11 May 2014, 10:58am
personal finance:
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  • The Scotland problem

    Something’s afoot later this year, and I can’t really get my head round the finance implications. Two things are afoot, indeed, and they are loosely related from an Ermine’s viewpoint.

    One is the increased ISA allowance to 15k, and so far I’ve chosen to ignore Under the Money Tree’s sage advice and get my capital in there ASAP. Unlike UTMT I have no income and need to be more cautious at this particular stage, but more to the point I am well over the FSCS limit in my existing ISA, because unlike my Cash ISA, which is busy going nowhere, and indeed backwards in real terms, S&S ISAs tend to grow a bit over the years, which whopping heart-rending retrenchments every few years. I was fortunate enough to start just after one of those.

    And there’s an event on the horizon that might make FSCS protection more important. It’s the threat (from my point of view) of Scottish independence.

    Tomnaverie stone circle in Aberdeenshire

    Tomnaverie stone circle in Aberdeenshire

    Fantastic place, Scotland – wide open spaces, loads and loads of marvellous megalithic sites, people with a great engineering tradition and wide open spaces. Okay, so it gets brass monkeys in winter and don’t even think about going near water in July ‘cos the midges will eat you alive.

    It’s all about to get a lot better, ‘cos that nice Mr Salmond has invited the Fairness Fairy to sprinkle a bit of magic pixie dust, and he’s written it all down in Scotland’s future – Your Guide to an Independent Scotland. Here are some of the things he will bring to the good citizens of that fair country

    • Scotland will continue to use the pound,
    • guarantee that the minimum wage rises – at the very least – in line with inflation
    • a commitment to increase the personal tax allowance, benefits and tax credits in line with inflation
    • single-tier State pension at the rate of £160 per week in 2016

    More spending and less tax, what on earth is his secret? I’m not quite sure what sort of crack he’s smoking, but he clearly has a good dealer. Now I am all for the Scottish people having the right to self-determination, and there are some obvious cultural differences with England that stretch beyond football. The country is much more left-wing than the UK as a whole. There’s nothing wrong with that and indeed we might all live a little happier if we cared a little bit less about money and more about people. I can see that it sticks in the craw to have a largely Tory government when Scotland returns no Tory MPs. If people in Scotland are that pissed off with being part of the UK then they will vote accordingly.

    Now independence comes with rights but also responsibilities, and I’m buggered if I understand the sort of independence that uses another country’s currency, never mind your ex’s currency. Managing the money supply to broadly track the amount of goods and services in your economy , your appetite for national debt and foreign goods is all something you can do when you run your own currency. It’s possible that the Calvinist roots of Scotland will mean it powers ahead of the rest of the UK despite the tendency of the Fairness Fairy to run out of other people’s money, in which case with the Pound Scotland will be Germany to the rUK equivalent of  Club Med. But without the power of Germany. In that case the spendthrift English will borrow against the hardworking Scots and spend all their money until they a) access the EU and b) join the Euro in which case the Germans will save them. Until the Germany runs out of young people in about 20 years time.

    Alternatively the Fairness Fairy might start to run out of other people’s money and the Bank of England will seek to cut the supply off. That will cause plenty pain for rUK because it probably means higher interest rates, but given the relative numbers it will cause ten times more pain for Scotland. So have some self-respect, guys, and create a currency (Salmond?) ASAP and start managing your own financial affairs. What part of independence do you not understand, exactly? It’s not like we are still under Bretton Woods and Scotland can do like Australia did in ’65 and switch to the AU$ and £1=2AU$ until the 1970s. Yes, the pound is convertible and available on the open market. But like all those Hungarians and Cypriots who took mortgages denominated in the Swissie and found out how that can turn into a world of hurt the fact that you can do something doesn’t mean you should. The whole point of being independent means that you want to run things differently from the UK. Lockstepping the currency for any longer than you have to is a strange way of going about that.

    Scottish independence and the Ermine

    My problem with Scottish independence isn’t about independence as such, but the damage and turmoil that could do the the economy of the rest of the UK. What the bloody hell are we going to call the rUK then – the disunited kingdom? The Shattered State? At the moment the pound is relatively high (compared to the last few years) and that makes a case for buying foreign assets, given my ISA has a heavy home bias. It’s what I have been doing of late, to lean against that – a bit of emerging markets, a bit of Africa. I’m almost tempted by some Russia, but only a small amount. It’s hard to work out what the meaning of ‘ownership’ is there…

    However, I don’t want to open an ISA until I can open a NISA because I need to use a different company that TD. Obviously I will make sure it’s not one domiciled in Scotland, in the end if I want to open an offshore account 1 then I’d want to choose somewhere in a country that is far away from the UK and not going through birth pangs as well.

    The Ermine is not a funds sort of person, which is nice because an awful lot of funds are run by Aberdeen Asset management, and I will look at the policy of some of my investment trusts too. And I don’t really fancy having a lot of money tied up in a company in a new-born state trying to work out a monetary policy. Capital controls can go along with that. I don’t like Alex Salmond, I think he will say anything to get his own way, and I bloody well don’t want to have any money exposed to him or his world view. After the dust settles, Scotland may well be a good place to  invest – the Scottish people will be able to straighten themselves out and get to work building a country that expresses their world-view. At least with Russia you know that buying a small stake in Mr Putin and that the rule of law is tenuous; this is what the risk premium is all about. With Scotland because of the policy vacuum it’s all about unqualified risk for anybody in the rUK because we get to eat the downside with no exposure to the upside of all that Free Stuff from the Fairness Fairy.

    On the plus side, it is at points of turmoil that opportunities show themselves. So having an ISA open by August with the higher available is an exciting opportunity – sort of like the summer of 2011 but hopefully without the rioting. Scottish independence, should it happen, should be a happy event for Scotland.

    Of course it may all be a damp squib or other events like the clanking of Russian armour rolling into Kiev may cause more widespread issues. But I’m surprised the prospective breakup of the UK is met with such equanimity in the(r) UK PF scene.

     

     

     

    Notes:

    1. I know there aren’t any offshore ISAs 🙂
     
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