01 Jan Scottish News News in Scotland
Scottish independence: It’ll drain you – The price of Union with England
BRITAIN has become the most indebted economy in the world. In recent years this debt includes the UK Government official deficit which is now over £1 trillion and growing. During the same period, Scotland has contributed a surplus to the UK Treasury according to official figures (GERS).
Recently, research published by Morgan Stanley Research (see chart below) showed that Britain’s public and private debt combined is rapidly approaching 1000 percent of GDP.
What is worrying is that almost 600 percent, circa £10 trillion, of that figure is financial sector debt the vast majority of which is London’s.
This private debt has financed a way of life in London and surrounds for decades but since the onset of the financial crisis that debt is unsustainable and a great economic contraction has begun. More and more economists are confirming the obvious – the UK’s financial sector is broke. However City bosses will not admit that they have run their institutions into the ground and so are using their political muscle to have the taxpayer bail them out.
By bailing out these ‘zombie banks’ their private debts have been passed on to you and me. This is one reason why, despite contributing a surplus to the UK Treasury, the Scottish Government has had its block grant cut and why Scots are facing austerity measures such as benefit cuts.
Far more concerning though is the Bank of England’s quantitative easing (QE) programme which allows private financial institutions to borrow vast sums of money almost for free. These firms are then allowed to use these funds as reserves meaning they can ‘leverage’ the money which is another way of saying multiply it dozens of times by creating new money out of thin air. The reasoning behind this process is that money will then be lent out into the real economy providing the funding businesses need to operate so they in turn can make profits from which they can invest in new products and repay their loans.
That’s not the way it’s now working in reality though. What is happening is that this new money which runs into trillions of pounds is used by financial institutions to buy and sell financial products from/to each other and each time they do the financiers draw down commissions and bonuses. The process is entirely extractive rather than productive.
In short, the Bank of England is expanding the money supply which dilutes the wealth of all UK citizens and the benefits are almost entirely going to bankers in the City of London.
How does the trickle down effect work in reality? Those closest to the place where the new money is first distributed gain the most i.e. London. If the money is loaned out as it should be it would slowly disperse around – after prices rise – the UK through branch loans but as I mentioned before this is not happening. The result is that our money is largely kept in London.
The moral problem with of all this is that the money supply is a matter of critical public interest. The money belongs to the people and diluting the supply creates inflation meaning the purchasing power of our money is lost/appropriated – at best it is a hidden tax or a backdoor regional subsidy depending on whether you look at it from outside or inside London.
In all the stramash over public spending and who subsidises who the real elephant in the room has been completely ignored – the real regional subsidy is not fiscal but monetary and the beneficiary is almost exclusively London.
Economic historians observe that when a state is in its economic death throws capital is sucked into the centre as the political elite attempts to shore up its pillars of support – its key contacts and sponsors. This deprives the ‘peripheries’ of vital capital and so the wider economy begins to contract meaning it sends less tax to the centre and so the state’s economic collapse is accelerated.
In the last few weeks the UK Government has made a commitment to fund an upgrade of the London sewerage system – a project which will cost £4.1 billion – as well as fund a handout of a £50 cut in water bills to the South West of England. If these were funded in the usual way it would result in Scotland receiving a payment of £400 million.
This is the method by which UK public spending is arranged and divided and our system is called the Barnett Formula. However David Cameron’s Government found a loophole which means that the Barnett payment to Scotland is not triggered and is therefore “cheating” Scotland out of funds which could be used, say the SNP, to fund projects in Scotland thus generating much needed jobs and opportunities.
Another London-bound subsidy is the proceeds going to this year’s Olympics. Lottery funds have been diverted from across the UK to London 2012 including, UK Government officials admitted, some £114 million taken out of Scottish ‘good causes’ such as Sportscotland, Scottish screen and the Scottish Arts Council.
As if that wasn’t bad enough, this year, The Herald newspaper uncovered figures in January showing that UK Government spending on the Olympics was more than £2.6 billion of which Scotland’s share was £1m or 0.04 percent of the total.
Added to the ‘your having a larff intya’ category is the London weighting allowance totalling £116 million pounds which is a subsidy from the rest of the UK to keep jobs in London that could easily be dispersed.
Adding fuel to the fire
In November 2009, the Telegraph’s Edmund Conway summed up his analysis of the impact of North Sea oil on the UK economy: “the truth is that, for the past quarter of a century, Britain has been a petro-economy…The result is that while we are apt to attribute the sudden spurt in Britain’s prosperity in the mid- to late-1980s to a deregulated and reinvigorated City, it owed far more to the massive windfall from the North Sea.”
In 1975 the UK Government had leading economist Professor Gavin McCrone analyse what an independent Scotland’s economy would look like with Scotland’s oil revenues pouring into a Scottish Exchequer. The McCrone Report concluded: “The country would tend to be in chronic surplus to a quite embarrassing degree and its currency would become the hardest in Europe.”
The report was hidden from the Scottish public’s view for 30 years and sat on by successive UK Governments, Tory and Labour, over that time. You really do have to be blinded by Unionist sentiment to deny that this fact is a betrayal of Scotland and its people by its own Governments over a period of several decades.
During those 30 years Scotland’s economy stagnated while a golden age for London was trumpeted by organs such as The Economist magazine which this week painted a “patronising” picture of Scotland suffering extreme debt and penury should it vote for independence. If ever there was a case of biting the hand that feeds you this was it. Yes it was “metropolitan claptrap” as the SNP’s Angus Robertson described it but on an economic level it showed just how ungrateful Britain’s true subsidy junkies really are.
What is instructive is that the official figures show, comparatively speaking, Scotland’s public spending to be in far better shape than the UK’s as a whole. Despite these facts being readily available the London media feels justified in reporting otherwise.
In two years time, Scots will vote in an independence referendum. What is shameful is that one side of that debate will perpetuate these myths that somehow Scots, unlike the Norwegians, the Danes, the Dutch or the people of any other independent nation are uniquely incapable of running a viable economy. The Unionist style of politics is such that this economic propaganda is believed to be justified and so we can look forward, with a sigh, to a campaign strategy of trying to systematically batter Scots into a No vote.
The perverse consequence of this Unionist clientism is that they encourage propaganda such as this week’s Economist piece when they could and should argue for a better deal for their own country. A test of whether the Union works is surely that those who wish to maintain it feel comfortable in asserting the best interests of their own nation.
If they did many Scots would perceive them as pro-Scottish, that the Union was indeed a partnership of equals and that Unionist parties – now a farce to be reckoned with – could lead Scotland into a mutually beneficial future with England inside Britain’s 300 year-old political Union.
In the end though it is the “Bullingdon Club attitude” that reigns supreme within Scotland’s Unionist community and the order from the English capital’s financial elite is that the uppity Jocks need to know their place because the oil belongs to London.
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