2007 - 2021

Balance of Payments

magic_moneyLong ago, when I was young, we used to hear about, and worry about “The Balance of Payments” and the “Money Supply”. At one time the United Kingdom exported more than it imported, it was the workshop of the world and the money flowed in. These days are unfortunately now long gone. As our exports started to diminish the salvation was “Invisible Earnings”, effectively the profits made by the insurance and finance industry in the City of London. That kept us in the black for a few years but as manufacturing and produce diminished even further we no longer talked about the balance; it became the situation where we, in the UK, now import much greater value than we export and we do not worry ourselves about it.

Do we need to be concerned? In those olden days the Bank of England controlled the Money Supply and we needed to pay our way using a finite amount of this money. These policies changed with what came to be known as “The Financial Big Bang”; the banks were deregulated, the stock market became computerised and regulation was described as “Light Touch”. Now we have the Bank of England creating money by “Quantitative Easing” to give to the banks; when the banks make a loan they no longer need the funds to support it, they just create more money. Nobody wants to, or needs to, give savers a return on capital when they can just make their own. Why do we need to be concerned about all of this if we can just continue to make the money and pay our creditors and those that supply us with our imports with it? People much cleverer than me are not concerned so why should I be?

Perhaps, when the monster of inflation begins to affect our currency, as, some day, surely it will; our creditors may no longer be willing to accept this magic money when it’s value starts to drop. What will we do then?

This is where we start to think more locally. In Scotland I believe that we produce and export far more than we import. Yesterday I saw in the news that a new gas plant was opened in Shetland. The story was that it will bring ashore and process enough gas to supply 2 million homes across the UK and is set to be on stream for at least 20 years. Add this to our existing good news stories and take stock.

In the world of carbon reduction we all need to be active and Scotland is playing a full part. We have been building and supporting infrastructure against a backdrop where Westminster has now thrown in the towel and reduced the funding available to those that are working in the field. We have the geographical bonus of being in the windiest part of Europe with strong running tides, options for Hydro and numerous other areas where a consistent and reliable source of green energy can be made to supplement the less reliable windmills. Given a fair wind (no pun intended) we have the option to become a world leader working with our neighbours across the sea to set up an electricity grid to share and smooth the load around at least Northern Europe.

Our traditional export has always been whiskey. This is still a growing business and we now produce more than £4Billion in value a year; much of it loaded on to containers for shipment in Felixtowe. Following on from whisky we are now building a growing market for specialist gin that also sells around the world. I read that it Scotland produced around 70% of all the gin made in UK and that the total may not be far behind the figure for whisky. Our premium salmon, sea fish, shellfish, beef and lamb are exported all over Europe in addition to a large but diminishing amount of oil and oil products.
Do you remember when the parent company of Alexander Dennis Bus builder went into receivership and it was to be shut down? It was bought out by a number of Scots entrepreneurs and given a new lease of life. Now it is thriving with several new models including environmentally friendly and efficient options that are sold in many countries.

Despite our small population four of our universities rank in the world’s top 200 and several others are not far behind. They are at the cutting edge of development in numerous fields. The games designing cluster around Dundee is a world leader in innovation and sells its products and expertise into Silicon Valley and elsewhere. Several space satellites have been produced in Scotland as we have the technical expertise and are now competitive in the market. Medical research has been another success story. Scotland is at the leading edge in several fields; Several universities around the country are doing well and particularly Dundee has another string to its bow here. This is their story. I could go on but you get the picture.

During the referendum we were constantly told the we are too wee, too poor and too stupid to go it alone and we would be lost without the pooling and sharing that we get from the rest of the UK. Let me suggest that the exact opposite is nearer the truth. Based around these universities we, in Scotland, have a clever cutting edge set of engineers and scientists, we have world leading products, produce and natural resources. In my humble opinion, the reason Westminster moved Heaven and Earth to keep us in the union was so that we may continue to support that part of the country where the main industry is selling more and more expensive houses and swindling customers in the financial services industry.

You may not agree with my views at the end but think about the first paragraphs and balance that against the stories you hear on the news every night. You may well come to the same conclusions.

Comments (17)

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  1. Brian Boulton says:

    “During the referendum we were constantly told the we are too wee, too poor and too stupid to go it alone and we would be lost without the pooling and sharing that we get from the rest of the UK.”

    I really think we need to ditch these kinds of rhetorical arguments. “Too wee, too poor, too stupid” is a great political campaigning line. Whenever anyone made an economic argument against independence it could be brushed under the carpet with a clever quip. It was incredibly effective during the campaign – the SNP are brilliant at this sort of thing – but if we want to have a serious discussion about the subject we really do need to stop caricaturing any dissenting voices.

    The real problem in Scotland’s current economic situation isn’t the balance of payments. It’s quite possible we could be a solid exporting nation if we were independent. Would we have a surplus? If we put the correct policies in place then it’s definitely achievable in my opinion. For instance, joining the euro could actually improve our balance of payments (contrary to what people think) and I think that would be fairly likely after independence in the long-term.

    The real problem is a fiscal one: namely that we regularly contribute less proportionally in revenue to the UK economy than we receive in spending under Barnett. The relative gap in the last GERS figures (i.e. what we’d have to make up in spending cuts, extra borrowing, or increased taxes) was about £4 billion. Does that mean we’re too poor to be independent? No. Is it an important point? Absolutely.

    Even if you want to argue for independence it’s worth taking these things seriously. For example, the fiscal picture will change in the coming years and picking the correct time to be independent could make a very large difference to the economic situation we’d have on day one as an independent country. The current situation is about as bad as it’s been in the last 15 years. But only a few years ago the situation was a lot more positive. We don’t know what it will be in five years’ time or whenever another referendum would be called. It doesn’t have to be an anti-independence argument (far less ‘too wee, too poor, too stupid’) but it is a serious point.

    1. Noel Darlow says:

      I don’t think YES was often guilty of caricaturing opponents. They mostly seemed to be self-caricaturing and it was entirely reasonable to point that out. It would have been wonderful if we could have had a serious discussion in the media about Scotland’s future economy but that simply wasn’t on offer. Instead we got Project Fear including, for example, a prime minister conspiring with business leaders, the press and even the monarch to undermine the case for independence.

      Regarding our economic position on day one of independence: does this really matter? During the referendum I was constantly annoyed by the narrow focus of many of the economic arguments. It was as if we were being asked to vote in a normal general election for a government with a five-year economic plan but independence is a long-term decision which will play out over decades and generations to come. In the long-term our success would depend entirely on our own ability to make smart decisions and smart investments for the future.

      There are no guarantees. If we make bad choices we’d suffer. However, when you look at the dysfunctional state of democracy in the UK and the embedded forces which keep giving us bad governments taking bad decisions – such as self-harming austerity – you have to ask the question: could we really do any worse? It feels like the UK is starting to cannibalise itself. That’s not going to end well and I want out just as soon as possible.

    2. tartanfever says:

      Brian, while you disagree with the arguments made during the indyref – ‘rhetorical’, ‘caricaturing’ etc you then pull out two of the greatest unionist hoaxes of all time:

      1) that GERS figures are correct and accurate in the first place (although GERS are calculated by Holyrood, their figures come from UK institutions). I would doubt the accuracy of these figures, Jim and Margaret Cuthbert have said as much in previous Bella articles.

      2) That if there is a deficit, which there most likely is, that this has to be dealt with by Tax Increases or Spending Cuts. In doing so you are assuming that we spend our taxes in exactly the same way that Westminster does at present. Thats what all these figures represent, current Westminster spending, not what a future Scotland could do with public spending. Why not describe it as ‘savings from current Westminster bloated spending’ instead of tax hikes or spending cuts. After all, as an independent country we wouldn’t have to do such things as renew trident or pay the bloated London salaries of 200,000 civil servants nor indeed fork out billions for a new underground in London, their sewers or indeed a fast rail track to Birmingham. Those savings alone could add £100’s of millions to Scotland’s budget.

  2. Andy Anderson says:

    I do agree with your view on this. I have just finished a book called ‘Currency – In an Independent Scotland’ which is nearly ready to go to the printers which deals with the current economic and financial system which is not viable in the UK, but which with banking reform and control could be viable in an independent Scotland. Contact me at g.g.anderson@btinternet.com

  3. john young says:

    Don,t know why you or anybody else including Osbourne worries about it as you have absolutely no say in the matter,sit back and relax,what will come around will almost certainly come around.

  4. Noel Darlow says:

    “Windmills” – as you put it – are perfectly reliable in the sense of being predictable (day-to-day weather forecasting & long-term average wind speeds) and of producing significant amounts of energy. They just don’t have a constant output.

    If we made a real effort to ditch fossil fuels, wind would have to be the biggest single contributor to our generating capacity and other renewables, such as tidal and hydro, could not in fact provide the kind of backup we’d need. Wind needs to be supported with dispatchable storage and/or import/export to a very large-scale grid (there was a great post on Bella recently by Magnus Jamieson about smart supergrids).

    To bring this back on-topic, the supergrid is probably the single most important investment decision our generation has to make. This will enable the switch to renewables. Instead, we have a UK government “too wee and too stupid” in their outlook to invest in a green future. Most conservatives don’t even believe in climate change or, if they do, they don’t feel there is a pressing need to do anything about it. The withdrawal of support for renewables was a terrible decision for Scotland with its huge potential. A vast amount of money will also be wasted on Hinkley C (nuclear doesn’t make a good fit with the kind of future grid we need).

    Energy is just one example of many objectively dumb decisions being made at Westminster, including the blight of ideologically-motivated, self-harming austerity. Too stupid? We’d have to try really hard to do any worse.

  5. Paul says:

    I would also recommend Andy Anderson’s excellent co-authored book on economic policy and Scotland :- Moving On.

  6. David S Briggs says:


  7. Anton says:

    “Our traditional export has always been whiskey. This is still a growing business.” No it’s not.

    According to customs figures released by the Scotch Whisky Association, from a high of £4.27bn recorded for the 2012 calendar year Scotch exports fell back in 2013 and 2014 to £3.94bn (the most recent figures available).

    If we are to win the argument for independence we should at least stick to the facts.

    1. Polscot says:

      I noted how the media reports in the first half of last year stated that Scotch exports were declining. Seems they also reported a recovery in the later part of the year. How much of that 3.94bn does Scotland get credited with at the moment?

      1. Portjim says:

        I may be misremembering this, but I think that the value of exports is credited to the port from which they leave, so the bulk of the whiskey etc would show against Felixstowe – so, not Scotland.

        1. David Allan says:

          You are spot on and most of Scotland’s produce for export heads down the M6 , we have Grangemouth in the East and potentially Hunterston in the West both could blossom as busy container ports already linked to the Rail Network. Longannet’s closure leaves Clyde Port Authority with a deep water facility at Hunteston where coal imports soon to end could be replaced by container traffic moving straight onto the existing Rail Network .

          I wonder if this opportunity is being explored or encouraged. The Forth Port Authority has invested in Dundee Dock Infrastructure will the Clyde PA do likewise and invest in their facility on the Ayrshire Coast ?

  8. Alf Baird says:

    “In Scotland I believe that we produce and export far more than we import. ”
    Our trade is flat, outdated key infrastructure and other ‘factor conditions’ (e.g. very high energy costs) making us uncompetitive, and even whisky ‘rents’ are intercepted by offshore entities, as are many other assets (e.g. land, aggregates, oil and gas): http://reidfoundation.org/2016/01/sort-out-our-ports/

    This should be work in progress for the SNP, if they ever figure out ‘trade’.

    “four of our universities rank in the world’s top 200 ”
    That’s simply because wealthy foreign students consider Scotland a cute place to hang out for a while. I wouldn’t believe all the university PR if I were you – they talk a good game but deliver not a lot, aside from inflating property rents in urban areas and paying high salaries mostly for academics from elsewhere doing research of dubious value or relevance to Scotland: http://www.scottishreview.net/AlfBaird112.shtml

    If we really did have ‘world class’ universities (whatever that implies) do you think our economy would be in its current state, and with three-quarters of the population not even educated to first degree level do you really believe Scotland’s ‘elite’ universities are working for Scots?

  9. willie says:

    Scotland is a country well endowed with natural resources. Oil, gas and coal together with huge potential for wave, wind and hydro power. For a small country of five million souls we have a huge wealth of energy.
    But aside, as the columnist suggests we have more, much much more. But not that Westminster and the establishment would tell us. No they are desperate to hold onto us because we are too poor and too much in need of subsidy to be able to stand on our own – like Norway, or Sweden, or Switzerland, or Singapore, or Luxembourg or Qatar or Dubai, the latter two who have benefited immeasurably from investing their oil wealth. But we know the story, or at least just under half of us did some eighteen months ago. Our time will come because as events show, the referendum was not the end. Far from it – and we will prevail.

  10. Dougie Blackwood says:

    Apologies for “Whiskey”.

    There have been several stories recently about distilleries being built or being reopened and remember that any whisky produced must lie at least 3 years and longer to achieve the premium that increases the value and saleability.

    Without the powers of an independent country things will not improve here in Scotland. We need the dynamism that comes from the power to change the things that hold us back. For example we need to encourage, rather than exclude, the “Economic Migrants” that are so dreaded by Westminster and the South to boost our youthful and more effective workforce with entrepreneurial skills.

    1. Alf Baird says:

      So, the solution to Scotland’s many and varied problems is a combination of mair “Whiskey” and “Economic Migrants”, plus “the powers of an independent country”? Wha wid hae thunkit!

  11. Ronnie Morrison says:

    Anyone looking at the cartoon which heads this excellent article and who still believes that ‘the Authorities’ and that includes the commercial banks, can print the National Currency for private profit’ must be suffering from the same delusions which led Thatcher & Reagan to deregulate the banks. Creating money for good economic purposes is what a fiat currency is all about but manipulating other people’s credit to line the pockets of the 1% should be seen as financial treason.

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