Tuesday, April 23, 2013
Borrowing scrapes lower - Treasury warns Scotland on sterling
Posted by David Smith at 12:00 PM
Category: Thoughts and responses

Nobody would describe the latest figures for the public finances as good but the fact that for 2012-13 public sector net borrowing scraped in at £120.6 billion (after many adjustments), just below 2011-12's outturn of £120.9 billion, was better than it might have been.

Even relatively recently it looked likely that borrowing in 2012-13 would be up by £10-15 billion on 2011-12. The fact that it is down shows what can be achieved when the chancellor, chief secretary and Treasury officials put their minds to achieving something, moving heaven and to earth to ensure a borrowing reduction. A similar effort directed to getting borowing down more significantly would not go amiss.

These numbers will be revised over time. The current outturn for 2011-12 has jumped about a lot. The big picture is that deficit reduction has stalled for now. The underlying public sector current budget deficit, £98.5 billion in 2012-13, was up on £92.2 billion in 2011-12.

There's evidence, however, of some stabilisation in the numbers. Total receipts and current expenditure were both up by 1.8% in 2012-13. Of course receipts, being smaller, need to rise faster than expenditure. But this is better than it was. More here.

Meanwhile the Treasury has published its latest analysis on Scottish independence, relating to currency arrangements, and George Osborne has gone up to Scotland to present it. It is interesting, and has already sparked a debate.

For Scots, the big question is whether you agree with this: "The UK is one of the most successful monetary, fiscal and political unions in history. It is a union that has brought economic benefits to all parts of the UK because taxation, spending, monetary policy and financial stability policy are co-ordinated across the whole UK. This has helped us weather the recent global economic crisis because governments that are able to borrow in their own currency, and make their own political and economic decisions, are able to borrow more cheaply. And with clear political accountability, a government can quickly respond to a financial crisis."

It sets out the options for an independent Scotland:

"An independent Scottish state would have four main currency options. It could:
• continue to use sterling with a formal agreement with the continuing UK (a sterling currency union);

• use sterling unilaterally, with no formal agreement with the continuing UK
(“sterlingisation”);

• join the euro; or

• introduce a new Scottish currency."

"Each of these options would affect transaction costs, fiscal and monetary policy and financial stability in an independent Scottish state. All options would involve the establishment of new independent monetary institutions. New frameworks for fiscal and financial stability would also be necessary."

The implicit warning is that this would be a leap in the dark for Scotland: "The current currency and monetary policy arrangements within the UK serve Scotland well. A move away from the current arrangements would require a set of decisions that would affect the wider management of the economy – not only the currency but also the setting of monetary and fiscal policy. The status quo would not be one of the options. The analysis in this paper concludes that all of the alternative currency arrangements would be likely to be less economically suitable for both Scotland and the rest of the UK." The report is here.