By the time you read this, the vote on devolution will be over. But what will happen? Let’s project forward two years to see what the National ?Republic of Scotland, or the still tied together Great Britain, may look like.
First – in the “Yes” vote camp. Alex Salmond has failed to persuade the Bank of England to share sterling and, without a track record, Europe has not welcomed Scotland into the euro. In desperation, and without the infrastructure to create its own currency, Scotland has adopted bitcoin.
This was quite a challenge to some of the rural folk who believe the only safe way to hold money is under the mattress, and resulted in regression to bartering, causing chickens to become very volatile. The upside was significantly improved tax collection as a result of the transparency of electronic transactions. Just as well, because the first 10-year sovereign bond that Scotland issued was priced at 53%. Apparently, bitcoin wasn’t particularly popular with fixed-income investors.
England didn’t fare too well either in the bond markets, with English 10-year gilts rising 100bps to 3.5%, driven by increased political risk and its weakened defence with the loss of Trident. Nor was this helped by England’s complete inability to renegotiate its position within the EU, although, with the rising risk of isolation, it did decide to maintain its status inside the EU.
On the plus side, there was an economic boost created by many financial institutions moving their headquarters to London, including Lloyds, RBS, Clydesdale and Standard Life. This assisted in the package of ‘giveaways’ that England had to find to keep Wales and Northern Ireland committed to the union, supported by a significant transfer to Cardiff of governmental jobs that were previously held in Scotland.
Back in Scotland, further rebellion over ever-increasing tax rates was quelled by a vote to become a republic. With monarchy dismissed, the Queen sold Balmoral for 20,000 bitcoins.
Unfortunately, not having hedged her currency risk, this soon became worth less than a one-bedroom flat in Battersea. In fact, property prices in London continued to rise with mass migration into the City, and the regions also benefiting from increased job creation and growing GDP.
And second – the parallel universe of the “No” vote. The unrest and dissatisfaction with the status quo caused Scotland to negotiate very aggressively on “devo-more”, with local tax-raising powers and fiscal responsibility moving to Holyrood. Wales and Northern Ireland followed suit.
Initially, this gave a boost to the economy, with increased inward investment and increased government spending as England felt wealthier and the other countries invested in services and infrastructure on the back of a growing deficit.
Soon this deficit became out of control, however, and the Bank of England was forced to provide a bail-out, with terms attached requiring future balanced budgets. England pushed for a devolution vote, but was pacified by greater local control, with only English MPs voting on issues solely affecting England.
The property market remained buoyant, and all those investors sitting on the fence flooded into the key cities of Edinburgh, Glasgow and Aberdeen, with the number of cranes on the skyline reminiscent of 2005-2006. Residential markets were also supported by the abandonment of the ?“bedroom tax”.
Salmond may have played his last key political card, but he also gathered momentum on the speaker circuit, which he uses as a platform to express his forthright views with passion.
Although I accept that part of the “analysis” here is rather tongue in cheek, there is a serious issue: rarely has something of such importance been voted on with so little knowledge of the prospective outcomes from that decision.
Taking Salmond’s own words in relation to the banking crisis, but with potentially the same applicability here: “If we had the benefit of hindsight, we’d do things differently and I am sure that is true of lots and lots of people.”
Rebecca Worthington, chief executive, Lodestone Capital
