George Osborne talks nonsense on financial implications of Scottish independence

There's a lot of guff talked on both sides, and as ever, it is not clear whether they really are that stupid, or whether they are playing a clever double bluff where the supposedly Unionist Tories actually want to rile the Scots into leaving and the SNP secretly know they'd never win a referendum in Scotland, and just see the whole thing as a way of screwing more subsidies out of Whitehall, who are - allegedly - keen to keep Scotland in the Union. The expression "he has a bargaining chip on his shoulder" springs to mind.

Bearing this in mind, let's see what Osborne is reported to have said. From The Independent:

George Osborne last night fired the opening shots of the campaign against Scottish independence, warning that Scotland would risk a euro-style debt crisis if it left the United Kingdom.(1) The Chancellor also claimed that Scotland standing alone would be unable to withstand a second financial shock and would deter foreign investors.(2)

He spoke out as Downing Street signalled its belief that Scotland would have to accept its share of the toxic assets of the Royal Bank of Scotland following its £46bn bailout by the UK taxpayer.(3)

The Coalition Government believes the SNP administration headed by Alex Salmond would be vulnerable to a challenge over the practicalities of how an independent Scotland would operate – a stance shared by Labour leaders. Pro-Union politicians are now preparing to focus the debate on four main questions – what currency would operate north of the border, what proportion of the UK's debts Scotland would have to assume, the future of the armed forces and whether border controls would have to be introduced.(4)

Mr Osborne raised the spectre of an independent Scotland joining the single currency when it is in deep crisis. He told ITV News: "Alex Salmond has said Scotland should join the euro... That is not the currency I'd be wanting to join at a time like this... (5) I don't think Scotland would be as prosperous as it would be as part of the UK. I think there are businesses that are nervous about investing in Scotland when they don't know about its constitutional future." (6)

Mr Osborne suggested an independent Scotland would have struggled to cope with the financial crisis of 2008. He said: "If... you ask yourself 'would Scotland alone have been able to bail out the Royal Bank of Scotland or Halifax Bank of Scotland'? (7) You ask these questions and you begin to see actually Scotland is better off in terms of jobs and prosperity being part of the UK and, by the way, the rest of the UK is better off with Scotland as well." (8)

1) Nope. That all depends on how recklessly the Scottish government spends. So it's not our problem and it's not like the UK government, also led mainly by Scots, has a good record on spending.

2) There's more to it than that, see (7) below.

3) Not just a share, all of them. I covered this yesterday evening.

4) As to currencies, see (5). Scotland's share of National Debt has been provisionally agreed at 8.4% (see post of yesterday morning). Armed forces is not an issue, it's not like we are going to invade each other, and it's up to Scotland whether they join in the UK's madcap adventures around the globe in future.

Border controls is an interesting one, what it boils down to is: if we agree to have common border controls/immigration rules for the whole of Great Britain, no controls are necessary at the English/Scottish border or on ferries between Northern Ireland/Scotland (the model followed by EU member states). Or the Scots can have their own immigration rules. If theirs are tighter than ours, then it'll be the Scots who want border controls and vice versa (compare the difference between US/Canadian border and US/Mexican border).

5) Scottish people can use any currency they want. Practicalities say they would continue to use sterling for the time being, and Salmond has said as much. Osborne can huff and puff as much as he wants, there is nothing to stop them from denominating transactions in sterling. Whether £1 backed by the Scottish central bank is worth more or less than £1 backed by the Bank of England is another question; but those businesses who trade with England can sidestep this problem by having sterling accounts with English banks for making/accepting sterling payments to/from English suppliers/customers.

6) That's his opinion and he's entitled to it. I don't see the relevance though.

7) The answer is "No, they probably wouldn't. So they would have been forced to do an Iceland, which would have been a very good thing indeed for all of us. RBS and HBOS would have sorted themselves out with debt-for-equity swaps, at zero cost to either English or Scottish taxpayers. Or possibly they would have been stupid enough to do an Ireland, which would have been a fantastic result for the English - a foreign government bails out our depositors and bondholders."

8) Wholly unsubstantiated claims. There are economies and diseconomies of scale with increasing population size, but once you get past a population of five million, they are negligible either way. There are plenty of countries with populations of five million or less, and there is nothing to suggest that they are markedly worse off for it. And whether the UK has a population of 62 million or 57 million is completely irrelevant. Finally, if it all goes wrong, we can always merge our two countries again.