How to avoid cow attacks, the movie...

"Alex Salmond is behaving like Kim Jong-il, says Alistair Darling"

From The Guardian:

Alistair Darling has compared the behaviour of Alex Salmond to the North Korean leader Kim Jong-il and said thousands of "No" campaigners have been incarcerated without trial.

In an interview in the New Statesman, the leader of the pro-UK Better Together campaign argues: "[Salmond] said on the BBC that under his great and glorious leadership Scotland will overcome any English military attempts to undermine the Revolution started by his father, Salmond Il-Sung.

"This was a North Korean response, as was anointing his son Salmond Jong-Un as his successor. This is something that Kim Jong-il would do."

Mr Darling is currently unavailable for comment. A spokesman for the SNP explained that he and his family had been taken into protective custody.

Alex Salmond

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.

Scottish independence and RBS liabilities

Today's FT picked up on a question which Jon Snow asked Alex Salmond on yesterday's Channel 4 News, i.e. whether an independent Scotland would pick up the tab for "the UK government's £187 bn exposure to RBS". To which Salmond replied 'no', obviously. The article is otherwise terribly light on detail and I suspect that Snow and Salmond also both completely missed the point:

If we decide that RBS is Scotland's problem, then the Scots really don't have much choice in the matter.

Having been right royally (or should that be democratically?) stiffed by the Icelandic banks, we need some sort of plan in place to disentangle ourselves from RBS and to entangle Scotland instead.

1. The shares

The UK government originally invested £45.2 billion into RBS as shares (see UKFI annual report 2011), an average of 50p per share. Those shares are currently trading at 23p, so are currently standing at a loss of £24 billion. Who knows what the value of those shares will be when Scotland becomes independent? I don't, but I do know that RBS had £78.445 billion cash on deposit with central banks as at 30 September (Tab 1.2 from the Excel spreadsheet available here) .

I assume that the bulk of this is with the Bank of England, so all we have to do prevent RBS from drawing down its balance to below £45.2 billion. Then the day after Scottish independence, the Bank of England merely swipes this cash, i.e. deletes it from the record and we send the new Scottish government a share certificate showing them as the new owner of the 90 billion shares.

2. The loans

The UK government or HM Treasury also lent RBS money in one form or other i.e. under the Special Liquidity Scheme, Credit Guarantee Scheme and Asset-backed Securities Guarantee Scheme. As far as I am aware, these loans have already been largely repaid, and if not, we'll just have to make sure that these are repaid prior to independence, which is at least two or three years away.

If they aren't repaid by then, we'll simply have to find something in the small print which allows us to call in repayment the day after independence. RBS have plenty of assets in England, premises, mortgages secured on English land and so on to which we can help ourselves. We can't just shove the loss onto ordinary UK depositors with RBS, so we'll have to take enough to repay them as well. RBS balance sheet total was £1,607 billion as at 30 September 2011. It only had £433 billion in customer deposits, so there's plenty enough to cover outstanding loans from the UK government and deposits from ordinary English, Welsh and Northern Irish people.

Much the same thing happened when the Icelandic banks went pop, the UK government helped itself to all the assets which those banks had bought in the UK with money they had originally borrowed from greedy mugs in the UK. Primarily UK local councils.

3. The guarantees/contingent liabilities

The dividing line between a secured loan and a guarantee is clear enough if you have a choice between lending money to somebody yourself or guaranteeing a third party lender that you will repay the loan if that somebody defaults, but with state guarantees to banks, secured on other financial things it is not so clear at all.

So I'm not sure whether the Asset-backed Securities Guarantee Scheme etc was the government lending the money to banks and taking other stuff as security, or whether the government made a guarantee to people who'd invested in banks that they would be repaid. Either way, I strongly suspect however that the £187 billion figure mentioned is more in the way of guarantee than actual loan.

So all we have to do here is simply renege on them, and tell RBS or RBS' investors that they are on their own and we will not honour the guarantees. If the Scottish government, as the new owners of RBS wants to step in as guarantor, then that's their decision, and if not, they can do like Iceland and just let it go pop.

UPDATE 13/1/12. Today's FT says "129 billion exposure to RBS toxic assets: By taking a big stake in RBS [presumably the £45.2 bn referred to in (1)], the UK accepted contingent liabilities valued by the Treasury at £129 bn." So this is a historic figure anyway, and these are only 'contingent' and we can simply walk away if it suits us.

4. Summary

From that day and henceforth, RBS will be Scotland's problem and Scotland's alone. If they are happy for RBS to be split up and the losses fobbed off onto somebody else, then so be it, that's their decision. This won't go down too well North Of The Border, but hey.

Conversely, I think it's only fair that we take all the HBOS losses on the chin just to even things up, seeing as that was merged into Lloyds at our then Prime Minister's command. It may well be that Scotland retaliates by nicking stuff from HBOS - that will get very interesting indeed...

As you see, all of these supposed massive financial problems which the zealots say independence would cause all just melt away if you look at them sensibly.

From a fiscal point of view, Scottish independence would be a non-event.

This topic seems to generate a lot of passion on both sides, the Daily Mail article has so far attracted over 1,700 comments, which is unusually high even by the Mail's standards.

As to the finances, it boils down to three main items which more or less net off to nothing:

1. The Scots would draw a new boundary for the Continental shelf, basically a straight line heading due East from the English/Scottish border, see map here and collect North Sea oil revenues from their patch. According to that same link, Scotland's ninety per cent share of North Sea oil revenues would be about £10 billion a year. On the BBC yesterday, they quoted a lower figure of £6.5 billion.

2. UK government spending is skewed towards the three non-English nations and poorer areas in England. According to Wiki's write up of the Barnett Formula (as poor old Lord Joel Barnett has been saying for decades, it's not a bloody formula!), average spending per capita per year in Scotland is about £1,200 higher than the average for the rest of the UK. So the UK as a whole subsidises Scotland to the tune of £6.2 billion.

3. Alex Salmond conceded yesterday that Scotland would assume a share of existing UK government debt, proportional to population or GDP. GDP per capita is about the same so we can split it proportional to population and Scotland's share would be 5.2 million/62 million = 8.4% and if UK government debt in 2015 is £1,400 billion or thereabouts, then Scotlan's share would be £118 billion. Let's guess the average interest rate on UK government debt at 3%. As a small/new country, Scotland would end up paying a bit more than that, say 3.2% and the interest rate on the residual UK's debt would fall ever so slightly.

The net position is thus as follows:

1. Scotland gains £10 billion a year;
2. Scotland loses £6.2 billion a year;
3. Scotland loses £3.8 billion a year interest (assuming debt is rolled over in perpetuity).

Scotland's gains = rest of UK's losses and vice versa.

To my untrained eye, that looks like a nil overall position. Of course, oil revenues can go up or down quite markedly; there are different ways of calculating per-capita overspend in Scotland; and interest rates can go up or down (and we don't know what the Scottish premium would be). So each team of negotiators has to do its own forecasts and then bring them into balance by increasing or reducing Scotland's share of UK national debt accordingly. Provided that each party expects to at least break even on the final agreed deal, then the deal is worth doing, end of.

There are of course lots of other bits and pieces that have to be looked at; whether UK nuclear submarines will stay in Faslane and whether the UK Navy will still pay for ships to built in Scotland; who is responsible for paying the old age and public sector pensions for people who have worked and lived both in Scotland and elsewhere in the UK, but we can apply the same principles. It is not an intractable problem.

Alex Salmond singularly fails to draw the obvious conclusion...

From the BBC:

Scotland's First Minister Alex Salmond believes Prime Minister David Cameron's decision to veto EU treaty changes could affect talks on fish quotas.

He told the BBC that Mr Cameron's "irresponsible posturing" could make it harder to stop regulation of the Scottish fishing industry. Mr Salmond has written to the prime minister asking him to explain his actions to the devolved governments...

D'oh!

Cameron went to Brussels tasked with getting a concession for his mates in banking, Merkozy refused point blank, so Cameron played the only card he had left and walked out.

I do wonder whether Salmond, who is a master negotiator, really fails to realise that we can do exactly the same thing again for our fishing industry at the next round of talks on fish quotas.

Here's a quick guide for him, just in case he's reading this:
--------------------------------
Salmond (or whoever it is): "About these quotas. We'd like to regain control of all fishing rights in our half of the North Sea."

Others round the table: "No chance. We were thinking of reducing Scotland's quota even further."

Salmond: "All right, sod the lot of you. As of next week, we are withdrawing from the Common Fisheries Policy. Anybody who wants to fish in our half of the North Sea can pay up or be blown out of the water."

Others round the table: "Er... or what?"

Salmond, packing briefcase etc: "Well it was lovely meeting you all. What time's the next Eurostar back to Blighty?"

Others round the table: "Did I hear that right..? Shit! Seriously - what's our next move? Oh, f-ing hell..."

Alex Salmond

Hypocrite/Twat* Of The Week

The Scottish government has been doing its level best to kill off the alcohol industry for some time, so what is Alex Salmond whining about?

* Delete according to taste.

"Salmond confirms council tax plan"

More madness, this time North Of The Border.

Assuming that this is fiscally neutral, who are real winners and losers from all this?

Winners will be those with low incomes relative to the value of the property they own, that means:
- pensioners in big houses and their heirs, obviously.
- second home owners.
- people who own BTL properties in Scotland. Even if their rental income is taxable, by definition, this is only a fraction of the tenants' income (so a landlord's income-to-property value ratio is low), hence the income tax that landlords will pay is only a fraction of the income tax that tenants will pay. But if they scrap Council Tax, the rent the landlord can charge increases as the rent can take up a larger share of tenants' 'housing budget' (which of necessity includes Council Tax, rent and utilities).

Losers will be those with high income relative to the value of the property they own, in particular, tenants (who own no property whatsoever). They'll end up paying for the value of local services (as this is included in their now increased rent) as well as for the cost of local services (the bulk of which they will pay for via the Local Income Tax).

And even an average household with an average income in an average home for whom this is at first blush a straight swap will be slightly worse off in the long run, as the Scottish economy will grow slightly more slowly.

So, cynically, Scotland looks like a good place to invest for a BTL-er and/or buy a second/holiday home (especially if you're English!), once the market has bottomed out again.

Morons, honestly.

"the UK’s weight on the international stage"

I've heard some daft argument against Scottish independence, such as the idea that Scotland is somehow too small to survive on its own. Er, Sotland has a population of 5 million, about the same as Ireland, Norway, Denmark or Finland, and only a bit less than Switzerland or Austria. All countries with a standard of living higher than Scotland.

Today's editorial in the FT goes to the other extreme:

This newspaper believes that breaking up the Union would, at the least, diminish the UK’s weight on the international stage

Er, the UK currently has a population of 60 million and England & Wales a population of 53 million. If the UK were to disband, then quite clearly, the UK as such would have no weight whatsoever, but freed from the Scottish mafia currently running the show (into the ground) England & Wales' weight on the 'international stage' would be greatly enhanced.

Or have I missed something?