Forget the dam busters … iScotland would be oil rich and creditworthy even without the banks
IT wasn’t so much the dam busters as the blitz.
A co-ordinated assault, led by the Prime Minister, backed by the City of London financial establishment, and endorsed by Scotland’s Labour leader, Johann Lamont, echoing the Proclaimers at FMQs: “Standard Life no more; RBS no more; ship-building no more …” Quote us no more, replied Craig and Charlie Reid, who were furious at being enlisted into Project Fear.
This is beginning to sound like the economic equivalent of war. The “dam busters strategy” – as the Coalition is reportedly describing it – is a telling insight into the mind of the UK establishment as it seeks to demolish nationalism. The idea was that, after the UK Chancellor ruled out sharing the pound, a flood of companies would rush out of Scotland. The strategy relied on a supportive Scottish media to spin the bouncing bombs and it didn’t disappoint. Newspaper readers could be forgiven for thinking last week that Scotland is heading for economic disaster if it votes Yes, with banks taking their money and running from an independent Scottish banana republic.
So it may come as a surprise to learn there was confirmation last week that an independent Scotland would not only be economically viable, but could have a highly successful and diverse economy with a healthier credit rating than the UK. I know this makes me sound like an SNP press release, but I am not a member of the SNP and never have been. However, I simply can’t help seeing last week’s events in a rather different light than most of the Scottish media.
On Tuesday, we learned that, far from the oil running out, Scotland is on the cusp of another oil boom, according to a report from Sir Ian Wood, commissioned and endorsed by the UK Government. It said there are still up to 24 billion barrels of recoverable oil, worth about £200 billion in additional revenue, and £1 trillion-£2trn in reserves. Environmentalists rightly raise questions as to whether it is right to suck these hydrocarbons out in the shortest time possible. Yet this was reported in one newspaper as the “North Sea’s greatest crisis in 50 years”, based on the observation that production has been declining. Most of the “easy” oil has been extracted and the revenue wasted, but there is still almost as much oil left in the North Sea as has been taken out over the last 40 years. There can no longer be any debate about the existence of this very substantial asset.
We also learned last week that, according to one of the world’s biggest rating agencies, an independent Scotland might have a AAA credit rating even without taking the oil into account. Standard & Poor’s reported on Thursday that an independent Scotland would “qualify for our highest economic assessment”. Its analysts looked at Scottish economic fundamentals like on-shore GDP and concluded that an independent Scotland would be up there with triple A-rated countries such as Germany.
Standard & Poor’s recognised that there was a risk associated with monetary disunion and the possible departure of banks, but it didn’t take them very seriously. Indeed, it said that losing some of the big banks might be a benefit to an independent Scotland as a top-heavy banking sector could cause trouble if one institution went bust.
Now, credit rating agencies don’t always get it right, but they are important because their assessment of the soundness of a nation’s finances is what international investors use to set the interest rate on government loans. We should know this because the UK’s credit rating was downgraded last year. Countries including Italy and Spain faced sovereign debt crises after poor credit ratings led to an increase in their cost of borrowing – a bit like when there is an increase in a mortgage rate. Greece had such a poor rating that interest payments crushed the economy.
Unionist groups try to equate Scotland with Greece or Argentina, and when I suggested recently that a better comparison might be with Switzerland, there was raucous laughter in the Twittersphere. But I stand by that assessment, and so does Standard & Poor’s. The truth is that Scotland has the potential to be a world-leading economy with better economic security than Denmark.
David Cameron’s claim last week that Scotland would be too small to develop the North Sea’s potential and that it would have to “stand on the UK’s broad shoulders” was not only patronising, it is manifestly untrue. Norway is a small country with far fewer natural advantages than Scotland. It has a sovereign wealth fund worth £500bn.
There might be questions asked even on the board of Standard Life, if it were to leave an independent Scotland with such a sound economy. As the front pages screamed last week, the insurance giant told shareholders it was making “contingency plans” to relocate south of the Border because of “uncertainty” over monetary arrangements and regulation. This uncertainty is an entirely self-fulfilling prophecy since it is a result of George Osborne’s unilateral declaration of monetary disunion two weeks ago.
The UK Government has been manufacturing as much uncertainty as possible. It has been urging companies in Scotland to reflect this uncertainty in their annual reports to shareholders, so expect a succession of similar warnings in coming weeks. Standard Life has responded eagerly to the Chancellor’s dog whistle by apparently briefing the press that it might take 5000 jobs out of Scotland. Some internal sources suggest that the number being talked of is only 50. But who’s counting? This is politics not economics.
Standard Life made similar noises in the early 1990s over the prospect of Scottish devolution. You might have thought that would make it wary of crying wolf again – especially as its pre-tax profits fell last year by 13%. It still has a significant number of investors in Scotland, many of whom will be reviewing their portfolios. It is generally unwise for private firms to take sides in constitutional disputes, if only because they might have to deal with the other side if it wins.
Barclays chief executive Antony Jenkins said last month that he “can make it work either way” on independence, which is surely the sensible position to adopt. British Airways has also distanced itself from the debate, saying it might even benefit from an independent Scotland.
But good old Royal Bank of Scotland announced last week that it too was preparing to leave, because of the “political risks” of independence. Some might think this no great loss, given that the bank had just reported losses of £8bn, while shamefully paying its bosses £500 million in bonuses. Let the rest of the UK take on the toxic balance sheet of the bank that almost single-handedly destroyed the UK economy and has lost more than £40bn in the last few years.
But this became yet another “warning” against what headline-writers are now calling “iScotland”. Mind you, RBS seems to be both an asset and a liability. Better Together’s Alistair Darling is always saying an independent Scotland could be brought down by its banks. So why would it want to keep it?
It’s heads they win, tails we lose. It takes a huge effort to read past the alarmist headlines about monetary chaos, European Union rejection, job losses, madness and early death. But those who do could see a very different picture: whatever else it would be, an independent Scotland would not be short of a bob or two.