Six months ago, you couldn’t get anyone from the south of the UK remotely interested in the idea of nationalists in Scotland winning September’s referendum. It won’t happen, they would say if asked, and then go back to one variety or another of their comfortable conversations about house prices in the Home Counties.
That’s changing. Regular readers will know that I judge the wider interest in various subjects (and often the investment implications of them) by what arrives in my email inbox.
Until last week, I had received absolutely no detailed pieces of research on the financial and investment implications of a vote for separation. Now I have four very good (and generally unbiased) ones.
I have also accepted invitations to speak at two more events on the matter and note that there are another three lurking in my inbox. At the same time, I’m getting more questions from readers about what a separate Scotland might mean for them.
The most missed point in the debate is that whichever way the actual vote goes, Scotland is likely to become increasingly fiscally devolved – and hence separate.
At the moment, it raises its own non-domestic rates and has the right (as yet unused) to vary income tax by 3p in the pound. But from 2015 (assuming Scotland stays in the Union of course), it will have the ability to vary income tax by 10p in the pound and to raise its own stamp duty land tax. And that’s just the beginning.
All the parties are out and about promising more and more devolution. ‘Devo plus’ would hand over the right to put in place wealth taxes, to control corporation tax and to collect fuel, tobacco and gambling duties.
Then there is the thing that the majority of Scottish people say they actually want – ‘devo max’, a system that would involve Scotland also taking over the raising of VAT and National Insurance and that would be effectively identical to independence (except that Scotland wouldn’t control debt financing or defence).
The point is that the uncertainty we all worry about so much after a vote for separation is coming anyway – readers resident in Scotland might not have to worry about getting new passports if the unionists win in September, but they will still have no idea what kind of Scotland they’ll be living in three years from now.
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This brings me to the second most missed point in the debate so far: the fact that all the numbers everyone uses to make the financial argument are no more than rough guesses.
The Government Expenditure and Revenue Scotland (GERS) numbers come in a long and boring document. But the good news for those of us who have to read these things is that you don’t have to spend much time looking to realise that you don’t have to spend much time looking at them.
Why? Let’s look at the revenue numbers, since understanding the tax that Scotland will be able to pull in from 2015 onwards is pretty vital to figuring out how successful any devolution can be.
According to GERS, total revenues in Scotland from 2007 to 2011 came in at 8.3% of UK GDP every year. They fell a little in the most recently available numbers to 8.2%, but you get the idea.
GERS then adds in a number for the oil revenues that Scotland might have if it were independent and comes up with a number of somewhere between 9.3% and 9.7% every year (9.7% being the most recent number).
The prime minister has admitted his appeal is limited in Scotland, but sees his role as reminding Scots that the English have “a voice, but not a vote” in the referendum and that they want their northern neighbours to stay in the Union.
I asked James Ferguson of The MacroStrategy Partnership to have a closer look at this for me for the simple reason that the numbers appear remarkably convenient: the Scottish population is about 8.3% of the UK population and the Scottish share of UK total managed expenditure is about 9.5%, so these numbers have Scotland raising and spending what looks like exactly the right amounts.
His response was pretty straightforward. He points us towards the notes to the numbers which say that, save for a few local revenues, “separate identification of most other revenues for Scotland is not possible. GERS therefore uses a number of different methodologies to apportion tax revenues to Scotland. In doing so, there are often theoretical and practical challenges in determining an appropriate share to allocate to Scotland. In certain cases, a variety of alternative methodologies could be applied each leading to different estimates.”
It is, says Ferguson, a “pretty blatant case of starting with the answer and working out the more granular line-by-line ‘estimates’ backwards”.
No economic figures are entirely accurate, but this is different: the basic revenue numbers are more or less guesswork, to which is added an so far entirely un-negotiated share of UK oil revenues.
So there you go. I’m giving you one less thing to think about: you can now happily ignore all the financial arguments for a separate Scotland on the basis that no one knows what they actually are.
There’ll be more on what you should or shouldn’t do about all this in coming issues of MoneyWeek. But for now let’s go back to basics. If Scotland is genuinely expected to vote to divide with all that implies (higher mortgage rates, possible wealth taxes, a new currency, land reform, the likely end of super-low rates and Help to Buy) would house prices be rising quite as fast as they are?
Note that the average Scottish house price is now a mere £3,900 below its nominal peak – up just over 4% in the past year. And would estate agents be reporting bidding wars over one-bedroom flats in the nicer areas of Edinburgh and surges of external buyers?
Probably not. We might be better off ignoring the polls and just watching the only thing we all care about anyway – house prices.
• This article was first published in the Financial Times.