You know you’re getting old when you remember what happened half a century ago but can’t find your keys. OK, so it wasn’t quite half a century ago that Labour’s Harold Wilson, after weeks of increasingly feverish speculation and a day in which the Bank of England spent £200m trying to shore up the pound from its gold and dollar reserves, devalued the pound from $2.80 to $2.40. Those were the days, eh?
Claiming that Britons would see very little difference, he also said devaluation would enable Britain (stop me if you’ve heard this one before) to “break out from the straitjacket of boom and bust economics“. He went on to famously assert “From now the pound abroad is worth 14% or so less in terms of other currencies. It this does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalued.” Aye, right. “What this does mean” Wilson went on to claim “is that we shall now be able to sell more goods abroad on a competitive basis.”
The whole thing had been triggered by his Government inheriting a “huge” deficit 0f £800m from the Tories (roughly 0.08% of the monster one Osbo is wrestling today), Britain living beyond its means—importing more Japanese televisions and unable to export enough Robin Reliants—plus a series of strikes that throttled what exports there were because the dockers led most of them. The upshot was wage inflation, Chancellor “Sunny Jim” Callaghan resigning on “a point of honour” and further dislocation of the economy through strikes as his replacement struggled impose 3.5% limits on successively greedier wage rise demands from various unions.
This is not just dusty history: it is a lesson for us here today, wrestling a bigger deficit against a background of a sluggish economy and union-driven wage unrest. As Osbo came North this week to deliver his Sermon on the Mint, it is palpably clear that the basis for his chastising speech on the insanity of any future the Scots might choose outside the UK (to be characterised by plagues, locusts, etc) was based on one key assumption: that the UK brought inevitable bounty and sunlit uplands.
His predecessor of half a century ago didn’t think so and resigned. Indeed, the whole 1967 sideslip from economic grace ushered two decades of economic decline only erased in the share-sale-fueled boom of the late eighties. With three years of failed strategy, a £1tn deficit to his name and no end in sight, ‘gallus’ may be a mild word for his hubris. This blog won’t rehearse his arguments here—Ian Bell does a pretty good demolition job in today’s Herald—but posit an equally plausible alternate scenario.
Much of Osbo’s argument is predicated on a variant of the “too poor/too wee/too stupid” argument that unionists once used when independence was still to be proved viable. But consider the problem WITHOUT currency union between Scotland and England (without Scotland there is no UK or rUK) from the perspective of an objective English Chancellor:
- The country would be 50m in size (plus another 10% in Wales and NI)
- At a stroke the economy and tax income is ~90% what it was
- While some budget expenditures drop by 8.7% (e.g. welfare) and the £28bn Scottish Block Grant disappears, the £40bn defence budget would be virtually unchanged
- £45bn annual exports to Scotland depend on some mutually beneficial arrangement
- Imports of £41bn from Scotland means that the £4bn trade advantage is at risk
- Without Oil & Gas revenues of £12bn the pound would cease to be a petro-currency
- Scotland contributes positively to the UK balance of trade (see chart below)
Bottom line to all of this is: what pragmatic English Chancellor with the best interests of (worst-case scenario) only England at heart would ignore the opportunity of securing a currency union with a partner like Scotland that is a net contributor to the stability and value of that currency?
Compared to the profligate—as well as wealthy—regions around London, Scotland lives up to its canny fiscal reputation when it comes to trade and these statistics do NOT (as is the custom dahn saff) allocate 7.6bn in oil exports to Scotland any more than they credit North Sea oil to the Scottish economy.
In his Sermon, the Chancellor again made much of the volatility of oil prices, as if other income streams weren’t equally volatile over time (c.f. Irn Broon’s 1999 raid on pension funds). He especially used it to pooh-pooh Scotland’s main alternative to currency union: having its own currency. If he got out more, he might discover another small, oil-rich, northern country called Norway. It’s well known that Tories are notoriously slow on the uptake (as it says on the tin) but it’s been around for a century now and demolishes his arguments if he were only honest enough to admit it.
But, since no-one (bar the Greens) is pitching for our own currency and no-one thinks joining the Euro at this point makes much sense, an independent Scotland would want to negotiate with England to continue in a currency (only) union together. It would make the pound in all our pockets stronger. But, unless Osbo gets his head out of the sand sharpish, he’s going to find his political bias has sold the pass and his fellow Englishmen will have to thole a worse deal with us than if he wised up to the advantage being friends with Scotland offers.