British public did not want to get them selves tied into a monetary union with their southern neighbour, France, and the economic powerhouse of Germany, why would it want to get embroiled in a currency union with our northern neighbour? Trade with France is not effected, nor with Ireland. I see no benefits to our continuing to have a union with a state that bears us considerable ill will. You can use sterling but it is arrogant to suggest you can force a foreign country into a currency union.

Help keep our journalism independent

We don’t take any advertising, we don’t hide behind a pay wall and we don’t keep harassing you for crowd-funding. We’re entirely dependent on our readers to support us.

Subscribe to regular bella in your inbox

Don’t miss a single article. Enter your email address on our subscribe page by clicking the button below. It is completely free and you can easily unsubscribe at any time.