An email arrives from a concerned reader. He lives in Scotland and he wonders what will happen to him if the residents of Scotland decide to vote for independence a year from now. Will there be different currencies and, if so, which one will his (English) pension be denominated in?
And what about his online bank accounts? Who will regulate them? Will he be able to hold two currencies in them? He isn't the only one asking - and there are other questions. Will those who might end up financially based in a new Scotland still have self-invested personal pension schemes (Sipps) and individual savings accounts (Isas)? If they have an English pension, but live in Scotland, will they still get to take 25% of their fund tax-free?
What if they have a Scottish pension, but live in England? If they have a mortgage with a bank in England, will they end up with a risky foreign currency mortgage? And if they earn in England, but live in Scotland (at least one train an hour leaves Edinburgh for London every day and they are mostly full), to whom will they pay tax?
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These are tricky questions. Perhaps, says our correspondent hopefully, we can "shed some light" on the answers. Would that we could.
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Will Scotland end up with its own currency? If it wants to be truly independent, the answer to that is yes. One of the main cases for independence is, as Alex Salmond, Scotland's first minister and leader of the Scottish National Party (SNP), put it, that it gives Scotland the "the ability to make choices".
But if there is one thing that everyone has learnt from the bottomless pit of political misery that is Europe, it is that you can't share a currency and hence a monetary policy and not share a fiscal policy. And financial freedom for a country is all about fiscal policy how much to spend, how much to borrow and so on. So an independent Scotland that kept the pound would be constrained in much the same way as Alex Salmond feels it is at the moment.
Convenience would mean (I think) that Scotland would keep the pound at first. After that, it might decide to hitch its wagon to the euro just for the fun of experiencing another form of fiscal slavery, or it might go for real independence and have a currency of its own. If it does, it might peg it to the pound or the euro (rather as Denmark does) to give it a mix of perceived stability and perceived flexibility at the same time. Or it might just let it float. If so, then we can expect bureaux de changes to spring up along Hadrian's Wall. That's irritating, but I'm not sure it's a particularly big deal in itself.
What is a big deal is that without the backstop of the Bank of England, it is impossible to tell what interest rates in Scotland would be and hence to have any idea what mortgage rates will be. Mortgage rates will rise everywhere at some point in the coming decade. Would they rise more in an independent Scotland? It seems likely, given that the Scots have no history of efficiently issuing and then paying back debt. But it isn't a dead cert. The same goes for loan rates, annuity rates and savings rates. We just don't know.
The regulatory environment is also a big deal. Alex Salmond has said in the past that the financial industry in Scotland can continue to be regulated by the UK authorities. This isn't really possible with an independent currency. So how would Scottish regulation work? Don't know. There are plenty of regulatory models to choose from. None appears to work very well, so I guess the good news is that Scotland is unlikely to dream up something worse than everyone else.
On to taxes. There's an easy bit here where will you pay? You pay in the country in which you live, not the one in which you earn. We can (surely?) assume that the rump of the UK and Scotland would come up with a reciprocal tax deal of some kind, but in the end, you would pay the rates attached to your residency. The harder bit is what those rates will be.
The only thing I can tell you for (almost) certain is that they will probably be higher for high-earning readers. The nationalists talk a big game on redistribution and fairness, and like to hint at wealth taxes. So you can expect a bigger bill overall. Maybe higher-rate income tax will go up; maybe the 25% tax-free lump sum from pensions will be slashed; maybe there will be a one-off tax on pension savings or Isa savings; or maybe there will be a new super council tax.
However, I can't see the total bill being too much bigger. The SNP spends a lot of time looking longingly at Scandinavia, so it will have noticed that a good many of the high earners who work in Copenhagen actually live across the bridge in Malm where property taxes are markedly lower than they are at home.
I doubt this article will have cleared things up that much for our Scottish readers, so let me just chuck one last confuser into the mix. Much of what information we do have on what might or might not happen in an independent Scotland is handed out by the SNP. But elections to the Scottish parliament are due in 2016, not long after the referendum. Who can say that the SNP will win?
Finally, should you bother worrying about all these things at all? Most of them, probably not. The polls make it clear that the SNP has several Arthur's Seats to climb to win this one. In the end, most people prefer the certainty of the status quo to the uncertainty of a brave new world.
But taxes are a different matter. In 2016, Scotland will take control over its own income taxes, which will be deducted at source via PAYE for anyone resident in Scotland, irrespective of where they work in the UK. Those rates, says HM Revenue & Customs, "may be higher or lower than, or the same as those which apply in the rest of the UK". So now you know.
This article was first published in the Financial Times.
