Banking on Ourselves

Next month sees the first of the SNP’s internal assemblies to discuss Andrew Wilson’s Growth Report. Andrew will appear in person to justify his strange dismissal of a separate Scottish currency following independence. For the record, I don’t think the Growth Report is some secret, pro-austerity manual. However, it is far too conservative in its proposals.

In particular, Andrew veers in the direction of first fixing any fiscal deficit Scotland will inherit after independence, and only thereafter going for economic growth. This leads him to placate the banks and financial markets by sticking with the pound sterling for the foreseeable future. He also wants to adopt wholesale the current – and in my view grossly inadequate – regulatory apparatus for supervising those financial institutions. First, in practice, this will leave the Scottish economy subservient to interest rates, mortgage rates, foreign exchange rates, investment decisions, inflation and labour costs being set largely by the City of London. What price independence then? And second, Andrew’s desire to appease the financial markets will lead working class voters to stay at home in any second referendum. Message to Andrew Wilson: Ross McEwan, boss of RBS, won’t embrace Scottish independence just because you promise him the financial status quo post IndyRef2.

The truth is that we need to use every economic lever we can grab after independence to boost economic growth from its recent historic nadir of 1.5 per cent to something nearer 2.5 per cent or more. That demands we create a Scottish currency. Unless we do so, Andrew’s proffered fiscal rule – increasing public spending annually by one whole percentage point less than GDP growth – will quickly become the fiscal squeeze he seeks to avoid. Four years of 1.5 per cent real growth would yield barely 2 per cent GDP equivalent of real spending increases. But if you safeguard NHS spending, which normally races above inflation in the rest of the economy, Andrew’s rule threatens to squeeze other public spending. After independence, we need to prioritise a Scottish currency and a Scottish central bank with powers to get growth moving.


Chancellor Hammond is feeling smug because the UK Treasury ran a budget surplus of £2bn in July, meaning that government borrowing in the quarter to the end of July was the lowest since 2002. However, there is a bit of jiggery-pokery in these numbers. They include the one-off sale of RBS shares (at a loss to the taxpayer), artificially low EU payments (due to rescheduling), and booking higher VAT returns. Put another way, Hammond is fiddling the Treasury books to make them look good in advance of his November Budget.

Talking of deficits, the latest GERS figures claim the notional Scottish public deficit fell from 8.9 per cent of GDP to 7.8 per cent last financial year. That’s an 11 per cent reduction, by the way. Of course, this “deficit” is not real but an accounting fiction. It does not take into account the actual outcome of any independence negotiations covering the split in assets and fiscal responsibilities between England and Scotland. Besides, deficits can be a good thing. An independent Scottish government – particularly if we had our own currency – would borrow from its own citizens saving for their pensions. Our Scottish National Debt would be an asset owned by Scots and yielding them an income. And it would eliminate being subservient to foreign lenders.

We also need to force a complete separation between investment and retail banking – something Andrew Wilson rejects in the Growth Report by sticking with inadequate UK rules. Such a separation will encourage retail banks and mortgage lenders to hold Scottish government debt as their capital reserve. This will ensure a stable local market for public debt and eliminate the instability that comes from banking institutions borrowing liquidity from each other short-term. Having thus created a domestic financial market, the state-owned Scottish National Investment Bank can issue its own bonds to fund infrastructure development, boosting economic growth. QED, Andrew.


Another bone of contention I have with the Growth Report is that it maintains a stony silence regarding labour markets. True, Andrew Wilson makes an important point that an unfair economy is a low growth economy. But he is singularly quiet about how to reform the labour market to make wages grow faster and end the iniquitous lack of equal pay for women. Here’s how. Back in the Seventies, the first demand on the neo-liberal agenda was to end collective bargaining agreements and create so-called flexible labour markets; i.e. crush unions and isolate workers company by company. Result: frozen real wages because those sections of the workforce with limited bargaining power (including most women) got left behind. An independent Scotland should reinstate some system of centralised wage bargaining involving statutory representation by worker representatives. Scotland is a community – we should bargain as a community.

Comments (22)

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  1. Crubag says:

    I think there was criticism at the time that the researchers hadn’t engaged with the unions.

    But I’d observe that the EU Stability and Growth Pact includes a commitment to keep government deficits at less than 3% of GDP. If – if – Scotland was to be an applicant, that could be a consideration.

  2. SleepingDog says:

    “Andrew Wilson makes an important point that an unfair economy is a low growth economy”
    What is your justification for this oddly-framed statement? Surely high-growth economies can produce extreme inequality, as well as environmental damage, resource depletion and irrational instabilities.

    Why continue the obsession with growth? Does a household budget have to grow significantly ever year to achieve “fairness”?

    1. Mathew says:

      He’s a Capitalist. Growth is the holy grail. He has to pretend to himself that climate change isn’t happening.

      1. mince'n'tatties says:

        To link econonmic growth and climate change in a negative collective beggars belief. Your cave postcode is ?

        1. Do you think growth and climate change are disconnected mince’n’tatties?

          1. mince'n'tatties says:

            A pointed question Editor. I totally believe that Scots with dirty hand skills have been betrayed by Climate Change zealots.
            My anger is muted, because of personal circumstance. Otherwise……
            Cheap Russian energy has kept heavy industry jobs alive and kicking in Finland and to no ones surprise Germany.
            Looking forward , we need to accept that zero economic growth mutates into the side affects of national ossification, eg emigration of the educated,
            and withering populations.
            What is needed under intelligent governance is shallow footprint growth… Med, Bio Tech, Ethical
            Financial Services, Precise Engineering, all backed by a passionate program to illustrate to our young, the possible.
            But here’s the thing, do you want indie bad enough to accept it in an imperfect form, or do you want to wait to dance with the angels?
            Might be a long wait.

          2. From that can I assume that you believe that climate change is a myth?

            I’m slightly confused.

          3. mince'n'tatties says:

            No myth. Climate change is a clear and present danger. The myth is linking it to the supposed deleterious influence of economic growth.
            This thinking should have been discredited by the International Energy Agency (IEA) report which looked back to 2014 and declared since that year there has “been a decoupling of economic growth and carbon dioxide emissions”.
            A momentous statement, the first time in 40 years in which there was a halt or reduction in emissions of greenhouse gas that was not tied to an economic downturn.
            It blew away claims that economic growth was incompatible with environmental protection.
            That is what I took from the report, but it falls far short of the demands made by the plethora of climate change Scottish NGO vested interests.
            Eg. phasing out the internal combustion engine by 2032 was deemed far too long a timescale……oh, hold me up straight.
            The Transport Ministers relief was palpable when he said that implementing that change was outwith Holyroods remit.
            When I used the term ‘zealots’ it was in refererence to those Environmentalist warriors who see nothing short of downsizing our economy as a prerequisite
            in order to achieve climate change reversal. And standing still equates to downsizing.
            Passionately held beliefs, no doubt. That said on the back of those, Indie will be kicked into the thickest of long grass. As if it doesn’t have troubles enough.

        2. Mathew says:

          All economic growth from the start of the Industrial Revolution onwards has been leveraged on fossil fuels – first coal, and then oil and gas.
          Can you be sure that there has been a decoupling of growth and CO2 emissions? Emissions appeared to plateau over the period 2014 – 2016 but grew by 2% in 2017.

  3. Alf Baird says:

    I’ve always believed George Kerevan would make an excellent Head of Treasury in an independent Scotland ever since listening to his superb lectures at then Napier Poly in the late 1980s. Nobody else in the SNP comes close. If I were Nicola Sturgeon I would appoint George as Head of a ‘Shadow’ Scottish Treasury Team now so that the (financial) ground is prepared for independence. Scotland should already have shadow teams in place for all ‘reserved powers’. This need not be as part of the UK devolved ‘Scottish Government’, which is still a ‘UK Home’ civil service run administration, it could be an initiative taken by the SNP.

    1. Jamsie says:

      Paid for by whom?
      Christ we are overrun by “special advisors” we cannot afford.
      The widening gap in opinion on the Indy side says it all.
      That is one of the reasons naw must mean naw.
      Fiscally they are inept, no incompetent!
      Thankfully a referendum looks as likely to happen as me having a big lottery win!

      1. John Watson says:

        And is 10 years of austerity and god knows how many decades of managed decline in this blessed Union your idea of competence Jamsie? The difference of opinion among pro indy folks shows there is at least a debate about how we break out of this rut and try to build a better Scotland. The debate on the yoon side? Silence.

        1. Jamsie says:

          There is no need for debate!
          In a democracy where the majority votes the result carries.
          And wee Nicola will not be calling a referendum anytime soon will she?
          If she did and lost which she looks like doing the whole issue would be dead for ever.
          So debate as much as you like.
          It is all hypothetical and semantics.
          But I suppose it keeps you all hoping and waiting.
          For how long is the question,
          The left are getting restless and some of the party faithful are already in talks regarding change at the top.
          Mr and Mrs Sturgeon look to be on the way oot.

          1. John Watson says:

            Bruce and the spider, Jamsie. It takes as long as it takes, and you jeep trying, and trying, and trying, ’til you get there. (Let me assure you: it ain’t going to die.) And there’s always a need for debate. Thats how this wonderful old world of ours spins along, ie, because people come up with ideas and see better ways of doing things differently.

            And what do you guys have to offer? Pangs of nostalgia for empire and the 1950s; whinging and carping if anyone suggests something different for the future. Nothing more than the sizzle of gammon in other words.

          2. Jamsie says:

            The question of whether Scotland wants independence is rather academic.
            Scotland by a majority favours remaining part of the U.K.
            it is also clear that the majority of the electorate don’t want another referendum.
            I think most people know there won’t be one in the immediate future even wee Nicola:
            The dishonest charade of portraying she is in the position of calling one only makes her look stupid.
            She won’t.
            She cannot dare.
            It would finish Indy for a century or more.
            Why should Scotland wait for wee Nicola to make a decision?
            Maybe she should go before the electorate vote her out or her party turn on her.

  4. WTLow says:

    I agree with Alf. However, given the timidity shown by the SNP Government, relating to independence (see Alf’s well argued case for not requiring a referendum in order to declare independence) is such a move, creating all manner of appropriate bodies to prepare for independence likely? Although I was employed at Napier for 15 years, I did not have the good fortune to hear George lecture in Economics. Both his recent articles however show that he has not lost his touch.


  5. Wul says:

    “…this will leave the Scottish economy subservient to interest rates, mortgage rates, foreign exchange rates, investment decisions, inflation and labour costs being set largely by the City of London. What price independence then? ”

    Although it’s old (post crash 2008) this article gives some insight into the mentality of City of London financial professionals. We really don’t want folk like these anywhere near our economy.

  6. Mr McPound says:

    Interesting article. Control over our currency is essentially what dissolving the union and gaining meaningful independence is about and it is very encouraging to see this issue getting some serious attention from the pro independence movement. Our ability to react swiftly and coherently to the Growth Commission report is really demonstrating how important the ground work by Commonweal has been.

  7. Andy S says:

    There is nothing wrong in the idea of a Scottish currency other than it is not an option if Scotland wishes to join the EU. The UK will leave the EU next March. If Scotland subsequently leaves the UK and applies to join the EU, it is hard to believe that one of the conditions of joining would not be adopting the Euro . By default this means allowing significant influence over Scotland’s economy to be exercised by the European Central (ECB) and the Eurosystem (composed of the central banks of the eurozone countries). As an independent central bank, the ECB has sole authority to set monetary policy.

  8. mince'n'tatties says:

    No reference at all to the elephant in the room; Scots personal debt. Debt that is almost exclusively £ Sterling based. Why would hard headed creditors agree to exchange that debt into the new floated currency?
    And without that agreement. [which I see as far fetched] what happens to the financial status of Scots when the new currency fluctuates, as it surely will ?
    If the idea is to borrow £ $ or Euros for growth, which is regularly mooted, and for any of a multitude of reasons growth is stunted or overly delayed, the currency will surely devalue.
    Pessimistic, not at all, more realistic, given all Governments tendency to over promise.
    In Turkey we’ve just seen the Lira collapse for very much these reasons.
    How would we steady the ship other than public sector cuts and or interest rate rises? Well we could just let the currency drop.
    Then the debt repayments using a devalued currency would spell financial hardship for Scots on an epic scale.
    Economics is at its core no more than a way of thinking and cannot provide neat solutions. I accept that, but on this we do need hard answers.

  9. w.b.robertson says:

    the Indy cause has been suffering ever since it became hung up on its love affair with the EC. (Since the EC referendum, it is trying to pretend that the million Scots who voted “Leave” is not a problem. ) Now the campaign to have an independent Scottish currency is equally in danger of strangling itself – since any future EC tie up would mean the Euro. This is not a matter for debate by the army of economists. |It is political. And this particular political situation requires to be sorted out…fast.

  10. Malcolm Reavell says:

    “An independent Scottish government – particularly if we had our own currency – would borrow from its own citizens saving for their pensions. Our Scottish National Debt would be an asset owned by Scots and yielding them an income”. Well, actually, no, an independent Scotland with its own sovereign fiat currency would not need to borrow from anyone. The whole idea of fiat money is that it is fiat – ‘by decree’. So the Scottish government decrees that pensions should be paid, or hospitals, schools and roads should be built, The the Scottish central reserve bank spends the money by debiting the government bank account. Yes – it creates a deficit, but a currency issuing monetarily sovereign country is not reliant on taxation or income of any sort to spend. In fact it has to spend the money into existence in the first place before it can tax it back out of circulation (which prevents inflation and makes fiscal space for further spending. At this point someone usually shouts ‘but Zimbabwe! Venezuela! Turkey! Hyperinflation!’ Nope. As long as the government spending is directed to the purchase of REAL goods and services then it is actually releasing those resources for the public benefit. Yes, it has a structural deficit, but if it did not do that (especially in a country that is a net importer) then there would be no private sector surplus. Your savings, your nest egg and my private pensions fund – gone. That is what is happening in the UK right now. Government cuts cause public sector to shrink which causes the private sector to shrink and reduces our ability to spend and save. The state is not a household. It does not need to balance the books, its duty is to balance the economy. Maintaining the debate in the neoliberal frame is a no-win position. #LearnMMT #MMT. Find out more about how the economy really works.

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