Would an independent Scotland be facing a crisis like Liz Truss's mini-Budget?

IT’S hard to know where to start with the crisis created by the current UK Government. Speaking to multiple international economists and policy analysts, there is one universal agreement: this is the worst crisis the UK has faced in the last 30 years.

Yet, despite the burning car crash that is the UK, the drunk driver behind the wheel still somehow manages to stumble out of the wreckage, point to the mess, and proclaim "this would be much worse in an independent Scotland”.

Pointing to your own failures as a negative of your opponent is politically helpless in the long-run – voters will simply not buy it. But let's for a second pretend this argument is credible and explore it in more depth.

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Once again we turn to the questionable minds of the pro-Union think tank These Islands, specifically Sam Taylor and John Ferry. They took to social media to claim that the struggling UK economy is evidence that markets would "punish" an independent Scotland, and that recent days have shown logical gaps in Modern Monetary Theory (MMT).

Taylor claimed: "Financial markets will punish fiscal irresponsibility, and Scottish independence would be fiscally irresponsible on a vastly greater scale.”

Unfortunately for both Ferry and Taylor the logic of their arguments was already debunked by various economic experts, including Professor Bill Mitchell, Professor Stephanie Kelton, Nathan Tankus, and Brian Romanchuk. Let's break it down.

The Bank of England's Intervention is Not Extraordinary.

The Bank of England's move to purchase long-term debt (40-year gilts/bonds) to make markets "orderly" is not a dramatic or a revolutionary move. In fact these purchases are quite common to stop the volatility of interest rates, and is one of the main tools a central bank has.

When we say that central banks want to keep markets "orderly", we are talking about government policies and prices being consistent. One of the principles of that – MMT economists explain – is that without government/central bank intervention (remember, the central bank is an arm of the government) then bond markets would go array.

This is where the problem lies with the UK recently.

First, the UK Government's mantra of "balanced budgets" was completely flipped under Liz Truss, with the government deficit now suddenly exploding due to a proposed tax fall of £45 billion (now reversed after public backlash), and committing to spend a further £60bn every six months to tackle the energy crisis.

Twelve years of government policy was suddenly flipped on its head, and market confidence simply dropped.

Secondly, the Bank of England is not used to a combination of Quantitative Tightening and rising interest rates, and neither are markets. The central bank should have foreseen the potential for market confusion and started its purchasing of long-term debt *before* bond rates began to rise to 5%.

The slow reaction from the Bank of England to tackle interest rate volatility was, again, a policy choice. Once the central bank announced its purchases of long-term debt, sterling immediately began to appreciate against the euro and the dollar, with bond rates falling to 4%.

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Would an independent Scotland face these similar issues?

That's trickier to say, as we'd have to make various assumptions about Holyrood's monetary policy over a Scottish central bank. But we can safely assume that first, Holyrood would not have endorsed the insanity that is Trussonomics. That alone would put an independent Scotland in a far more stable position compared to the rest of the UK.

Secondly, we know that, if needed, a Scottish central bank has the ability to tackle market worries. Just as the Bank of England has done, a Scottish central bank can push out speculators with its policy tools, thus being able to drive up bond prices and drive down interest rates. Interest rates are policy variables – they are not dictated by markets.

It's Not Markets You Should Worry About – It's the UK Government.

The UK Government is about to entail huge spending commitments – previously estimated to cost under £300 billion. Whilst big spending commitments are themselves not problematic, they are when they show little sign of tackling high inflation, the UK's struggling supply networks, weakening productivity, growing private debt bubble, emerging housing crisis, growing mental health crisis, and under-funded public services.

If you were to ask Prime Minister Liz Truss what the vision behind the “mini-Budget” plan was, she would tell you "growth".

What kind of growth? "Growth."

What does this growth look like? "The Growth kind."

Okay but what does it do to fundamentally support or reshape our struggling economy. "It grows it with growth."

Once we peel away the "growth" headline we get to the bottom of what Trussonomics means.

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Whilst in most developed economies the top 10% earns 3x more than the bottom 10%, the recent mini-Budget is to explode this – with the top 10% earning 5x more. The very poorest in society will save zero, literally nothing, from recent tax changes, whilst the top 10% will save £90 a week.

Once we consider dividend tax cuts, basic rate cuts, and health/social levy cuts, the highest earners will have saved almost £10,000 over the next two years. This means that in countries like Norway, Switzerland, Austria, Denmark, or the Netherlands, most of the poorest in society can still somewhat maintain a decent lifestyle. In the UK the opposite is true – financial or health security is almost non-existent.

Even with the U-turn on scrapping the top rate of tax, the richest in society will still be better off by around £2300 a year, whilst those at the very bottom will see a benefit of £13 a year. With high-sky inflation, that £13 benefit vanishes in real terms.

It is no wonder then that Bank of England data shows that credit card borrowing has increased by almost 20%, an increase not seen since the start of the early 2000s. Where the government has failed, now many people turn to private credit and build private debt – the ingredients to a recession still predicted to kick off at the start of 2023.

If you are in Wales, Scotland, Northern Ireland or even North-England then the mini-Budget effectively told you to get stuffed – as households in the East, South, and South-East of England will benefit from these measures three times more (£1600) than any other part of the UK.

On top of this, the failure of the UK Government to seriously tackle inflation, or to increase the block grant in real terms, means the Scottish Government's budget is worth £1.7 billion less in real terms.

Whilst the Conservative zealots at Westminster seek to rehabilitate the zombie economics of the past, I'd suggest Scotland seek a different path. But choosing a policy path to best fit our needs requires one thing common amongst most developed democracies across the planet – political independence.