Posturing over the pound

The debate about what currency Scotland could, would or should have has sprung into life now that the SNP's white paper proposal for 'keeping the pound' has been rejected by all of the major Westminster parties, and the Liberal Democrats too.

This represents a new stage in the debate, with the stakes ramped up for both sides. But if we sweep aside the political posturing, the debate over the last few days has revealed - to this disinterested observer - some interesting truths:

1. The establishment is worried by the prospect of a 'Yes' vote

The unity among the leaderships of the Tories, Labour and Liberal Democrats (and UKIP incidentally) reinforced by the unusual decision to publish the advice of a senior civil servant is a clear indication that the establishment is concerned about the prospect of Scotland seceding from the union.

You might argue that this consensus is a reflection that currency union is a bad idea (especially for Scotland), but Sir Nicholas MacPherson's letter and the statements of the three parties (working together for a No vote under the Better Together banner) go further than criticising currency union and contain some ridiculous scaremongering. The 'no' side - ahead in all the polls - is obviously worried though.

And it has good reason. If Scotland votes to leave and is refused currency union, it could quite legitimately reject the UK debt (a possibility acknowledged in MacPherson's paper). However, even if Scotland took a share of the national debt (based on population size) it would have a debt to GDP ratio of 81%, compared with 104% for the rest of the UK (according to an NIESR paper).

The Treasury paper implicitly acknowledges these possibilities but implicitly says the UK would get its way because "an extensive wrangle about [Scotland's] share of the debt would increase uncertainty and hence its funding costs". What it doesn't say is that is true too for the remaining UK ... and that's why they're worried.

2. HM Treasury believes the Euro is still bad for the UK

It believes that economic union is problematic without political union - and that economic independence is incompatible with currency union. In this it is right: witness how a technocrat was imposed in Italy and government policy imposed in Greece (and elsewhere) under Eurozone orthodoxy.

3. The SNP is economically bankrupt

The SNP clearly lacks the confidence to argue for an independent currency under a central bank of Scotland. Instead it wants a more familiar and convenient currency union with the UK, knowing that it will inevitably mean that Scotland would not be economically independent.

At best Scotland might get one seat on the Monetary Policy Committee of the Bank of England (given size of economy or population), and the interests of the Scottish economy would be totally marginalised (it is arguable that is the case now since the Bank of England largely operates in the interests of the City of London's square mile, but then why vote for independence only to accept the situation of pre-independence?)

As such an 'independent' Scotland under the SNP's vision would leave Scotland as a crown dependency, similar to the Isle of Man or Jersey. Given that Salmond's economic vision has previously been to turn Scotland into a tax haven, maybe that's the aim. Scotland as an outpost of the City of London?

4. The UK banks are still fragile, and if they crash again the establishment will bail them out again

The Treasury paper states "Scotland's banking sector is far too big in relation to its national income, which means that there is a very real risk that the continuing UK would end up bearing most of the liquidity and solvency risk". So the Westminster consensus still believes if banks fail they should be bailed out exactly as before. They have learned nothing from the greatest crash in over a century - their neoliberal ideology remains unshaken. The SNP does not demur from this, nor suggest the Icelandic route.

Conclusion

These points do not make the case for either a yes or no vote in the referendum. What they point out is that however Scotland votes, it will be governed by people unable to govern in their economic interests.

What is also reveals is that the referendum debate is likely to step up, with more vitriol and posturing, that will make independence negotiations more difficult if Scotland does vote yes.

Once more on the great disappearing unemployment mystery ...

Last week we reported on the great unemployment disappearing act, focusing on growing divergence between the claimant count and the ILO measure of unemployment (see graph).

But this growing disparity isn't uniform across the UK. As the chart below shows, there is a massive regional disparity between the claimant count and ILO unemployment in some UK regions, but a close correlation in others.

To make matters clearer the table below shows, for each region or nation of the UK the claimant count as a percentage of ILO unemployment:

Our 13 November analysis highlighted the growing divergence between the two unemployment measures (showing that in 1993 the claimant count was 96% of ILO unemployment, but today is only 53%.

Health warning: the figures used are from the latest ONS Labour Market Survey stats, which for claimant count are October figures and for ILO measure are July-September. However, this difference in monthly accounting does not explain the sharp differences either within or between regions.

However, across the UK there are massive disparities. So why is it that in London and the South if you're unemployed you are far less likely to claim jobseeker's allowance than if you're in the North East or Northern Ireland? And why does jobseeker's allowance reach so many more of the unemployed than everywhere else in the UK?

What explains the differences? I honestly don't know, but I've posited some options below - please leave your views in the comments ...

• Unemployed people in London and southern England are more likely to be ineligible for JSA due to household circumstances or personal savings
• Bad data - the regional data for ILO unemployment is dodgy (the claimant count won't be as it's simply the number of people claiming JSA)
• Sanctions are being unevenly imposed across different regions - disproportionately reducing the claimant count in some regions
• The stigma of claiming benefits is stronger in some regions than others
• Something else? Let us know in the comments ...

UPDATE (21/11/13): As was pointed out by Labour market stats wonk, Paul Bivand, Northern Ireland has some devolved powers over social security - and the UK sanctions data (analysed here) doesn't include Northern Ireland. So is that the answer - is it due to a less stringent sanctions regime there?