The big news this week is the impending Scottish independence referendum and the fact that the two sides are neck and neck in the polls....
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div>The big news this week is the impending Scottish independence referendum and the fact that the two sides are neck and neck in the polls.
The fact that the independence movement has come to a level of parity has given the markets a bit of a fright and Sterling fell to a 10-month low (very disappointing as I have two trips to the US coming up!). I think we have learnt over the last few years that the financial markets cannot necessarily give us a definitive view on what is going to happen in the future, but it seems to me that this vote will ultimately come down to economics and the markets are saying that independence will be a worse outcome than the union.
It will be interesting to see if we experience the effect whereby people say one thing to a pollster, but actually vote a different way. Without wanting to stereotype the Scots (and also stating that I am one quarter Scottish through my paternal grandmother) I can easily see a situation where the romance of independence would be very appealing - Braveheart, Bannockburn, Robert the Bruce, Wembley 1977 – but, the realities of full blown independence really come down to finances.
Can an independent Scotland create its own currency? It seems to me that any new currency would be possible, but fraught with danger for such a small economy as Scotland. So, the Scottish National Party are asking voters to call England’s bluff and bank on being able to retain Sterling in a currency union. This would seem to be quite a leap of faith and would depend on England’s acquiescence.
There is also the thorny problem of tax revenue and how the fiscal position will be affected in Scotland. Again, it seems to me that the Scottish tax payer would be taking on a great burden to maintain the current level of public spending, though both sides of the argument can produce lies, damned lies and statistics to show their preferred case.
Underlying this is the reason for the fall in Sterling as the question of how the current national debt is to be allocated appears to be a matter of great potential problems. I have touched on this in previous blogs and I am sure that the tax payers and voters in England will not blithely accept Scotland setting off as an independent country and leaving their share of the national debt behind for the rest of the UK to pick up.
On a more micro-level for our industry, what do lenders that have mortgages in Scotland have as a contingency plan? Assume Scottish independence and a new currency – do the mortgages get called in? If not, all existing Scottish borrowers now have a foreign exchange rate risk on their repayments.
I may well be proved wrong, but when push comes to shove I just cannot see the Scots taking such as risk with their financial future.
Robert Collins
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