One should have three major principles. Talk, boldness and strategy. – Fujibayashi Yasutake
Today sees the launch of my latest paper for Common Weal, Claiming Scotland’s Assets, in which we discuss the consequences of independence with regard to debt and asset negotiations.
(click image for full report)
During the 2014 independence campaign, what talk their was about debt and asset negotiation circled basically around two options:
a) Scotland takes a full population of assets and debts.
b) Scotland takes and gets nothing (with no discussion of the further consequences of that).
Examining the historical precedents of state separation reveals that whilst no previous example of independence provides exact parallels to Scotland’s case, there will be far more nuanced options ahead of us and that no matter which one we end up with, Scotland will be in a far better position financially because of it with savings to be had amounting to between £800 million and £2 billion per year.
• The manner in which states separate is crucial for determining asset division. In particular, the rUK’s likely desire to maintain “successor” or “continuing” status to the former UK will likely be largely determined by its willingness to guarantee the debts of the former state.
• The assumption that the baseline for division should be on population can and should be challenged. Many state separations have negotiated settlements which place weight on territoriality as well as the historical contributions and beneficiaries of the former unions. It may be that Scotland has been a historical net contributor to the UK thus may have already more than paid its “share” of the national debt.
• The previous independence campaign discussed the possibility of a subtractive model of asset separation whereby the value of any assets withheld from Scotland by rUK (for example, currency and foreign reserves) would be subtracted from debt liabilities accepted. This report suggests instead an additive model whereby Scotland begins with the assumption of accepting no debt but will accept debt up to the value of assets transferred. It may be that Scotland actually requires less from this transfer than the subtractive model would suggest.
• For the additive model to be actionable, an up-to-date register of assets will be essential. With the last UK Government register of assets in 2007, the Scottish Government must press the UK Government to commission a new register or conduct a Scottish audit in the near future.
• Additionally, the prospect of Scotland issuing its own bonds and buying what is required is explored (‘the zero option’). This model may have significant advantages with regard to being able to denote the debt in Scotland’s own independent currency thus maintaining full control over debt management and significantly reducing the chances of a default.
• The precedents and models outlined would likely all accrue varying levels of financial benefit to Scotland if utilised properly. A lack of up to date data makes precise figures impossible, but a conservative illustration of each model in the Scottish context would suggest a £800m per year financial gain from the subtractive model with refinancing; a £1.7 billion reduction in debt interest payments from the additive model without refinancing; a saving of over £2 billion per year from the zero option; and, in the case of historical net contribution, a possible financial contribution from rUK to Scotland.
Regular readers will know now that Common Weal has been very hard at work looking at the issues surrounding the independence debate, especially those arguments which just simply didn’t convince a certain segment of voters. I think we were all hoping that ‘someone else’ would come along and do this right after the last referendum but, for various reasons, it hasn’t happened. So Common Weal has decided to just roll up our collective sleeves and do it.
We’ve already published a paper reopening the currency debate, and now another on debt. We want to produce further papers on pensions, defence, customs and excise, a detailed paper on the role of the Central Bank of Scotland, and others. All working up to a paper not just showing the limitations of accounting exercises like GERS but doing away with it entirely and building a case for an independent Scottish budget built from the ground up to suit our needs, rather than just being a tweaked version of what the UK does.
We are incredibly under resourced for this work but we think it’s work worth doing.