Backing Scotland’s Currency — Foreign exchange reserves for an Independent Scotland

Common Weal has published a new white paper, “Backing Scotland’s Currency — Foreign exchange reserves for an Independent Scotland”, authored by Peter Ryan. From the preface:

The successful management of an independent country’s currency is often tied to its ability to raise and maintain an adequate level of foreign currency reserves. These reserves would be used to stabilise the currency’s exchange rate, protect against speculative attacks on the currency and service debt obligations, amongst other uses. In the case of Scottish independence, it will be important to show that sufficient reserves can be established quickly enough after the launch of a new currency to ensure its stability. It is the purpose of this paper to demonstrate that this proposal is viable.

Ryan reckons that approximately $40 billion (20% of GDP) could be raised to support an independent Scottish currency. Denmark similarly holds in the region of 20% of GDP in foreign exchange reserves1. He estimates that the costs of servicing the debt would be around $70.2 million annually, which is “substantially less than the current annual contribution by Scotland to the UK’s foreign reserves (£500 million per year) which are being built up by the UK government to bail out the City of London in the event of another crash.”

From The National’s reporting of the paper:

Dr Jim Walker, chief economist of Asianomics, said while it was “absolutely correct” that an independent Scotland could raise $40bn in foreign reserves, it was also “absolutely unnecessary”. He described the Common Weal report as a “well-thought-out contribution”, but said many successful independent countries had levels of reserves considerably smaller than 20 per cent of GDP.

“The Czech Republic, until the last two years, had historically a substantial current account deficit making the currency much more vulnerable,” he said. “For Bulgaria that was also historically true but not in the last decade. However, these reserve levels [at 40 per cent GDP] are a result of past deficits. Scotland would run a large surplus.

“Two ‘small’ non-European players with open capital accounts and free-floating currencies, Australia and New Zealand, maintained reserves of 4.5 per cent of GDP and 10 per cent of GDP, respectively, for 2016.

“There is absolutely no need [for an independent Scotland] to be aiming at a 20 per cent of GDP reserve level.”

Peter Ryan’s previous paper, “How to make a Currency — A Practical Guide”, may also be of interest.

Tory campaign strategist Lynton Crosby pushed for Scottish independence vote before Brexit

Politics Home, 26 June:

Conservative election strategist Lynton Crosby urged Theresa May to hold a fresh Scottish independence referendum ahead of Brexit, it has been revealed.

“While it may seem sensible to delay a referendum until after Brexit negotiations are complete this is not necessarily the best strategic position to adopt,” he wrote [in a leaked memo].

“Holding a referendum on independence before Brexit is complete will mean that voters have to grapple with the uncertainty of the outcome of Brexit in addition to the uncertainty of their choice in the referendum.

“Delaying the referendum until after Brexit is complete removes one of these unknowns.”

He said a Brexit outcome that dissatisfied Scots could “easily result in Scotland voting for independence”.

Theresa May ditches manifesto pledges to clear decks for Brexit: Legislative battle ahead to clear hung Commons and Scottish Parliament

FT.com, today, in an article on the UK government’s legislative agenda announced in the Queen’s Speech:

There were growing fears in Whitehall that the Scottish nationalists could hold London to ransom by voting down the Great Repeal Bill—which puts EU law into British law.

Britain’s devolution settlement was developed under the auspices of the EU single market.

The government now believes that the relevant framework should be reset at a UK level, in particular for devolved policy areas such as agriculture, fisheries and environmental protection.

But that requires the authorisation of all the devolved administrations in Cardiff, Edinburgh and Belfast through “legislative consent motions”.

A Conservative official said that there was likely to be sabre-rattling by the SNP during the process, which could take eight weeks, but said there were hopes that Holyrood would not stand in the way. “It’s common sense. There would be major consequences for Scotland if this wasn’t passed, there would be holes in the law,” he said.

The Guardian’s Andrew Sparrow, earlier this evening:

This is a consequence of what is known as the Sewel convention, which says the Westminster parliament should not legislate on matters devolved to Scotland without the Scottish parliament’s approval.

As we learned earlier in the year, the Sewel convention is just that—a convention—and is not (as far as I believe) enforceable by the courts1. The UK Government, however, has thus far not (as far as I’m aware) overridden a vote in the Scottish Parliament. It seems that it could legally do so but in such a scenario we would be in uncharted constitutional waters.

Update: The Guardian has published an article looking in more detail at this issue. The piece includes quotes from Mike Russell, the Scottish Government’s Brexit minister, and Graham Matthews, president of the Law Society of Scotland.

Revealed: The plan to keep EU workers in Scotland

From this morning’s Herald:

Detailed plans have been drawn up for Scotland to set lower barriers than the rest of the UK for low-skilled immigrants after Brexit.

Experts at the University of Edinburgh believe they have devised with a “politically viable” way of sustaining the net inflows of EU workers currently propping up key industries such as tourism, hospitality and food processing.

The landmark report has been welcomed by the Scottish Government who described the current UK-wide approach to immigration as “damaging to Scotland’s economy”.

Business leaders fear the end to freedom of movement and hardline cuts to UK-wide immigration targets following Brexit will spark crippling labour shortages in Scotland.

You can read the paper—‘Scottish Immigration Policy After Brexit: Evaluating Options for a Differentiated Approach’—at the University of Edinburgh website. It looks at the merits of four main schemes1:

  • Human capital points-based systems, drawing on examples from Queensland (Australia) and Quebec (Canada)
  • Post-study work schemes, informed by the examples from Scotland and British Columbia (Canada)
  • Employer-led schemes, with examples from the Alberta (Canada), Switzerland, and the EU Blue Card
  • Occupational shortage lists, drawing on examples from the UK, Canterbury (New Zealand) and Spain

Scottish economy expected to grow between 0.9% and 1.3% in 2017

Dr Gary Gillespie, the Scottish Government’s Chief Economist, on the growth outlook for 20171:

Looking ahead, the outlook for growth in 2017 remains positive but at below trend growth.

There are emerging signs that confidence is returning to the oil and gas sector which, coupled with the structural improvements made by the industry since 2015, will put it on a stronger footing to take advantage of the opportunities which will emerge as cyclical factors improve.

The low value of Sterling is expected to support export led growth for the manufacturing sector, whilst continuing to rebalance the economy as rising import prices feed through to higher inflation, impacting real income growth and household consumption.

Brexit continues to present a significant risk to business and consumer sentiment in Scotland with investment sensitive to changing market signals. The range of independent forecasts for Scotland suggest growth of between 0.9% and 1.3% in 2017.

Said forecasts2:

Annual Output Growth Forecast (%) 2017 2018
Fraser of Allander Institute (Mar 2017) 1.2 1.3
EY ITEM Club (June 2017) 0.9 0.7
PWC (Mar 2017) 1.3 1.1

Unemployment in Scotland falls to 4%

Employment statistics for February to April 2017 were released this morning. They show a continued decline in unemployment in Scotland. The figure now sits at 4%, the lowest of the four UK countries1, a decrease of 0.6% on the previous quarter (Nov 2016 to Jan 2017), and down 1.8% year on year. The BBC notes that 4% “equals the figure recorded between March and May in 2008.” In fact, it’s the joint-lowest since records began in 1992.

Economically active (aged 16-64) Employment (aged 16-64) Unemployment (aged 16+) Economically inactive (aged 16-64)
Country Rate (change since Feb – Apr 2016) Rate (change since Feb – Apr 2016) Rate (change since Feb – Apr 2016) Rate (change since Feb – Apr 2016)
England 78.9% (+0.3) 75.2% (+0.6) 4.6% (-0.4) 21.1% (-0.3)
Wales 76.8% (+1.1) 72.9% (+1.0) 4.8% (+0.1) 23.2% (-1.1)
Scotland 77.3% (-0.4) 74.1% (+0.9) 4.0% (-1.8) 22.7% (+0.4)
Northern Ireland 72.8% (-1.4) 68.8% (-1.0) 5.4% (-0.3) 27.2% (+1.4)

Source: ONS dataset A01: Summary of labour market statistics (Table 22: Regional Labour Force Survey Summary). Further information: ONS June 2017 UK labour market bulletin.

Other notes from the ONS’s publication:

  • Of the 12 UK regions and nations, Scotland saw the second biggest increase in workforce jobs (56,000) between December 2016 and March 2017.
  • In March 2017 82.6% of jobs in Scotland were in the services industries. This compares to 91.9% in London and 77.9% in Wales.
  • For the period from January to December 2016, Scotland—along with the North East and North West of England—had the lowest average actual weekly hours worked in full-time jobs, at 36.9 hours. This compares to London’s 38.4 hours, the highest in the UK during 2016.

SNP took right-wing constituencies for granted and paid the highest price

Thought-provoking commentary by Michael Fry in The National today:

One thing that has struck me in all the commentary and analysis since the General Election is the refusal to accept that there might be a kind of right-of-centre Scottish nationalism, and that its alienation from the present leadership of the SNP could be a reason for the setbacks last Thursday.

… While Salmond was personally a lefty he could, as a former bank executive, walk the capitalist walk and talk the capitalist talk. That was what he and his colleague John Swinney did at a crucial stage more than a decade ago as they made the rounds of Scottish finance and industry persuading moneyed men that the independence of the country might be good for them too—and that, at any rate, things could hardly get worse than they eventually got under New Labour. All the while Salmond remained First Minister, he continued to cultivate these connections, and with a good deal of success. George Mathewson, Jim McColl, Brian Souter, Tom Farmer, Bill Samuel, Peter de Vink and many others have all endorsed or donated to his SNP. But since 2014 the ample flow of business funding has dried up.

The reasons are not far to seek, and can be found conveniently summarised in the election manifesto the SNP published a couple of weeks ago. Looking inside we find, against dozens of spending commitments and calls for higher taxation, only a couple of lines on how the private sector of the economy (from which all other blessings flow) is to be encouraged and expanded.

Fraser of Allander Institute publishes latest Scottish Labour Market Trends report

The Fraser of Allander Institute has today published its latest Scottish Labour Market Trends report.

Some excerpts from the report summary:

Despite apparently very little growth in the overall economy, Scotland’s labour market continues to hold up remarkably well.

Over the year to the 3-months January to March 2017, unemployment in Scotland fell 48,000 whilst employment levels rose 41,000.

The current rates of employment and unemployment are close to the best on record.

Levels of underemployment—that is people in work but who would prefer to work longer hours—have also fallen back towards pre-recession levels.

Scotland’s youth unemployment rate continues to outperform all other parts of the UK and compares favourably internationally.

…since the financial crisis there has been a rise in part-time employment (up around 9% since 2007). Within the part-time figures, there has been a 60% increase in the number of people who say the reason they are working part-time is that they cannot find a full-time job.

…nearly [three quarters] of the growth in Scottish employment over the last year was in the form of self-employment.

…there has been a further rise in economic inactivity—that is people not actively seeking work—of 15,000 over the last year.

In 2016, productivity as measured by output per hour worked in Scotland fell 1.5%.

Weak productivity levels will make it difficult for businesses to find new resources to support sustained wage increases.

The FAI also notes in its analysis that “the lack of growth in the wider economy—coupled with rising inflation—means that there is little prospect of a sustained improvement in people’s take-home pay.”

GVA growth forecasts for 2017 Q1 and Q2

Nowcasting Scotland, Fraser of Allander Institute, 6 June:

  • Our nowcast for GVA growth in 2017 Q1 is 0.22% which, at an annual rate, is 0.87%
  • Our nowcast for GVA growth in 2017 Q2 is 0.23% which, at an annual rate, is 0.94%

These results represent a downward revision relative to last month’s update [link]. In the context of weak economic performance over recent quarters, this suggests that there is little reason to be optimistic about the short-term performance of the Scottish economy.

General Election 2017 projection and prediction, Election Day update

By Jeremy Blackwell

I started writing this article in totally different state of mind from the one I’m in right now. That was on Saturday, eagerly waiting for the latest polls and keeping track of all the campaign events in Scotland. Then the London Bridge attack happened. Once again terrorists sent the message that they hate our democracy and want to destroy it, especially by interfering in our democratic election process. And they hit London, a city I love despite all its faults.

Fear and hate will lead us nowhere except to a darker future. Today say no to fear and hate and get out to vote massively.

So I will start this last article of my General Election 2017 series with a picture of togetherness, hope and joy. Nicola Sturgeon hugging a wee lad who gave her a homemade card while she was campaigning in Ayr on Saturday.

As the last article, this one has to be the riskiest as we will know only a few hours from now if I was spot on, wildly off or just slightly off. I venture ‘slightly off’. I owe a lot of thanks to Jamie Smith for hosting my articles on his blog. Also lots of thanks to all those who fed me with information and all those who follow me on Twitter.

Of course next week I will perform a post-mortem. I will try to sort out what was right and what was wrong in the polls. And also what was right and what was wrong in my model itself (and the others too).

But first let’s see what scenarios we have right now for this election in Scotland.

Scenario #1: Polls are right

By ‘polls’ I mean here only the few full Scottish polls we had this year. In 2015 Scottish polls were pretty accurate and missed individual parties’ results by at most a share of a percent. So if they perform just as well this year, here are the vote shares we get, based on all full Scottish polls since mid-April. And the range of seats each party would get on such results.

This scenario would be quite good for the SNP, but other parties would not see all of their expectations fulfilled. Except if tactical voting is stronger than expected, which might happen in any scenario anyway.

Scenario #2: No Conservative surge

In this scenario, Conservatives fail to bag the extra votes needed to gain a significant number of seats. Tactical Unionist voting is kept to a minimum, most Labour voters remain faithful to their party and (most importantly) the swing from the SNP to the Conservatives in key regions remains low. That way we get a GE result quite close to the Scottish Parliament 2016 elections. This scenario leaves only seven seats tied or marginal.

This would be the dream scenario for the SNP. As James Kelly reminded us, what matters most in first-past-the-post elections is how far ahead the first party is. And this scenario maximizes the SNP’s lead over the Conservatives. Losses could be kept to a minimum, possibly as low as one or two in Borders and one or two in North East. But Labour still doing well makes gaining Edinburgh South less likely. Sorry for that, Jim.

Scenario #3: Maximum tactical voting

This is the mirror image of #2 and the nightmare scenario for the SNP. It would have the SNP roughly on current polling average. But on top of it, this includes a noticeable swing from the SNP to the Conservatives in key regions. If this is combined with full-blown tactical voting from Labour voters and some LibDems, it spells doom for many SNP MPs. Here we have nine seats tied or marginal, though obviously not the same ones as above. The swingometer has moved deeper into SNP-leaning territory and some unexpected losses may happen like East Dunbartonshire, Stirling, North East Fife or Ochil and South Perthshire.

Please note that this ‘doomsday scenario’ still has SNP winning 70-75% of Scottish seats. I know many governing parties in Europe who would welcome that kind of ‘defeat’. Anyway, after a series of major Conservative trainwreck appearances on various media during the campaign, this is obviously the unlikeliest of all.

Done with scenarios now JB, why not tell us how the actual polling data evolved?

There’s a little bit of my three scenarios is this week’s polls: not too good for the SNP, no real Conservative surge, tactical voting mostly (and surprisngly) favouring Labour with the ‘Corbyn surge’ still alive.

These results are nevertheless still better than could be feared for the SNP who maintain a 14% lead over the Conservatives. And even if Labour are doing better than expected (and very close to their 2015 result), the SNP’s lead in SNP-Lab competitive seats is such that no Labour gains are to be expected.

And now JB, why don’t you tell us what we can actually expect tonight?

The slight changes in polling average have some marginal impact on the seat ratings. Tied seats are now East Dunbartonshire, Edinburgh South West, Perth and North Perthshire, Stirling.

And the usual seat-by-seat projections (compared with ScotlandVotes and ElectoralCalculus) and my updated prediction.

I think the SNP will finally do well today, better than some pundits predict. But some symbolic seats will be lost. I still think local factors will see the SNP hold Perth and North Perthshire. But I am not too optimistic about the Edinburgh seats, contrary to my first predictions about them. Organized tactical voting from Unionist parties was tested here last year for the Scottish Parliament elections and it worked. I have a hunch a similar scheme is at work now and will produce fairly similar results: Labour hoding South wille the SNP lose West to LibDems and South West to Conservatives.

But in fact none of the psephologists knows exactky what will happen tonight, even if we like to pretend we do. Always believe the old saying ‘Timeo psephologistos et dona ferentes’. We are just as clueless as our readers are. Perhaps crystal ball and tea leaves would help. Or sacrificing a black goat. In the end, with all we can deduce from statistics and make a great show of it, the best we can come up with is the proverbial best educated guess. Here is what various predictor sites or individual predictors had in store this morning:

And here’s my ‘exit poll’, some hours ahead of the actual one. The best prediction I can offer with all available data and the obvious uncertainty that is part of every election. And that it matches the average of all predictors is pure coincidence. You know how I work so you can take my word for that.

So tonight on 10pm we will know. Don’t forget 48 seats is 80% of the Scottish representation in the House of Commons. So still a resounding victory and a mandate for the SNP, whatever you might hear elesewhere.

And until then…

Ach ‘s math dhomh bhith seo an drasd
A cur failt air a’ bhlas
‘San tir a tha cho you’re dhomh an diugh
Is a bha I nuair bha mi ‘nam phaisd

It is not in the stars to hold our destiny but in ourselves
Our doubts are traitors and make us lose the good we oft might win by fearing to attempt
Boldness be my friend

Saor Alba gu bràth

Jeremy Blackwell, 8 June 2017