Independence Referendum

[doubleup]

Also to Doobs re regulators etc.  The various laws apply in Scotland as well as England and will continue to apply post independence unless they are specifically amended.

Regulators are financed by financial institutions not government, so there is no need for any arrangements to change immediately.

[Rod Paradise]

good article in the guardian

"

The Scottish economy has grown on the back of whisky, tourism and financial services but by far the biggest potential money-spinner comes from resources still in the ground: oil.

The North Sea has always been seen as crucial, not only to employment and tax revenues, but to the whole viability of Scotland as a thriving and independent nation state.

It is not alone. Countries from Russia to Venezuela and as close as Norway have relied on oil and gas to create wealth to fund public spending programmes.

Greenland is desperately trying to encourage companies to drill in the Arctic. Why? Because it recognises it cannot rid itself of its political master, Denmark, without economic independence. And that cannot be built on seal skins.

Equally you have got to sell a lot of whisky to match the 866,000 barrels of oil a day – at more than $100 a barrel – produced from the UK North Sea in 2013, never mind the 36bn cubic metres of gas on top of that.

Most of that cash will go to the companies involved in the extraction but the tax take on these hydrocarbon riches goes at present to the Treasury in London to the tune of £4.7bn in 2013-14 and more than £6bn for the 12 months earlier.

It is assumed on both sides of the border that 91% of those tax revenues could be taken by Scotland on the basis of an internationally accepted median line drawn out between Scotland and England straight out into the sea.

Alex Salmond, a former oil economist and now first minister of Scotland and leader of the Scottish Nationalist party, has argued that a newly independent country could exploit the £54bn in tax taken from the North Sea in the six years up to 2016-17.

And he believes that there are 24bn barrels of oil equivalents (boe) of reserves – which includes gas – still lying under the seabed and waiting to be exploited.

Based on that number, Salmond has argued that there is £1.5tn worth of fuel to help create jobs, boost tax returns and add benefits for the people of Scotland.

Such figures have proved a major bone of contention. The Office for Budget Responsibility (OBR) has predicted recoverable reserves of 10bn boe and North Sea tax revenues of £61.6bn between now and 2040.

The Office for National Statistics put the worth of untapped reserves to the UK Treasury at closer to £120bn while Sir Ian Wood, a leading offshore oil industrialist in Aberdeen, put the figure at 15bn-16.5bn barrels.

Why the variation? A letter to explain the £61.6bn figure used by the OBR written by the chairman, Robert Chote, to the Scottish parliament explained

"Oil and gas receipts are one of the most volatile streams of revenue coming into the exchequer, which also makes them one of the most difficult to forecast. This reflects the number and the nature of the factors that determine these revenues: the levels of oil and gas production, global dollar prices, the sterling/dollar exchange rate, the scale of tax-deductible capital and operating expenditure, and the history of past profits and losses for each company in the industry that determine if and when they will pay tax on newly generated profits. Most of these individual determinants are difficult to predict in their own right, even over a very short time horizon."

Others go further, pointing out that to reach the 24bn figure the SNP is using "proven, probable and possible reserves ... as well as further exploration". The party has also admitted that its £1.5tn figure is dependent on oil prices staying above $100. Most industry experts would expect that but it cannot be guaranteed.

The reserve figure described by Salmond as "robust" is much more controversial. John Busby, an independent energy consultant, argues that the barrel of oil equivalent numbers used by the SNP and others are largely meaningless. "The only value is really attached to recoverable reserves – oil or gas that can definitely be got out economically. Those are the only numbers that are recognised [when assessing oil company values] by the securities and exchange commission in the US."

He points out that BP, in its respected annual statistical review of the global industry, puts the amount of recoverable reserves in Britain at 3bn barrels and says the fast rundown of oil and gas output suggests there is an energy and fiscal problem looming whoever owns the hydrocarbons.

Not discussed here but highlighted by the Guardian in the past is the fact that there are almost no truly indigenous oil or gas exploration and development companies in Scotland.

Does this matter? Some would say that the big – nominally – local companies such as BP and Shell have reduced their North Sea activities hugely over the last decade without any dramatic impact on the UK; oil money is highly mobile and the same companies that invest in the UK – or Scotland – are happy to work anywhere. And will.

If the tax regime is more attractive in a new up-and-coming area such as, say, Mexico – as opposed to a mature North Sea field where big finds are now deemed unlikely – then they are likely to switch investment there.

Small countries dependent on oil find it difficult to negotiate with massive international oil companies. Salmond must know an independent Scotland would have to give more lucrative tax treatment to Big Oil if he is going to encourage them to extract the 3bn barrels highlighted by BP or the 24bn that the first minister hopes for.

Oil & Gas UK, the industry lobby group, said last month: "We are clear that fundamental change is needed to change the way the industry is taxed and regulated, if the UK is to maximise economic recovery from the UK Continental Shelf (UKCS)."

The cost of operations has soared in recent years and drilling is currently at very low levels, with estimates that the North Sea could produce less than 800,000 barrels this year compared to the near 3m in 1999.

In the background lurks the row over whether or not any country should be drilling out reserves at all just as we need to move away from fossil fuels towards a low-carbon economy.

There is increasing talk by organisations with pension funds to divest from sectors which cause global warming in the light of a wider debate about "stranded assets" .

Salmond has rightly talked up the prospects of Scotland's windfarms and green economy but a much deeper prosperity based heavily on oil cannot be guaranteed by anyone. It depends on a range of factors; many not under his control."

Any article that discusses oil & only includes the North Sea, or includes Sir Ian Wood's new 2014 figures rubbishing Sir Ian Wood's old 2014 figures is suspect IMO.

Add in the record investment in 2012 & 13 (which screwed the tax income down for last year making oil look less reliable) & I think the Grauniad is at their usual downplaying game.

[Rod Paradise]

Also to Doobs re regulators etc.  The various laws apply in Scotland as well as England and will continue to apply post independence unless they are specifically amended.

Regulators are financed by financial institutions not government, so there is no need for any arrangements to change immediately.

On top of that the systems of Income tax are being separated anyway (Scotland act 2012) and many of the computer systems are due complete updating by 2020 - so Scotland would be paying for new ones anyway....

[TightEnd]

A joint Cameron/Clegg/Miliband visit to Scotland has just been announced.

 I assume travel costs will be covered by the 'Yes' campaign.


What ARE the No campaign doing? Keep all three away from Scotland!!!

[arbboy]

I imagine it's because what will actually happen regarding sterling if the Yes vote happens hasn't been agreed by either side.  The two sides don't seem to be able to even discuss it rationally at the moment.  So the more likely a Yes vote appears, the more uncertainty there is, which results in sterling weakening?

Uncertainty is definitely a factor, but there are bound to be costs on each side.  It will be lots of things most people don't even consider.    

Just as an example. In that article someone linked to this morning Alex Salmond blithely suggested they had made plans for pensions so there was nothing to worry about.  He may have made some kind of plans, but they won't nearly be enough.  The cost of separating English and Scottish pensioner for each life office will be horrendous.  The offices won't even know who is living in Scotland right now never mind their history.   There will be two separate regulators, there may be separate tac rules, they will need to be looked at differently, depending on Scotland's EU membership or not. People like me will be making hay from it all and rates for people like me aren't going to fall.  

These kind of things will be repeated in lots of rUK/Scottish businesses and as well as direct costs, people will cause them to devote less time to business as usual which will have a secondary effect on profits/growth.  

Even if these costs are going to be smaller for each person in rUK they won't be insignificant in total and are bound to be a drag on growth.

I assume Government both sides of the border is going to be excessively focussed on breaking up the Union, so other things so other business will suffer there too.

Overall there should definitely be an effect each side of the border which is beyond the currency union situation.

This is all nothing to do with the usual straw man arguments about subsidy junkies and wee countries been unable to govern themselves.  

This is a great post and these 'hidden' costs and 'indirect' costs from loss of tax revenue because businesses will be hindered massively during the adjustment phase are massively underrated.  I think with typical canny/risk averse/'tight' Scots seeing their pension fund's/investments falling with the uncertainty in the city will start to rethink the yes vote as they approach the ballot box as i have always predicted.

[Doobs]

The veto on currency union was 100% a political ploy as it obviously causes enormous and unnecessary disruption on both sides of the border.  There are no disadvantages for Ruk in a correctly negotiated currency union.  The markets know that it is an idiotic position but can't see how Gidiot and Millifanny are going to get out of it. 

The large Scottish financial institutions are going to move their regulatory HQs south of the border anyway to prevent a loss of customers, so there is no issue over these and the threat to rUK economy. 

Also once and for all the Treasury is responsible for repaying all UK debt and let's face it they aren't actually going to be doing any repaying for a long time, so its obviously completely redic to expect Scotland to start repaying it.  And more than that it is obviously completely impractical to expect Scotland to raise borrowing in a foreign currency to make repayments.

A long term currency agreement where Scotland pays the interest on a portion of legacy debt and is allowed to raise its own bonds within pre-agreed limits linked to GDP to cover its own borrowing needs and a small amount to replace legacy debt is a straightforward solution.

 

There are clear possible downsides to currency unions, as evidenced from the Euro experience.  rUK will have to stand behind Scotland and bail them out if they get into difficulties or if the SNP/Scottish Labour Govern their country recklessly.  The Bank of England will have to act as guarantour to Scottish banks.  rUK wil have to support any Scottish financial institutions in trouble.  All the time we have a party in charge who have already stated they are wiling to walk away from their debts if they don't get their way.  You may not think these are as big an issue as I do, but to suggest these are not disadvantages for rUK is preposterous.  

I don't think anybody is suggesting Scotland has to start repayiing any debt, just take the share of it that is rightly theres.  I can't think of many practical difficulties in Scotland issuing sterling debt.  It will be exactly what will happen under sterlingisation.  The markets wouldn't like it much, and their will likely be a higher interest charge than rUK, expecially if they walk away from their previous debt, but I can't think of any thing that would make it impossible.  Maybe you can list the things that make it obviously completely impractical?  Amyway, this is Scotland's problem to solve should they vote for independence.  They will need to raise finance in Sterling at least in the short term, and any practical difficulties are there is to solve.  Presumably this is all covered already and has been exlained to the voters?  What people in England expect them to do is largely irrelevant, they can do what the hell they like as an independent nation, so I guess it is obviously completely rediculous to a some extent.

[Rod Paradise]

The veto on currency union was 100% a political ploy as it obviously causes enormous and unnecessary disruption on both sides of the border.  There are no disadvantages for Ruk in a correctly negotiated currency union.  The markets know that it is an idiotic position but can't see how Gidiot and Millifanny are going to get out of it. 

The large Scottish financial institutions are going to move their regulatory HQs south of the border anyway to prevent a loss of customers, so there is no issue over these and the threat to rUK economy. 

Also once and for all the Treasury is responsible for repaying all UK debt and let's face it they aren't actually going to be doing any repaying for a long time, so its obviously completely redic to expect Scotland to start repaying it.  And more than that it is obviously completely impractical to expect Scotland to raise borrowing in a foreign currency to make repayments.

A long term currency agreement where Scotland pays the interest on a portion of legacy debt and is allowed to raise its own bonds within pre-agreed limits linked to GDP to cover its own borrowing needs and a small amount to replace legacy debt is a straightforward solution.

 

There are clear possible downsides to currency unions, as evidenced from the Euro experience.  rUK will have to stand behind Scotland and bail them out if they get into difficulties or if the SNP/Scottish Labour Govern their country recklessly.  The Bank of England will have to act as guarantour to Scottish banks.  rUK wil have to support any Scottish financial institutions in trouble.  All the time we have a party in charge who have already stated they are wiling to walk away from their debts if they don't get their way.  You may not think these are as big an issue as I do, but to suggest these are not disadvantages for rUK is preposterous.  

I don't think anybody is suggesting Scotland has to start repayiing any debt, just take the share of it that is rightly theres.  I can't think of many practical difficulties in Scotland issuing sterling debt.  It will be exactly what will happen under sterlingisation.  The markets wouldn't like it much, and their will likely be a higher interest charge than rUK, expecially if they walk away from their previous debt, but I can't think of any thing that would make it impossible.  Maybe you can list the things that make it obviously completely impractical?  Amyway, this is Scotland's problem to solve should they vote for independence.  They will need to raise finance in Sterling at least in the short term, and any practical difficulties are there is to solve.  Presumably this is all covered already and has been exlained to the voters?  What people in England expect them to do is largely irrelevant, they can do what the hell they like as an independent nation, so I guess it is obviously completely rediculous to a some extent.

First what Scottish Banks? And please don't assume all bank debt lies where the bank is registered, debt run up but London operations (as the RBS debts were) would have been an rUK responsibility. Hence the big US bailout for Barclays & RBS. This idea of a bailout being required confuses me, I thought the Government was supposed to regulate the banks to make that unlikely again? Why's it such a big risk now? The restrictions of a Currency Union (which would restrict BOTH parties) should be such as to keep the likelihood of a bailout less likely.

And you're still trying the argument that the markets would punish Scotland for not taking part of a debt that rUK have chosen to accept as theirs.

[doubleup]

The veto on currency union was 100% a political ploy as it obviously causes enormous and unnecessary disruption on both sides of the border.  There are no disadvantages for Ruk in a correctly negotiated currency union.  The markets know that it is an idiotic position but can't see how Gidiot and Millifanny are going to get out of it. 

The large Scottish financial institutions are going to move their regulatory HQs south of the border anyway to prevent a loss of customers, so there is no issue over these and the threat to rUK economy. 

Also once and for all the Treasury is responsible for repaying all UK debt and let's face it they aren't actually going to be doing any repaying for a long time, so its obviously completely redic to expect Scotland to start repaying it.  And more than that it is obviously completely impractical to expect Scotland to raise borrowing in a foreign currency to make repayments.

A long term currency agreement where Scotland pays the interest on a portion of legacy debt and is allowed to raise its own bonds within pre-agreed limits linked to GDP to cover its own borrowing needs and a small amount to replace legacy debt is a straightforward solution.

 

There are clear possible downsides to currency unions, as evidenced from the Euro experience.  rUK will have to stand behind Scotland and bail them out if they get into difficulties or if the SNP/Scottish Labour Govern their country recklessly.  The Bank of England will have to act as guarantour to Scottish banks.  rUK wil have to support any Scottish financial institutions in trouble.  All the time we have a party in charge who have already stated they are wiling to walk away from their debts if they don't get their way.  You may not think these are as big an issue as I do, but to suggest these are not disadvantages for rUK is preposterous.  

I don't think anybody is suggesting Scotland has to start repayiing any debt, just take the share of it that is rightly theres.  I can't think of many practical difficulties in Scotland issuing sterling debt.  It will be exactly what will happen under sterlingisation.  The markets wouldn't like it much, and their will likely be a higher interest charge than rUK, expecially if they walk away from their previous debt, but I can't think of any thing that would make it impossible.  Maybe you can list the things that make it obviously completely impractical?  Amyway, this is Scotland's problem to solve should they vote for independence.  They will need to raise finance in Sterling at least in the short term, and any practical difficulties are there is to solve.  Presumably this is all covered already and has been exlained to the voters?  What people in England expect them to do is largely irrelevant, they can do what the hell they like as an independent nation, so I guess it is obviously completely rediculous to a some extent.

At least make an attempt to read my post, Doobs

I said that the currency union would include limits on borrowing, please explain how the recklessness requiring a bailout will occur?

I said that the large financial institutions would move their regulatory HQs south either way  - please explain how currency union will affect what the BoE has to do if these institutions get into difficulty?

I said that the Treasury has stated that it is responsible for rUK debt, please define a mechanism where a pension fund gets 1/10th of its gilts paid by Scotland?  (Please stop shouting about governments defaulting - it makes you sound like a UKIP dh.)

Your plan for the debt appears to be that Scotland can't use sterling as part of a currency union but will have to go through all sorts of hoops to use a version of sterling to raise bonds to pay rUK.  Obviously this will require selling the Scottish currency to buy the English version causing downwards pressure on the Scottish currency and higher interest rates than would normally be required.  Well, no country will accept that, particularly when there is an obvious solution.

 

[OverTheBorder]

Also to Doobs re regulators etc.  The various laws apply in Scotland as well as England and will continue to apply post independence unless they are specifically amended.

Regulators are financed by financial institutions not government, so there is no need for any arrangements to change immediately.

Really? The pensions regulator was established under statute and it's powers discussed and updated under the pensions acts.

So would you be happy Westminster set the terms of your regulation in Scotland would have no power to do so?

The regulator is funded by levies from schemes taken from funds or employers.

All UK arrangement would also have to consider cross border implications which will be a nice little earner for advisers.

[Kmac84]

Various doom and gloom articles appearing in the press about the markets punishing rUK (and Scotland) in the event of a YES.

The irony is that this is all because the Unionist parties piped up about refusing a currency union and the effect this will have:

Throwing debt share into doubt as even paying interest on rUK debt will have a negative effect on the Scottish currency and substituting debt would be out of the question.  rUK will have its credit rating cut with associated negative effects.

Huge additional costs for businesses costing jobs.

Doubt over pension liability and currency of payment almost definitely leading to legal challenges.

All Scottish debt will be legally denominated in the new currency, so massive disruption in financial businesses.

A simple long term agreement on shared currency and govt debt raising limits eases all these issues.

Very much this. 

[Kmac84]

Why would it be daft?  In that situation Scotland would have tarnished their record by abandoning their responsibilities regarding the debt racked up as a joint nation.  If they then sought to borrow as an independent nation with their own currency then it seems logical that lenders would look on this action unfavourably and consider that it might be an indication of future attitudes to debt repayment.

As an englishman I used to be pretty indifferent to the outcome of the vote, but the more I read the views of the yes campaign the more I hope that they suceed so they actually have to follow through with their policies.

Scotland never took up any debt as part of a joint nation, the debt was taken out by the UK.  Therefore the UK is responsible for it.  Similar to a married couple taking out a mortgage and the wife isn't named on it but contributes to payments initially if they split up the husband (UK in this case) is still liable for all payments. 

[DungBeetle]

A joint Cameron/Clegg/Miliband visit to Scotland has just been announced.

 I assume travel costs will be covered by the 'Yes' campaign.


What ARE the No campaign doing? Keep all three away from Scotland!!!

Miliband makes me smile - "I know you don't like the Tories - but fear not.  I am going to beat them next year.  So.........errr.........vote for the union".  Not sure you are that Box Office for the Scots, Ed.

[doubleup]

I imagine it's because what will actually happen regarding sterling if the Yes vote happens hasn't been agreed by either side.  The two sides don't seem to be able to even discuss it rationally at the moment.  So the more likely a Yes vote appears, the more uncertainty there is, which results in sterling weakening?

Uncertainty is definitely a factor, but there are bound to be costs on each side.  It will be lots of things most people don't even consider.    

Just as an example. In that article someone linked to this morning Alex Salmond blithely suggested they had made plans for pensions so there was nothing to worry about.  He may have made some kind of plans, but they won't nearly be enough.  The cost of separating English and Scottish pensioner for each life office will be horrendous.  The offices won't even know who is living in Scotland right now never mind their history.   There will be two separate regulators, there may be separate tac rules, they will need to be looked at differently, depending on Scotland's EU membership or not. People like me will be making hay from it all and rates for people like me aren't going to fall.  

These kind of things will be repeated in lots of rUK/Scottish businesses and as well as direct costs, people will cause them to devote less time to business as usual which will have a secondary effect on profits/growth.  

Even if these costs are going to be smaller for each person in rUK they won't be insignificant in total and are bound to be a drag on growth.

I assume Government both sides of the border is going to be excessively focussed on breaking up the Union, so other things so other business will suffer there too.

Overall there should definitely be an effect each side of the border which is beyond the currency union situation.

This is all nothing to do with the usual straw man arguments about subsidy junkies and wee countries been unable to govern themselves.  

This is a great post and these 'hidden' costs and 'indirect' costs from loss of tax revenue because businesses will be hindered massively during the adjustment phase are massively underrated.  I think with typical canny/risk averse/'tight' Scots seeing their pension fund's/investments falling with the uncertainty in the city will start to rethink the yes vote as they approach the ballot box as i have always predicted.

The UK has imposed massive regulatory changes on the pensions/ finance industry roughly every 5 years since the late 80s, Osborne and Webb have just unleashed their version.  Each of these costs the industry 100s of millions.  Anything to do with iScotland is a drop in the ocean.

[DungBeetle]

Why would it be daft?  In that situation Scotland would have tarnished their record by abandoning their responsibilities regarding the debt racked up as a joint nation.  If they then sought to borrow as an independent nation with their own currency then it seems logical that lenders would look on this action unfavourably and consider that it might be an indication of future attitudes to debt repayment.

As an englishman I used to be pretty indifferent to the outcome of the vote, but the more I read the views of the yes campaign the more I hope that they suceed so they actually have to follow through with their policies.

Scotland never took up any debt as part of a joint nation, the debt was taken out by the UK.  Therefore the UK is responsible for it.  Similar to a married couple taking out a mortgage and the wife isn't named on it but contributes to payments initially if they split up the husband (UK in this case) is still liable for all payments. 

Using this argument, you can say the oil was discovered by the UK and hence doesn't belong to Scotland. 

[TightEnd]

Why would it be daft?  In that situation Scotland would have tarnished their record by abandoning their responsibilities regarding the debt racked up as a joint nation.  If they then sought to borrow as an independent nation with their own currency then it seems logical that lenders would look on this action unfavourably and consider that it might be an indication of future attitudes to debt repayment.

As an englishman I used to be pretty indifferent to the outcome of the vote, but the more I read the views of the yes campaign the more I hope that they suceed so they actually have to follow through with their policies.

Scotland never took up any debt as part of a joint nation, the debt was taken out by the UK.  Therefore the UK is responsible for it.  Similar to a married couple taking out a mortgage and the wife isn't named on it but contributes to payments initially if they split up the husband (UK in this case) is still liable for all payments. 

lol

So Scotland should just walk away from its share?

would cost it massively long term in terms of the cost of raising finance, and negotiations with the EU if it ever came to that

I am sure a deal will be done, but Scotland not taking a share won't be on the agenda, that's just pie in the sky