Just who has the problem?

This concerns the most recent episode in the sequence of events since Craig Dalzell’s “Beyond GERS” (http://allofusfirst.org/tasks/render/file/?fileID=87DEEC95-C459-02D4-0248DDE75B7ADDB9). This paper, almost inevitably, drew the attention of “economic blogger” Kevin Hague (http://chokkablog.blogspot.co.uk/2016/11/data-errors-in-beyond-gers.html). Dalzell responds to this in a piece published by Wings (http://wingsoverscotland.com/out-of-the-cave/) which is responded to by “blogger Neil Lovatt” (https://rwbblog.blogspot.co.uk/2016/11/beyond-gers-goes-beyond-truth.html), and it is this which I am responding to. Thrown into the middle of it all is a highly critical reference to Dalzell in David Torrance’s SNP BAD column in the Herald on 21st November 2016 (http://www.heraldscotland.com/opinion/14917110.David_Torrance__While_skilful_at_big_picture_stuff__the_SNP_is_still_pretty_weak_on_boring_old_detail/) which is where the “blogger” references come from. In passing this is a typical Torrancism, not to let on who his “authorities” are. Hague, while he claims not to be a Unionist – rather a seeker after the truth – is persistently critical of anything that comes out in favour of independence, while Lovatt is on the advisory board of Scotland in Union. Its rather like the Dimbleby forgetting to tell us on QT when it came from Stirling on 17th November, that Merryn Somerset-Webb was not just the Executive Editor of Money Week, but, like Lovatt, on the advisory board of Scotland in Union.

Below I have reproduced Lovatt’s article. Dalzell’s comments are in red, Lovatt’s in black, and my comments on Lovatt are in green, but I will try to summarise my differences with Lovatt here to save you the pain of going through it all.

The issue is who is responsible for paying Scottish pensioners after independence? My own view on this is basically that enumerated by Steve Webb during his appearance at the Scottish Grand Committee in 2013, as reported at the time in that Nationalist rag the Scotsman (http://www.scotsman.com/news/politics/uk-mp-state-pensions-would-be-paid-after-yes-vote-1-3400799)

“State pensions would still paid after independence a UK minister has told MPs despite concerns raised by the Better Together campaign. Giving evidence to the Scottish Affairs Select Committee Lib Dem pensions minister Steve Webb said that anybody who had paid UK national insurance would be entitled to their state pension whatever the outcome of the referendum. He said: “Citizenship is irrelevant. It is what you have put into the UK National Insurance system prior to separation, answer 35 years, that builds up to a continued UK pension under continuing UK rules, the question is who is paying for it, but they are entitled to that money.”

Following this line of thinking, means that immediately post-independence pensions in Scotland would be paid by the UK govt, or only funded by them, the actual payment being made by the Scottish govt since the White Paper suggested that pensions made in Scotland would be more generous (eg if there was a higher rate in Scotland, then the payment to a pensioner would be part funded from the Westminster government + the Scottish “top up”).

Gradually of course this would change as people become of pensionable age who have spent some portion of their working lives in an independent Scotland, which would have received contributions from them, and thus created a liability for their pension to be paid in proportion by the UK and Scottish governments. In due course all payments would be paid by Scotland.

Lovatt is attempting to rubbish this in several ways

  1. The key problem is that he creates a contemporaneous link between who is entitled to a pension and who pays the pension, so that he can argue that English tax payers would be seriously pissed off about having to pay the pensions of people living in Scotland, some of whom (like me) voted for our independence and continue to leach off of them (as they would see it). But the reason for this is the manner in which the UK pension system has always worked – it has always been pay as you go – that contributions paid today are used to pay pensions today. Someone in receipt of their pension today is entitled because of the contributions they made in employment before they reached pensionable age. For instance, at one point I was making my contributions to my mum and dad’s pension. Now my kids will be making their contribution to my pension. What Lovatt plays on is that after independence, Scottish pensioners who have got their 35 years in, and have a claim against the Westminster government (as stated by Steve Webb) would be getting paid by tax payers in rUK. What he fails to pay any attention to (accidentally or otherwise) is that these Scottish pensioners have earned that entitlement through making their contributions to the UK NI system as required by the laws in place at the time. Of course that law could be changed, but it is very difficult to see how that could be done retrospectively. The issue then is not who pays, but who holds the liability and thus must pay.
  2. He muddies the water by treating funding paid by the rUK govt to pay Scottish pensioners their UK pensions by suggesting that rUK would never pay Scotland to pay its pensioners. But this would only be the Scottish govt acting as an agent – taking a very large payment and paying this to pensioners in Scotland for and on behalf of …. It would not be a payment for the Scottish Government – it would only be doing the delivery. What is fundamentally important is the liability for rUK to those pensioners, though I have no doubt the Daily Mail would make much of it, leaving out much that is important.
  3. Remarkably but conveniently from his point of view, Lovatt suggests “Pensioners will be designated as an rUK pensioner or an iScottish pensioner at the point of independence based on the residence at that time”, but of course the problem here is, to take a specific example, that if Sir Nick McPherson – former PS at the Treasury – decides to spend his retirement up here at the family but an’ ben – having been a Whitehall mandarin all these years – under this rule, he would get a Scottish pension. Indeed, would there not arguably be a motivation for an rUK to pack as many pensioners off to Scotland as they possibly could just before independence?
  4. Of course, the UK could change the law so that Scottish pensioners won’t get their state pension. But, how could that be done without roping in pensioners who live outside of the UK, but not in Scotland (eg in in Alicante, but not Airdrie) is not explained, unless of course a UK pensioner could go off anywhere in the world, just not Scotland. Moreover, Lovatt gets himself in a bit of a tangle, trying to avoid this one, when he says elsewhere that an rUK pensioner could come to Scotland and their pension would follow. This of course creates an image of Scots moving down to somewhere in rUK just prior to independence, securing their pension and then moving back up. What a tangled web they weave ………………….
  5. It is always difficult to argue with commentators such as this (Hague too is a good example of the genre) because Lovatt starts from the presumption that he must be right. For instance, we are told early on that there will be a “separate debt agreement” with Scotland. This is set out in relation to Dalzell’s claim that in international law (and he is only repeating what is in the UK’s govt legal advice for the 2014 referendum) that as a continuator state the UK gets all the assets, but also all the debts. But none of that matters to Lovatt – there WILL be a separate debt agreement. Scotland WILL accept its share of the UK’s debt, even if the UK claims continuator status. The claims of the Westminster government pass by pretty much without comment, when the claims of supporters of independence are shown to be wrong (to his satisfaction at least) or are comprehensively rubbished by association with their author. Dalzell apparently clearly knows nothing at all about pensions while Lovatt has been a pensions adviser! Moreover, that “agreement” (his word) will be the outcome of negotiation between Scotland and rUK, whenever these negotiations take place, and Lovatt seems to know the outcome already. Some guy! I am reminded here of some advice that Professor Einar Thorsrud, (https://en.wikipedia.org/wiki/Einar_Thorsrud) who was a Norwegian psychologist at their Institute of Psychology gave me when I had the privilege of meeting him when I was a very new postgraduate student at Glagow University. He advised me that if you go out looking for something you are very likely to find it. In other words, we need to have open minds and be guided by, or follow, the data. This is not a practice of such as Hague or Lovatt, who don’t even go out looking for something – they start from it and work their way back.

    One last point. You will notice that Lovatt first refers to a point 4. Therefore, Dalzell has points 1-3 in his Wings article. Hague remarkably perhaps, has nothing to say about them, though he had much to say in his first piece. Can we assume therefore that Hague agrees that the data sources used by Dalzell were appropriate (it’s a bit much complaining about not using a data set which at the time of writing Beyond GERS had not yet been published); that there would not be cuts to the money spent in Scotland on defence; and that there would not need to be rises in income tax, or at least only in income tax, and that instead we could not have a more effective tax system? It would be nice to think so, but probably not.

The red bits are Dalzell’s originals as used by Hague, while the green bits are mine.

Beyond GERS goes Beyond Truth

Craig Dazell has a problem. 

Whilst the author of Beyond GERS could plead ignorance of the facts whilst he wrote his badly researched essay he can’t do so now. He’s openly admitted that he’s read the critique by myself and Kevin Hague. 

So what was his response? Did he take on the criticism and amend his conclusions or reframe his perspective in light of the corrections? No, of course not, this is a post-truth author. He just doubled down on his own flawed conclusions and believed that simply typing out the same points, whilst throwing in a few strawmen will justify his errors. 

But he has a problem. In doing so he’s lost any ability to claim ignorance and moved firmly into the realms of deception. 

His response to the blogs falls into a few points two of which are largely aimed at my critique on debt and pensions (the two areas I have professional qualifications in and have worked with for 20 years) I’ll deal with both in detail here:

4. We’d Be Defaulting on the UK’s Debt

Oh dear. This isnt a good start. Had Craig actually bothered to read the point being made he would know that the position is that if there is any defaulting it would be an independent Scotland defaulting to its debt agreement with rUK. 

Actually if you read the paper, Dalzell is arguing much the same point as you – we don’t have a debt to default on. The debt belongs to the UK

No one disputes that rUK would be guaranteeing the current UK’s debt, however post-truth authors continue to ignore the fact that at the same time as the UK guaranteed its debt it also stated that a separate debt deal between an independent Scotland and rUK would be set up on independence. Therefore there is no question of an independent Scotland being able to default on the UK’s debt, missing this sort of detail is just typical of Dazell’s shoddy kind of attention to detail. 

Quite a laugh when its you who misunderstood what Dalzell was arguing. Or since I have more respect for you than that, chose to misrepresent him for your own reasons.

The stated objective of the Westminster government in the 2014 campaign was to have the rUK recognised as the “continuing” or, at least, the “successor” state to the United Kingdom (the difference is largely semantic. In the former, the UK would continue unchanged in law but with reduced territory and perhaps a change of name. In the latter, the UK would strictly cease to exist but rUK would inherit all of the rights and obligations of the former state) and for Scotland to be recognised as a “new” state (The link prior went so far as to claim that the 1707 Treaty of Union “extinguished” the country of Scotland as a legal entity despite the UK describing itself to the UN 2007 as being composed of “two countries [Scotland and England], one principality [Wales] and a province [Northern Ireland]”). 

Here Dazell get’s confused between a state and a country. You would hope that this basic sort of point would be apparent to him. 

Really? Try this http://www.infoplease.com/world/statistics/state-country-nation.html and you will find “Country and State are synonymous terms that both apply to self-governing political entities. A nation, however, is a group of people who share the same culture but do not have sovereignty. Oh dearie me! In any case, it’s hardly an answer to his point, though is it? In fact the UK shot itself in the foot (and several other places) with their International Law paper published in 2013, where Profs Crawford and Boyle work through – as Dalzell suggests in the next part of his article – suggest that the most recent instance of a state breaking up was the USSR/ CIS where Russia took all the assets (including the nuclear weapons as the international community might have been frightened having them, but not as frightened as if some of the other states had taken their share) but also all the liabilities. You might remember Michael Moore whining, on the day the paper was published that he hoped “Scotland would do the right thing” and take its share of debt.

This state of affairs would carry with it significant advantages for rUK – notably, it would lessen any serious challenge towards their holding the UK’s permanent seat on the UN Security Council which was the case when Russia became the successor to the USSR – but carries with it many obligations also. The historical precedents are clearly laid out and extensively referenced in my paper Claiming Scotland’s Assets but readers should also consider G.F. Treverton’s book on the subject Dividing Divided States.

Essentially, where one country successfully claims “continuing” or “successor” status then it accepts that all of the mobile debts and assets of the former state belong solely to it (non-mobile assets like mineral rights, military bases and public buildings – including public companies and any mobile assets deemed essential to their running – are almost always split geographically). This means that a “continuing” rUK owns all of the UK’s debt in its own name. Scotland can no more default on them than can a former lodger default on your mortgage.
Absolutely. No one (mentioned here) is arguing otherwise. Dazell has set up a rather obvious strawman to deliberately avoid the point being made largely because he cant answer it. The UK has stated clearly that an independent Scotland shall have a separate debt agreement with rUK. This isn’t something that is optional unless Dazell wants to explain how it would be possible for an Act of Independence to pass through Westminster without a debt agreement as part of it. Why would rUK MPs give Scotland a free pass on debt that it has helped to build up over 300 years? 

Because when a state divides then part of it may claim all the assets but they get the debts as well. The last 300 years are less important than going forward. In any event, whatever passes through WM will be the outcome of an agreement between Scottish and rUK negotiators. Your foresight is remarkable. Am I saying this is not what will happen? No, I am not. But I do wonder at your certainty that it is pretty much inevitable.

You make several mistakes of your own here on top of that. Dalzell has set out the position in international law, but you simply sweep that to one side. Does international law not matter? You sound kind of like Fox or Davies when they argue that “of course” the EU will continue to allow the UK access to the single market even if the UK does not allow that pesky free movement of people. In short you talk as if the UK has a free hand when the reality is that it does not, as it is subject to international agreements and precedent the same as any other state.

Secondly, that we would have a separate debt agreement was not the position of the UK govt all the way through the last referendum. Their initial position was that the UK would be the “continuator state” (to use Crawford and Boyle’s terminology). Then when they realised this would land them with all the debt, they shifted to a position where liabilities and assets would be shared out (which I think is where you are now). But of course, they could not even stick to that position, as, for instance, Hammond told us we could not “cherry pick” defence assets. Then we were told that institutions such as the BBC were core to the UK state and could not be shared. I think it unlikely that we would want the BBC, but the fact is that it has an asset value – for instance I think there would be a quite a few noughts at the end of a valuation of their back catalogue. How many times will Fawlty Towers, for instance, be repeated in how many countries. Just one programme! In there will be the question of who funds the pensions, for there is no doubt that anyone who attains pensionable age before independence has a claim on a UK state pension, just as folk like me who spent their career in the public sector have an ongoing claim to their occupational pension. How those liabilities and assets would be shared out, I have no idea (nor does anyone else). But as pointed out by Craig Dalzell, given the value of much of the UK’s assets (other than the non-mobile ones), we might decide it’s better that the UK keeps all the assets, but also the liabilities.

In other words, Mr Lovatt, the certainty of your critique of Dalzell at this point carries about much weight as the certainty of the Brexiteers.

One could argue this case, but it’s not credible and certainly isn’t credible for a group claiming to take a realistic approach to independence to argue it. 

Why because you say so?

Now, if the side negotiating on behalf of the UK wishes to make the case that Scotland should take on a share of debts, perhaps by offering a share of assets to their value, then this is something that Scotland could consider, accept or refuse. There is a very good case to be made that Scotland doesn’t actually need or want a population share of the UK’s mobile assets. 

Another attempt at a strawman on debt. The UK has stated that an independent Scotland would get a geographic share of UK assets (that’s all the land and natural resources in Scotland) and a population share of our financial assets (gold and FX reserves) – which is about £2-3bn on a net liability basis, which I’ve already corrected Dazell on. Alongside this we get a population share of debt. That’s about £130 billion of debt. 

As above, that is the UK position. It is not holy writ or anything like that. Your certainty is admirable but without foundation.

This isn’t optional. This isn’t something that a proto-independent Scottish government could refuse and then expect the Act of independence to pass through the UK Parliament. 

Oh come on – now you are only being ridiculous. There will at some point be an Act to put into effect whatever May et al can secure from the EU. What if they say “No. we want xyz instead”. Do you think the EU is going to fold and say “Ok then Westminster”. As Harold Wilson once said “Politics is the art of the possible”.

We may need a few £billion worth of military equipment – assuming we can’t buy newer or more appropriate equipment elsewhere. We may need a couple of £billion (those stalwart supporters of independence, Scotland in Union, estimated not more than £1 billion) to set up essential government departments currently lacking – assuming we can’t borrow the money at better rates on the open market. We may need a couple tens of £billions to support our new currency and set up the investment banks we’ll need to start rebuilding our economy. 
Where do these ‘tens of billions’ come to support our new currency? Does Dazell really believe that a new Scottish state could tap the debt market to borrow in debt denominated in the new currency to defend that new currency! He really does not understand how markets work. 

The main issue for lenders is that they want comfort that they will get their money back, along with their interest. I accept that as a new state there might be some premium to be paid on independence. But a new state with no debt must be an attractive option.

After that, it really does start to become a stretch to consider what other assets we would actually need which would justify accepting over £130 billion worth of debt. Answers on a postcard on that one please.

The assets we would need would be the geographic assets of Scotland (say the north sea for instance), these are current UK assets. Dazell (quite deliberately) completely fails to understand this point. Once again on independence Scotland gets the physical and natural assets of Scotland and a population share of the financial assets and liabilities.

The international law of the sea makes quite clear that the great bulk of the oil – certainly no less than 90% belongs to Scotland. Your point, other than indicating the current reality, in the event of Scottish independence is totally fatuous. You could do worse than starting off with a read at this