Scottish economy a Swinney success as UK enters stagflation

A piece I did during my tenure at Newsnet Scotland. I will resume publishing under the title Scottish Times.

The good news in Scotland is that the economy grew by 0.5% in the third quarter of last year but the bad news is that in the fourth quarter of 2010 the UK economy contracted 0.5%, according to the Office of National Statistic (ONS).

Economic growth right now may be a blessed relief for Scottish job-seekers and businesses although the bitter-sweet reality is that Scotland must face cuts to its block grant from Westminster in order to pay for the UK's spiralling budget deficits.

UK crises deepen

If you are in the habit, as most are, of swallowing the mainstream media's economic analysis whole then you will now know that the UK economy has gone into a "shock reverse". Apparently "analysts" had predicted modest growth and told us that the UK was experiencing a fragile recovery. Suddenly "analysts" are telling us that the UK economy is already showing symptoms of stagflation. This is when prices rise but growth contracts.

A shock turn of events? No.

Readers of Newsnet Scotland will note that this outlet was never on-message and the 'recovery' meme was never pumped out for mass consumption and distraction here. Indeed two years ago when the "green shoots of recovery" baloney was being disseminated as if it were one of the ten commandments this observer warned elsewhere that "analysts" were smoking those green shoots.

Just to recap. In 2008 the financial crisis happened because of the implosion of the rapid expansion of a fraudulent market in financial products called derivatives. This market was valued globally at around £500 trillion. To put this in context, global GDP at the time was around £50 trillion. Not everyone understands money on this scale so think of it this way: imagine you earn £1 per year and from that you have to pay taxes, pay the rent, eat and pay your bank charges. At the end of the year you have managed to save 5p (well done, most are already using behind on credit card payments). Then someone tells you that you suddenly have £10 debt to pay. How long will it take if you can save 5p every year to pay off that £10 debt? 200 years and that's excluding interest. That's the situation the world is in.

Now draw a deep breath because the worst is yet to come - Britain was the epicentre of the derivatives market. The City packaged and sold the majority of them around the world. Hence the "global crisis".

To put it another way, the UK financial sector is dead. They are being allowed to hide those losses so that they are not forced into liquidation. Meanwhile the government is borrowing like a drunken sailor and the Bank of England is printing money like confetti to keep the banks on a life-support machine.

Keeping the City on life-support means the UK economy is being squeezed and the pips are starting to squeak. Printing money, for a short while, feels like economic growth but it's debt and illusory economic performance. The outcome is devaluation and so we now have the situation where sterling is nose-diving and products are becoming more expensive. Inflation is nearing (officially) 5% while at the same time the economy is contracting - this is the definition of stagflation.

The citizen of Britain PLC has money which is rapidly losing value as the UK government gets out the epson money printing machine and goes to town. That's really dangerous not to mention worrying if you're a pensioner or low paid. That's life in the UK; banking buddies of the political class in London get socialist state hand-outs to the tune of trillions of pounds while the poor get the capitalist medicine - pull your socks up.

If it were all that easy it would simply make you livid. However the real problem is that all this money the government is borrowing to keep the banks going has to be paid for. In the single month of November 2010 UK borrowing reached a record £23.3 billion and the trend line is upward. Government tax receipt showed a small recovery last year but that is clearly dependent on the government pumping more money into the economy.

What's so worrying is that as tax revenues are not recovering owing to economic growth then how is the UK supposed to be able to keep paying back the money it's borrowing - and with interest? The point of bankruptcy has been reached. UK PLC is printing money to pay its debts. It may only be a matter of time before those who own long terms UK debt realise that they will be repaid in devalued currency and dump their UK bonds before everyone else does. That means currency collapse and capital flight ala Argentina circa 1999.

What about all the indicators and stories of recovery? Ok, think about it. All the borrowed/printed money is going to the City. Where are the "analysts" based? All the borrowed/printed money is going to the financial sector. Who do "analysts" work for? And why is it that when the government borrows money which then enters the economy and is spent then that money is not subtracted from GDP figures? You know, the figures which show "growth". And why are the unemployment figures massaged for that matter?

I'm sorry to have to tell you this but the mainstream media is pumping you full of propaganda.

Now, I doubt very much that the Scottish growth figures can be trusted because UK government borrowing is not subtracted, but official figures do show that fiscally the Scottish economy shows a surplus while the UK deficit is now completely out of control. Make no mistake, borrowing is premised on growth projections so that the principle can be repaid with interest. That's why the government does all it can to protect the population from the truth. Money printing and devaluation makes the economy look like it's growing on paper but that's nominal growth not real growth. Real growth was probably last achieved in the UK in 1976. Ever since then Britain has used the credit card to party on and they had future oil revenues so the credit card company were happy to extend credit, but that's all over now boys and girls.

There are calls for the Osborne to do a U-turn on economic policy but let's be clear 'austerity' has not started yet. The problems being experienced now are caused because of the banks. Yes, the wars and the missile systems are exorbitantly expensive but the reason the economy is going down the tubes is because of the bail outs and debt.

Opposition and trade-unions will argue for stimulus which means add to the debt meaning more of the problem cures the problem. You can't cure an drug addict or a ideologue by giving them more of what they want. Stimulus suits the financial sector and that's why it was and still is current economic policy. Stimulus sounds good but don't forget it's debt and keep in mind that Britain PLC is printing money to pay its debts.

Mervyn King (BoE) is warning of 5% inflation. The key mandate of the Bank of England is to keep inflation below 2% so why are interest rates not rising? Believe me, there's more inflation coming. You can't print money without prices rising eventually. Commodity prices around the world are surging. Prices like sugar and silver are skyrocketing and these type of commodites go into everything you consume such as chocolate bars and mobile phones. There's a time lag before rising commodity prices hit the main street but it's starting.

Inflation figures can be massaged too, but let's say the official rate goes up to 6% by spring. "Analysts" will start to panic about inflation rising very quickly. Interest rates will then be used to reduce the supply of money in the economy to bring down prices. Now with public and private debt at 449% of GDP and with the government already printing to pay debts how are interest payments going to be met?

In Scotland around 5% of the population, or 207,500 people, according to Shelter Scotland, are already using credit cards to pay their mortgages. So what happens if mortgage interest rates spike by say only 2%? I prefer not to imagine it.

Ugly stereotypes will be peddled from the London media as the UK government seeks to blame the economic malaise on subsidy junkies up North, the EU, the Welsh, the immigrants and yes, the poor will be blamed for being lazy. All this already happens so just imagine the magnification of those images in the dishonourable dash for political cover. Expect a rise of extreme right activities.

Scottish economic debate

As I said, the good news is that Scotland has an economic surplus in its accounts. It really is remarkable how Scotland has managed to remain in robust economic shape during the crisis and that is testimony to the sound economic management of the SNP government in Holyrood.

Our national parliament has few of the powers needed to effect real economic change but those which it does have are being handled more than capably by Alex Salmond and John Swinney - credit where it's due.

Large corporate businesses, and the parties they donate and lobby heavily to, have a dispropotionate influence over how economic news is reported. What the mainstream media seldom tells you is that the health of the private economy is essentially down to small businesses. Many more people work for small companies than large corporates and so the small business relief policy has been an SNP economic master-stroke. It is the probably the single most important reason that Scotland remains in surplus.

In order to help small companies compete with giant retailers the SNP introduced into its budget a levy on the the big out-of-town supermarkets. The move was well received by Scotland largest business organisation the Federation of Small Business. Today, it was voted down by the Unionist opposition parties which perhaps is a reflection of where supermarket polical donations will be going in the run-up to the Holyrood elections.

The Nationalists have also, after a suspension lasting a generation, undertaken council house construction projects and the Scottish construction sector is now contributing to Scotland's economic growth.

Crucial to protecting families and communities has been the SNP's freezing of council tax payments. This has saved family budgets from being plundered and so with a little more to spend in the shops small retailers have been thrown a lifeline to support them in times of UK crises. To prevent council services from being cut the party has achieved public sector efficiency savings especially by making public sector procurement more efficient. This is, for me, one of their most impressive achievements in government demonstrating ministerial capability and sound management.

Austerity

I mentioned above that the current parlous state of the UK economy is not related to austerity. That is not to say I think austerity will help. Indeed, I believe it will cause further economic decline.

Throwing hundreds of thousands of public sector workers on the dole and slashing benefit payments is the wrong way to deal with a problem caused by the financial sector - especially wealthy finance houses. Look no further to the collapse of the Irish government to see where this policy will take us. With the private economy contracting how will the burden of the austerity cuts be borne? Now, you can argue that cutting down the public sector is a good idea and that's a valid poltical viewpoint to hold under normal circumstances. However cutting public sector jobs and services at the same time as a private sector contraction is the economics of the madhouse.

Laid off public sector workers will have to be paid benefits. Many struggling to pay their mortgages will experience repossession. And with salaries gone and benefits cut there'll be less money going into the shops, already suffering from a VAT hike, and so there'll be a further drop in retail sector jobs. And do not public sector workers pay taxes? You might deduct their salary from the cost of running government departments but you must at the same time calculate the hit on the Treasury in terms of the consequent income tax revenue and VAT receipt losses.

Holyrood Elections

With the Holyrood elections looming, the UK sovereign debt, currency and financial crises will be the central theme of the campaign.

In the red corner will be disgraced former leader Wendy Alexander priming Labour spokespersons on the benefits of the Scotland Bill. Internationally renowned economists and academics have characterised the Scotland Bill as "fatally flawed", "unworkable" and "a perfect storm".

Adding to the opprobrium being heaped on the Scotland Bill this week saw the Institute of Chartered Accountants of Scotland (ICAS) claiming that the tax changes proposed by the Scotland Bill could mean a “disproportionate” amount being spent on collection and a backlash from workers who consider them unfair. The institute calculates that anomalies in the system could see an epidemic of evasion costing the Scottish taxpayer £150 million. The Scotland Bill is widely perceived as a Unionist project designed by opposition parties to prevent significant new economic powers being transferred to the Scottish parliament.

Economic independence, as espoused by the SNP, is very popular with the Scottish electorate. The Scottish Social Attitudes Survey 2010 showed that 57% of Scots would like their parliament given full control over Scottish taxes and 62% full control over benefit payments.

Economic indepependence would see Scotland fiscally protected from the dire UK economic situation and is supported by a large number of business leaders, economists and academics. Such shelter would be welcome news for Scottish families, businesses and institutions such as the university sector all of whom must now plan for Westminster austerity cuts.

Alex Salmond's cabinet has shown itself to be very competent and many commentators who are not aligned to the SNP will tell you that, albeit privately. Despite the SNP minority government facing a hostile and often feverishly anti-independence media the party has survived its first term with dignity and kudos. Many in Scottish civic society have praised its professionalism and commitment to the nation.

Salmond and his advisors must then point not simply to their economic successes but to get re-elected they must compare the healthy state of the Scottish economy with the UK's crises. Yes the Nationalists really only benefit from upbeat messages, but if they must be sparing in their criticism then negative criticism must be spared to point out that the UK's deficit was caused by the Labour party. That will give them the opportunity to ask the electorate to think twice about believing that Labour can be believed to solve a problem that Labour themselves caused.

For Gray, economics is not his strong point and to win control of Holyrood he must defeat a popular and charismatic sitting First Minister who is a former economist. Gray's strategy then must be to avoid the subject when possible and when he must simplify his message and use Labour's ubiquitous influence over the mainstream media to focus all the blame for the UK's economic crises on the ConDem coalition.

As far as the electorate is concerned the next electoral term is not about getting elected but keeping a roof over the head and food on the table.

Scots will have to decide whether they believe that the size and prestige of the British economy and currency is going to help their family survive and prosper over the next few years or whether they they should opt to have their own parliament take the important decisions over the Scottish economy.

The propaganda is thick when it comes to politics and economics and so deciding how to vote will be a difficult decision to make. In times of crises people tend to be conservative but when you are on a sinking ship and you see a lifeboat, radical and decisive action is widely believed to be an appropriate response.



News Scotland

Egyptians versus Israel

It goes on. The demonstrations in Egypt are about deposing the Mubarak regime. The people are waiting and waiting for Mubarak to go. A stalemate has been reached. Clearly, the US is trying to manage the situation in order to suit the interests of Israel.

The swearing in of Vice President Omar Suleiman by President Mubarak represents the Whitehouse desire. He is trusted by the Israelis whose network are said to control the US Congress and the bulk of the US political system through Zionist lobbying organisations and political campaign funding. Israel has a kind of bouncer role in its role in the middle-east which provides cheap oil to the US. Dollar hegemony is the issue as the middle-east sells oil to the rest of the world and that business is done in dollars which is the single most important factor in holding up the value of the dollar as the Federal Reserve and Obama continue to flood the world with dollars. You want to buy oil, you need to buy dollars first..

Israel wants an obedient regime. Clearly though, the interests of Israel/US are not those of the protesters. Stories about how the US is behind the protesters are merely attempts to position themselves to benefit from any outcome.

This is why the stalemate goes on and why intimidation and violence is likely to continue. Hundreds are now dead as the authorities have released prisoners from jails. Criminal gangs are now looting and committing act of violence. Police are said to be among the looters, organising and encouraging them. Communications have been cut and as I write airforce jets are flying low over the capital. In neighbourhoods water has been cut. State TV are showing scenes which do not reflect the true nature of the demonstrations. Al Jazeera have had their accreditation withdrawn but they are still filming live. Watch here: http://english.aljazeera.net/watch_now/

These Egyptians are brave. They, again, are defying another curfew.

It is becoming clear that they are not going to settle for a new regime which reflects the interests of the US and Israel. They have waited decades and now is their time.

I therefore fear the worst. I imagine there will be some pretext for a brutal clamp down. Perhaps the crowds will be sprayed with chemicals designed to passify the demonstrators but the demonstrators seem stubborn. I hope I am wrong but the US and Israel will not permit a situation whereby Egyptians will have an opportunity to decide their own destiny as that could lead to an outcome which doesn't suit their interests in the region.

My take is to ignore all calls from the US when it calls for democratic reforms. That is not what they want. They want a puppet regime controlled by themselves. And repressive regimes are usually the very kind of states the US prefers as they are easier to control and it keeps they keep populations poor and so oil cheap. All you've got to do is look after the dictator and make him rich.

So, we wait. However, my view is that all sorts of plans are taking place to quell the protestors. It seems that the longer the US put things on pause the more likely violence will be the only way for either side to succeed.

News Scotland

Failed state and Scottish political branch operations

Piece I did during my tenure at Newsnet Scotland. I will resume publishing with Scottish Times.

by Alex Porter

News this week that the Conservatives in Scotland must hand over their management and their money to their London headquarters is yet another indication that the Unionist parties face an identity crisis in Scotland.
A growing membership means their SNP rival can now claim, with validity, to be not merely Scotland's largest party but Scotland's party.
As Unionist measures to control the Scottish political landscape become increasingly bizarre, the issue is not about whether Scots can be persuaded to remain within the Union but rather whether Britain's current economic, social and political crises are signals that the Union's end is imminent and irreversible.

Conservative branch

The story of how the Conservatives in Scotland have been brought to heel by their London bosses broke in yesterday's Telegraph in an article by Simon Johnson:

"Senior insiders told the Daily Telegraph that money raised by the Scottish Tories is being passed to the UK party along with ultimate oversight over a radical restructuring of their operations."

Ahead of the Holyrood elections Scottish party chiefs are to be sidelined according to Johnson and applicants for three new regional campaign manager posts in Scotland must apply to the Conservatives’ Millbank headquarters in London.

The London party is not happy that the party in Scotland managed to secure only a single MP in Scotland in the Westminster election last year. After a review by Lord Sanderson of Bowden senior party insiders, who have expressed the view that the party in Scotland is not trusted to deliver desired changes in terms of leadership, financing and membership recruitment, are quoted as saying that London has "taken control" and, "Every penny we raise now has to go to London.”

An advert, announcing the campaign manager posts, has been placed on the Conservative website and states that the successful applicants will be based respectively in the east, north and west of Scotland. The job description says: "Reporting directly to the Scottish Field Director the Regional Campaign Manager will be responsible for front-line campaigning in all constituencies in their area."

The party will now face ridicule as it seeks to examine the economic prospectus of the other parties during the Holyrood election campaign as their adversaries will simply point out that if they themselves are not trusted with their own money then how can they be taken seriously with Scotland's money. More serious though is the historical significance of this development. It can be seen as another sign of Unionist parties losing control in Scotland.

Labour branch

There is perhaps no clearer a sign of this crisis of Unionism in Scotland than the fact that Labour simply never accepted that they lost the Holyrood election to the SNP in 2007. Having assumed for generations that Scotland was their natural fiefdom their loss was traumatic and in opposition Labour have exhibited symptoms of denial.

Failure to come to terms with losing to the SNP has meant Scotland has missed having a constructive parliamentary opposition. Instead, the parliament and public debate have been trivialised by the use of abusive procedural tactics against the SNP minority government.

The motivation for this is merely to wreck legislation and disrupt ministerial activities in accordance with an overarching plan to undermine everything the Scottish government tries to achieve. Labour's Holyrood strategy team is not concentrating on improving the lives of Scots families or the long term health of Scottish institutions but purely and simply on getting elected.

This weekend the press is carrying a story that internationally renowned academics have lodged a formal complaint to the Scottish Parliamentary Standards Commissioner over their treatment after having agreed to give evidence to the Scotland Bill Committee. Expert economists Professors Andrew Hughes-Hallet of George Mason University in Virginia and Drew Scott of Edinburgh University prepared, in advance and as requested, to give evidence in relation to Westminster's Scotland Bill. The professors are known to hold views favouring the Scottish parliament having the powers of fiscal autonomy. The committee, chaired by Labour MSP Wendy Alexander, 'ambushed' the academics on that subject showing no interest in their evidence in relation to the Scotland Bill.

Scotland's parliament has had a good relationship with experts who over the years have offered up their time freely to help its committees improve legislation before becoming law. This latest furore will undoubtedly undermine the parliament's committee system. One academic and constitutional expert who does not support the SNP, Alan Trench, has already cancelled his visit to a hearing by the same committee describing its treatment of fellow academics as an 'inquisition'.

The issue has drawn attention internationally as a senior colleague of Professor Hughes-Hallett from Virginia, Professor A Lee Fritschler, who served in the sub-Cabinets of Presidents Clinton and Carter, has written to Presiding Officer Alex Fergusson expressing his “dismay” at the way the two witnesses were “harassed in mean, petty and non-germane ways”.

Sadly this is only too indicative of how Labour in Scotland have behaved as an opposition. It is only a few weeks since Iain Gray, in his visceral desire to undermine the idea of small countries gaining independence, inadvertantly insulted Montenegro resulting in incensed diplomatic communiques from the Montenegrin chargé d’affaires, Marijana Živković.

The reason that the opposition parties are in such a pathologically oppositionalist mode is because they really are not allowed to offer anything more to Scotland. With no real scope to offer increased powers or an alternative agenda to what's currently on offer from London, Labour can offer no vision nor even a better managerial team. It is therefore reduced to carping and insulting and the net effect is that the Scottish electorate switches off.

Lib Dems branch

And the last of this oppositionalist triumverate are the LibDems. Many of their voters were angered that they didn't form a coalition with the SNP to create a majority governement for the good governance of Scotland. Their move into opposition was seen as a result of interference from London. Against this backdrop their forming a UK coalition government with the Tories in London has discredited the party in the eyes of many Scots voters and a mauling at the Holyrood elections is expected by political commentators.

Centralisation of a failed state

Scotland is being pulled in rival directions. Both London and the Scots want more control over Scotland.
The forces which are at work run deep. Britain PLC is running deficits which are spiralling out of control. In the month of November government borrowing reached £23.3 billion and total UK government debt is approaching £1trillion. If you think about this in terms of the grant given to Edinburgh from Westminster it amounts to over 30 Scotlands.
This year North Sea oil receipts will represent 25% of UK government revenues from corporation tax and that ignores tax revenues from the pumps. Without North Sea oil the UK would not be able to offer repayment guarantees to creditors. In that scenario the current planned UK austerity cuts would seem like a walk in the park in a late spring morning.

When the City imploded, Gordon Brown, advised by current shadow chancellor Ed Balls, bailed them out with tax payers' money. The mighty merchants of the City of London failed as capitalists and begged for state benefits in the form of bail outs from hard working citizens. People who were conned into believing that the bail outs saved their jobs and savings.

That wasn't enough for the bondholders and shareholders, so the Bank of England and Brown and now Cameron turned on the money printing machine. The new money diluted the wealth of the people and was given to financial institutions so they could continue trading fraudulent financial packages with each other and draw down large bonuses which properly reflect their skillsets as preeminent scammers. The population is continually threatened that if the bankers don't receive large bonuses they'll leave.

Yes, the supine British media presents that as a threat rather than a promise.

In recent weeks some of the Icelandic bankers who caused their own financial system to collapse have been arrested as has former Prime Minister Geir Haardie who faces charges of gross economic negligence - a crime which carries a two year jail sentence. It is perhaps stretching credulity to compare Britain to a European democracy.

There's never going to be enough for the City. Bail outs are a guarantee that no matter how much risk you take you can't lose and so they go gambling away with impunity. That's why the austerity cuts are coming. Bankers know that another round of bail outs are in the pipeline and are making sure that there's enough cash around for them to go back to the public trough. The citizens are being squeezing in anticipation.
This is the real reason that Scottish economic independence is being resisted. London City needs its next fix and the surplus in Scotland's national accounts is ripe for the plucking. However the real threat to Britain's kleptocratic rulers is that if Scotland demands economic independence the oil money will be next and then you can forget about the ballooning deficit. No-one will lend to Britain PLC. The IMF will come knocking on the door and demand austerity cuts that will relegate Britain from the league of first-world countries.
Right now Mexico is declining as an economic power and the accelerating trend is towards centralisation. When states go into a death spiral they suck capital into the centre from the peripheries in a desperate attempt to shore up the apparatus.
The result is rapid economic decline around the peripheries leading to the dramatic drop in tax revenues we are now witnessing. The centre can buy a little more time but it has increased the unsustainability of its hegemony. When the penny drops the state experiences capital flight and the population is fed to the dogs. Ask Argentina.

Failed states are typically characterised by social, political and economic crises and the rapid process of centralisation of resources just in advance of the tipping point where the state seizes up, fractures and then awkward pieces start breaking off. The Soviet Union is a case in point.

This is why Scots are not being offered a referendum on the Scotland Bill. The alternative is far too attractive but for Westminster far too dangerous.

The Conservatives may not like having their money controlled by their London bosses. Pondering the Tory membership of the Calman Commission in light of this turn of events would make you laugh at the irony of it all if it didn't underline and highlight an unedifying Scottish trait.

For some reason Unionist parties can effectively argue that Scots can't trust their own Parliament with the powers needed to improve Scotland's economy even at a time when London is technically bankrupt. That deep-rooted insecurity in my fellow Scots concerns me.
Read previous essays written by Alex Porter for Newsnet Scotland:
Scotland's Choice: Calman's Gulag or Economic Independence
Scotland versus Britain
Part 1, Part 2

LABOUR'S BANKRUPT BRITAIN

Rediscovering Oil – A From Rags to Riches Story
Part 1, Part 2, Part 3

Would an independent Scotland have a viable economy?


news scotland

Newsnet Scotland Launch

It's election year and Scotland has a captured media which perpetuates the myths of Unionism.

To take back our nation we must build an alternative media. (Complaining about injustice achieves nothing.) Newsnet Scotland is involved heavily in this effort. I urge that all bloggers which support Scottish self-determination put aside all our regional and personal differences, for a short while, and post Newsnet Scotland's video (see below) on your blogs.

Newsnet Scotland believes that Scottish languages are absolutely central to Scotland's national identity. On our Burns Day launch we wish to let everyone in Scotland and our friends around the world know that Newsnet Scotland has arrived.


Work as if you live in the early days of a better nation:

Ed Balls bad news for Iain Gray's Holyrood chances

Piece I did for Newsnet Scotland:

by Alex Porter, Economy Editor

With the UK budget deficit accelerating, the British pound plummeting and austerity cuts just around the corner, the issues of jobs and the economy will cast a long shadow over the fast approaching Holyrood election campaign. What effect will Labour leader Ed Milliband's choice of shadow chancellor, Ed Balls, have on the crucial economic debate on Scotland?

To answer that question we have to realise that the UK economy is not in the same robust shape that the Scottish economy is in. While Scotland's national accounts show a surplus, the UK's deficit reached a staggering and unprecedented £23.3 billion in the single month of November last year, according to the Office of National Statistics. As government debt (minus off-balance sheet debts) are soon to pass the £1 trillion mark there is no real sign that Britain PLC can stop the deficit from ballooning further out of control.

Labour's Crisis

Gordon Brown's fiscal, monetary and regulatory policies sped up the process of refocussing the UK from a manufacturing economy into a service sector economy. If you manufacture fewer products then a national economy suffers as it cannot earn income by selling goods abroad. As consumers Britons spent money on goods from abroad meaning more money left the economy than came in. This is unsustainable as deficits continue to rise. Britain's economy under Labour was driven by more debt, not growth.

Deficit finance is no longer a disaster waiting to happen, it is happening. Unable to pay its debt the UK government and the Bank of England are indulging in money printing. This policy devalues assets and wages and is effectively legal fraud. After money printing there's a lag and then price inflation visits and you realise you have the same money in your pocket but it buys a whole lot less.

Of course most currencies around the world are now devaluing. The developing world must now print to devalue their currency so that their exports remain competitive in a world of ever increasing dollars. Britain is simply the worst offender. However Britain is printing money not to be competitive - it's an importing country after all - no, it's printing money to pay its debts.

The tax take from the financial sector has fallen off a cliff. Bail outs and stimulus had to be paid for and so drained the private sector, meaning tax receipts are not recovering and firms are now dependent on increased government borrowing to maintain earnings. Decreased tax receipts are what is causing the deficit to grow not an increase in public spending. While the City was selling dodgy derivatives around the world the UK government had a good rake but that's largely gone. Unless the public keeps stuffing banks with newly printed or borrowed money they would not be posting any profits at all.

Printing money to pay debts means Britain is technically bankrupt. And if you thought there was some kind of economic benefit to devaluation you were wrong. Sterling has lost 20% of its value against key trading partners but whereas public confidence in the UK economy continues to tumble, Germany is recording its lowest ever unemployment figures.

The devaluing pound will mean that importers will have to use more pounds to import goods for consumption inside Britain and those costs will be passed on to the consumer. Food prices are already rising but we're only at the start of this process. The price of oil is set to rise too meaning transport costs for food will make matters worse. An early indication of problems can be seen in recent food riots in Algeria, Tunisia, Morocco, Yemen And Jordan. Tunisia's President fled after failing to quell public unrest by slashing staple food prices. In the developing world a larger percentage of expendible income goes on the family food budget and so nations with poorer populations act as canaries in the global economic mine.

Gordon Brown's drive to shift the British economy in the direction of services means that the UK is now trapped. The massive wealth generator that was the City of London was an illusion based on fraud. The Treasury was aware of the problem but Gordon Brown facilitated the rapid expansion of City activities through 'light touch' regulation. Britain looked flush for a while and then the truth emerged. The City was packaging and selling fraudulent derivatives around the world which resulted in the financial crash of 2008. The reality was that the City was a giant economic parasite sucking the rest of Britain dry and relying on North Sea oil to guarantee its debts.

Britain's sovereign debt, financial and currency crises will, when the history books are written on the subject of Britain's fall from its status as a global to a second-tier power, be attributed to Fife's Son of the Manse.

Balls's name is inextricably bound up with Brown's, so he too is closely identified with the financial crisis. He was close to Brown and the Treaury throughout the years when the crisis was incubating. Balls was appointed as an economic adviser to Shadow Chancellor Gordon Brown (1994–97) before becoming chief economic adviser to HM Treasury from 1999 to 2004. During this time he was once described as the 'most powerful unelected person in Britain'. On becoming an MP he stepped down as chief economic adviser to the Treasury and spent some time at the Smith Institute, a political think tank, before being made Economic Secretary to the Treasury in 2006. When Gordon Brown became Prime Minister in 2007, Balls was promoted to Secretary of State.

Balls was at the heart of the Treasury and was a key ally of Gordon Brown when the policies of light touch regulation were rolled out and legislation was designed to favour the financial sector. He was therefore central to the creation of the derivatives bubble and the 2008 crash which ensued.

Will Balls help or hinder Labour in Scotland?

Iain Gray will attempt to shift the debate onto the ConDem coalition's austerity programme but according to YouGov 40% of the UK population blame Labour for the public sector cuts, 22% blame the coalition and 25% see both London parties as equally culpable.

For Gray to win the keys to Bute House he will have to convince the Scottish electorate of his party's economic competence. People are extremely worried about jobs and the economy and are rightly angry about the reasons the crisis happened. Labour strategists will have their job cut out for them in refocussing attention away from the causes of the crisis and onto the current UK government's management of it. Given that Balls is so closely associated with the last Labour government and closely identified with Gordon Brown, putting this recent economic record behind Labour will be much harder to effect. The electorate are no fools and know that the financial crisis happened during Labour's time in office.

By making Balls the UK Shadow Chancellor, the SNP has been handed an electoral gift.

The new Shadow Chancellor has a combative style and that may resonate with voters over time and as austerity bites. The problem for Labour UK is that this will bring the ConDem coalition out fighting. George Osborne will seek to pin the blame for the deficit on Labour's legacy but fortunately for the Chancellor there is now a Shadow Chancellor to point the finger of blame at.

As the Holyrood campaign focuses minds on Scottish politics the benefit Labour accrues from coalition bashing will dissipate. Iain Gray will be asked searching questions on a subject he is weak on - economy. And he faces the big beast of Scottish politics - former economist and sitting First Minister Alex Salmond.

Salmond has no need to attack Tory cuts during the campaign. He can simply blame Labour and Balls for causing the crisis. Labour will be put on the spot and forced to point to the ConDem cuts as the root of the problem. The SNP will have the luxury of killing two birds with one stone. And it gets better for the Nationalists. As Labour are forced to defend themselves they will struggle to pin the blame both on the ConDem coalition and the SNP government simultaneously. Salmond can jab Labour but Labour's counterpunch will be weakened.

Of course Iain Gray and Labour have a seemingly pathological obsession with attacking the SNP and so with some calm economic logic Salmond can lay traps and watch Gray and his campaign team walk into them with predictable regularity.

The Nationalists have another trump card. If Labour tries to blame the SNP over the state of the economy the SNP can retort that the powers needed to drive the economy are reserved to Westminster and so the crisis is London's fault. The case will be made that what few powers the Scottish Government does have were used effectively. After all, Scotland's economic state is healthier than the rest of the UK's. And the kicker for the Nationalists is that the argument that the UK umbrella protects Scotland from volatile international markets can be presented by the SNP as having always been a myth.

So, blaming the SNP will only serve to move the economic agenda on to their turf - the case for economic independence. On this territory the SNP have a majority of public opinion behind them. A significant majority of Scots, if polls are to be believed, want their parliament to have complete control over taxation and benefits in Scotland. At the same time Labour must defend the Scotland Bill from heavy criticism by internationally renowned economists and business leaders who have characterised it as "dangerously flawed", "unworkable" and "a perfect storm".

For Labour the longer the media focus is on the ConDems and London politics the less they will come under real scrutiny in Scotland and the higher will be their poll ratings. By contrast a specific media focus on Scotland can't come quickly enough for the SNP who are currently behind Labour in popular opinion surveys. The fact that there will be a referendum on the AV voting system on the same day as the Scottish elections will not be helpful to the SNP. Neither will the royal wedding scheduled for a week before.

With the all-important economy issue such a key advantage for the SNP, Labour will need to try and bury their role in causing the crisis or the Scottish electorate will migrate towards Salmond and the SNP's case for economic independence. With Balls as Shadow Chancellor, Iain Gray's strategy of shifting the electorate's attention away from Labour's role in the financial crisis is now much less deliverable.

News Scotland

Lib Dems U-turn as business backs SNP supermarket tax

A piece I did for Newsnet Scotland:

by Alex Porter, Economy Editor

Almost three-quarters of Scotland's businesses - 74 percent - support the SNP Government's proposed 'supermarket tax', which aims to raise £30 million for public services, according to Scotland's most important business organisation - the Federation of Small Businesses (FSB) Scotland.

With the Holyrood elections approaching the supermarket chains are behind a campaign to have the SNP drop their 'levy'. This campaign by the corporate giants will promote the message that town centres and retailers in general will suffer however evidence shows that around 92.3 percent of the tax will be paid by the big 5 out of town chains: Tesco, Asda, Morrison, Sainsbury and B&Q.

Lib Dem policy U-turn

Lib Dem finance spokesman Jeremy Purvis who has lodged a parliamentary motion to annul the measure and who called the SNP measure "perverse" and "anti business" said,

"I heard the identical concerns from retailers about the damage that the large retail levy will have on jobs, the economy, Scotland's competitiveness and our economic reputation.

"The SNP are putting Scottish businesses at a competitive disadvantage."

However, it has emerged that only last week Mr Purvis listed on his website “more support for local retailers struggling against the big supermarkets” as one of his top 11 priorities for the Scottish Parliament.

The sudden U-turn will raise confusion among floating voters who will want to know if Mr Purvis's view last week or his view this week now represents Lib Dem policy.

Business Support for SNP plans

With 20,000 members the FSB, which represents Scotland's SMEs, believes that the tax will help create a level playing field for its members when competing against the large corporate supermarket chains.

In their submission to Holyrood's Local Government Committee on the proposed move, the FSB highlights that, despite claims the supplement will hit city centres, figures in the public domain suggest that 86 per cent of the projected take (£25.7m of a projected £30 million) will be paid by the "big four" supermarkets.

In the Committee's hearing next week, the FSB's Public Affairs Manager, Colin Borland, will argue that the SNP's move willl bring more fairness and proportionality into the rates system.

Of local competetiveness, Mr Borland said,

"Supermarkets are here to stay. Their business model is incredibly successful and their record profits and turnover are testament to this. But, at a time when rising overheads are further squeezing margins in local small businesses, when cash-flow is tight and financial reserves depleted, it is now more important than ever that the playing field is levelled wherever possible.

"Progress has been made through the introduction of the Small Business Bonus. But rates are still a disproportionate burden for the small businesses who pay them, with nearly half citing them as a major barrier to their business success. Contrast this with the 225 largest retail properties whose bills, according to Scottish Government calculations, account on average for only around 2 per cent of their turnover.

"It is for these reasons that three quarters of our members feel that it's time for the largest out of town supermarkets – who benefit from free parking and other amenities our members don't enjoy – to start paying more of their fair share."

In contrast David Lonsdale of the Confederation of British Industry (CBI) which represents large corporate businesses and has around 90 members said,

"Our members are greatly concerned that this new tax will make Scotland a less attractive place for retailers to invest and create jobs, and that other sectors could be similarly targeted in subsequent budgets from the devolved government.

"The campaign against this hefty tax rise on business is gaining support and momentum."

Figures in the Times newspaper in an article entitled "Supermarkets see red over ‘supermarket tax'" on Tuesday 11 January show that under the SNP's proposals to raise £30 million pounds, Tesco would pay £9m, Asda £8.8m, Morrisons £4.4m and Sainsbury's £3.5m totalling £25.7m. This is around 85.7% of the total amount which it is estimated could be raised by the proposals. Included in these figures is B&Q who would pay £2m – bringing the projected total for these 5 out of town retailers to 92.3%.

In 2006, the FSB in Scotland published a report (1) based on an extensive research study entitled, "The effect of supermarkets on existing retailers" – looking at how new supermarket developments affected town centres and independent retailers in Alloa, Dingwall and Dumfries. The full report's conclusions were that, in each of the towns, a new supermarket meant:

• A decrease in the number of convenience retailers operating in the town centre;
• An increase in the number of vacant units and corresponding floorspace;
• A broad shift in convenience expenditure away from the existing town centre retailers to those operating the new supermarket development;
• A significant decline in the level of business activities undertaken by existing retailers. This is attributable in the main to competition from the supermarket; and
• A general acknowledgment in respect of a decline in the overall number of shoppers frequenting the traditional town centre.

News Scotland

SNP supermarket tax will boost local communities

A piece I did for Newsnet Scotland:

by Alex Porter, Economy Editor

The SNP government aims to raise £30 million to pay for public services by taxing Scotland's predatory supermarket chains.

With the UK coalition about to slash the Scottish block grant by £1.3 billion and with workers already facing pay restraint the SNP government are looking at ways in which to spread the pain and protect front line jobs.

In order to mitigate against this funding shortfall Finance Minister John Swinney announced in his November budget last year that he would impose a levy on large corporate supermarket chains such as Sainsbury's, Tesco, Asda and Morrisons.

Effect on local economy

Supermarket chain shareholders are, as one might imagine, none too pleased at the tax which is aimed at giant retail firms who own properties with a rateable value of more than £750,000.

Sainsbury's chief executive Justin King threatened to shelve the supermarket chain's entire Scottish investment plans unless ministers cancel the tax hike.

However the move will provide a new lease of life for small shops and communities the length and breadth of Scotland which have been decimated due to the predatory corporate tactics of supermarket chains, who are regularly accused of bullying and having overly close relations with politicians.

Representing the large chains, Fiona Moriarty, Director of Scottish Retail Consortium (SRC) has claimed that the SNP's tax will put 8,000 jobs at risk. This concern will be viewed with a mixture of anxiety and interest by local supermarket workers many of whom will never have met Mr King or any supermarket shareholders.

Claims of job losses always raise anxieties and especially so during times of economic crisis. The supermarkets warn us of how many new jobs may be lost because of their threat to pull investment but in order to calculate the true cost to affected local communities these projections of jobs to be created must be set against the value of the jobs lost in small family shops and communities after supermarkets become established.

Communities are enriched by small shopkeepers. How this process works is simple. In a thriving community the barber spends £1 in the tea shop, the tea shop owner spends that £1 in the butcher's, the butcher spends that £1 in the baker's, the baker spends that £1 in the newsagent's and so on until eventually it gets banked.

This process is what economists call 'money velocity'. The benefits to the community are important in generating vital economic activity and a higher quality of life. Small shopowners have key relationships with the community offering jobs in book-keeping, loading and delivering, cashing up and banking, supplying, ordering, security, inventory, planning and other management skills.

Supermarket business models are widely documented. When supermarkets open, little shops close driving local owners and wealth creators away. Supermarket jobs are mostly unskilled positions, such as trolley collectors and shelf-stackers. Main street retail outlets close and become occupied by charity and betting shops.

The former community model which saw money velocity supporting a vital community is lost and replaced with benefits/low income family expendable income going into supermarket tills and then straight into investors' bank accounts. Such investors will never know the names of most of the towns where their returns are generated.

Some might argue that supermarkets are one of the reasons for the UK's economic crisis as communities are stripped of wealth and unable to contribute to the Treasury.

Local farms

It's not just higher value local jobs which are lost when supermarkets are established in a community, farmers' livelihoods are squeezed across Scotland too.

Kenneth Campbell, who owns a herd of 400 cattle in Castle Douglas, said:

"It's sickening when you see milk being used as the loss-leader in supermarkets. It is costing me 30p a litre to produce and I'm getting 25p for it. People are getting very despondent."

James Withers of the National Farmers' Union (NFU) Scotland said: "Family farms are not looking for special treatment, just fair treatment. The average milk price for a Scottish dairy farmer is 3p below the cost of production. And whilst they lose money on every pint produced, retailers are making millions on milk and other dairy products."

Political fall out

All three Holyrood opposition parties are against the SNP's "supermarket tax" and indeed now threaten to vote down Swinney's budget if the measure is not removed.

Raising one serious concern the leader of the Conservatives' Holyrood group Annabel Goldie said: “The retail sector in Scotland is a major employer – higher taxes will only make Scotland less competitive than the rest of the UK.”

As these same supermarkets exist in both Scotland and England this, Ms Goldie is implying, will lead to people across Scotland going to England to shop. This potential unintended outcome, Unionist opposition parties will argue, shows that the SNP haven't thought these proposals through.

For the Lib Dems the matter is a little muddled. Their finance spokesman Jeremy Purvis said he had lodged a parliamentary motion to annul the measure and that it may 'harm Scotland's reputation'. However, until last week he listed on his website “more support for local retailers struggling against the big supermarkets” as one of his top 11 priorities for the Scottish Parliament.

Labour are thought by many to have very close, longstanding ties with big supermarkets. In 1998 it was reported that the lobbying firm LLM secured a waiver on paying a car park tax for their client Tesco. The tax would have cost Tesco £20 million per year but the waiver was secured and Tesco contributed £11 million into funding for Labour's pet Millennium Dome project.

Like the Lib Dems, Labour also exhibit some confusion on the issue as during the minimum pricing for alcohal debates they argued that the Scottish Government should find a way to tax supermarket profits.

The SNP make the case that they back local businesses and that communities should have a fighting chance when it comes to competing with supermarkets. Christine Grahame MSP said: “The SNP is committed to backing small business and to levelling the playing field for our town centres."

Threat or promise?

Sainsbury's Mr King said that the SNP levy could force the supermarket chain to shelve plans for stores in Kelso, Nairn and Irvine as well as three planned extensions to existing premises in Linlithgow, Stirling and East Kilbride.

Given, as many argue, that the supermarket business model causes local economic and social stagnation, local residents and businesses will wonder if this is a threat from Mr King or a promise.

News Scotland

Iain Gray under pressure as voters blame Labour for deepening crisis

A piece I did for Newsnet Scotland:

by Alex Porter, Economy Editor

Results of a shocking new survey conducted by YouGov show that 5 percent of people in Scotland - equivalent to 207,500 card-holders - have used credit cards to pay their mortgage or rent in the last 12 months.

The findings (1) are extremely worrying according to Graeme Brown, director of Shelter Scotland, the housing and homelessness charity which commissioned the survey:

“A reliance on high interest options such as credit cards to pay rent or a mortgage is a highly dangerous route to go down and is known to contribute toward uncontrolled debt, repossession or eviction and, eventually, homelessness.

“It is also very worrying that thousands of people in Scotland are being forced to move in with family or friends and that many more are having to take on extra hours and/or a second job just to make ends meet."

The survey results coincide with YouGov tracker evidence which shows Labour are blamed by the electorate for the parlous state of Britain's public finances.

The UK-wide survey (2) asked who people thought were "most to blame for the current spending cuts." Of the respondents 22 percent thought the ConDem coalition government were culpable, 40 percent the last Labour government and 25 percent pinned the blame on both the present and previous governments equally.

These consistent findings will deeply concern the leader of the Labour group at Holyrood as he seeks to lead his party to victory over the sitting SNP government at the Scottish elections on May 5th.

Economic Competence

With UK government borrowing hitting £23.3bn per month according to the Office for National Statistics (ONS), and seemingly now out of control, the electorate are increasingly concerned about job prospects and family budgets. Electorally the issue of economic competence will be the decisive factor in the choice of who will form the next government in Edinburgh.

Across the UK the economic outlook is extremely pessimistic according to YouGov. Asked, "How worried are you that people like you will not have enough money to live comfortably" over the next two to three years, 70 percent of respondents replied that they were "fairly" or "very" worried.

During the political campaign the principal contenders will have to explain to the electorate how their party will best insulate Scotland against the worst effects of the UK's sovereign debt, currency and financial crises.

Holyrood's leading contender Iain Gray will have the unenviable task of defending the Scotland Bill which on Tuesday was slated by world-renowned economists and academics as a "perfect storm". The economists fear it could damage and trap the Scottish economy with a too narrow spread of tax powers at a time of prolonged austerity and economic volatility. The warnings about the Scotland Bill are the latest in a growing list of anxieties expressed by experts over the Bill, characterising it as "dangerously flawed" and "unworkable".

Former economist and current first minister Alex Salmond has by contrast the luxury of advancing the case of economic independence which enjoys popular support in Scotland, as reflected in the recent Social Attitudes Survey 2010 which showed 57 percent of Scots wanting the Scottish parliament to have full tax powers with 62 percent wanting the Scottish parliament to fully control benefit payments.

Leadership Popularity

As though these problems were not enough for Iain Gray, his popularity rating of 24 percent in a YouGov poll back in October lags some way behind Scotland's First Minister with a 42 percent rating.

Some recent attempts by Gray to close this gap in the leadership popularity contest have backfired. This will have raised concerns for many of his MSPs fighting in two-way marginal constituency contests. His most recent gaffe caused diplomatic anger. In an attempt to associate recent Balkan problems with Scottish independence, Gray offended Montenegrins by wrongly claiming that their country was involved in ethnic cleansing and a war-crimes tribunal. In fact the country is proud that it stayed out of the Balkan conflicts.

The good reputation and standing of Scotland internationally is a core responsibility in a first minister's job specification. On Newsnight Scotland this week Gray was given the opportunity to express his regret at the insult but refused:




As YouGov trackers are showing a sharp increase in people believing Westminster cuts are having an impact on their lives, up to 72 percent from 62 percent in December, Iain Gray will need to find a way to deflect blame for Labour's role in the UK debt crisis onto ConDem austerity cuts. The Scottish electorate will need to be convinced that Labour can protect Scotland from the UK's troubles despite the widely held belief that Labour caused those problems in the first place.

With popular backing for the SNP's economic prospectus and its leader, SNP strategists will believe that by keeping the pressure on Iain Gray the election will swing their way during the campaign. To find a winning formula Iain Gray will have to do more than attack his opponents. Scottish voters are tired of petty party bickering and will demand comprehensive solutions to deepening economic problems.

The alarm has been sounded by Shelter Scotland's Graeme Brown:

“As we brace ourselves for the full impact of savage cuts to jobs and housing benefits, we are very concerned that more people are going to face even greater debt and the threat of homelessness."

Whichever party provides the most compelling economic solutions and treats the voters with the respect they deserve will be entrusted with the reins of power come election day.

Notes:
1. Press release from SHELTER

2. Yougov poll

News Scotland

Peak Oil and a Changing Climate

With no-one trusting anyone these days and with conspiracies about conspirators rife, what with banks robbing us blind aided and abetted by almost democratically elected governments and Scotland's pro-union mainstream media spinning like a gyroscope it is no wonder that 'climate change' is another subject that folks are sceptical about.

I mean big business is involved in making everyone scared stiff about climate change so they can introduce carbon trading, which will be followed soon after by the kind of derivative trading that has brought the world to its knees by endemic fraud. Introducing the tax that would 'legitimise' world government and carbon credits which can be bought and sold - bought by heavy consumers with a series carbon footprint from the poorest on the earth who have no carbon footprint.

And then the biggest carbon offenders apparently being pregnant women, because of their children's footprint, means racial cleansing as rich white people buy poor South Americans' or Africans's credits who can only sell it if they agree to joining sterilisation programmes, we really do get people extremely worried.

Then there is the whole issue of 'peak oil' which some, including myself, argue will hugely decrease carbon footprints as we hit post-industrial society. Surely we shouldn't be so concerned then?

I have seen both sides of the debate and find it a bit of a shame that attitudes are so hard on the subject. It doesn't follow for example that because there are a lot of scams in the 'climate change industry' that we don't have a problem. There are scams in the health care industry does that mean we don't need doctors and nurses?

How useful it is then to get a series of informed contributions on the matter such as the following:

UK VAT rise poses strategic dilemma for Salmond

A piece I did for Newsnet Scotland:

by Alex Porter, Economy Editor

So the latest measure to save the UK economy from collapse has been rolled out by the ConDem coalition government in London. Everything consumers buy - except most food products, prescription drugs, baby's clothing, passenger transport and books - will now be taxed by the UK treasury at 20 percent - a rise of 2.5 percent from 17.5 percent.

The Scottish government has estimated that this VAT hike along with rising gas bills will cost the average Scottish family £600 in 2011, extracting £1.4 billion from the Scottish economy to help plug the UK's deficit. Government borrowing in November reached a staggering £23.3bn according to the Office for National Statistics (ONS). Total UK government debt is now accelerating towards the £1 trillion mark. To put this into context, if you think of it in terms of the Scottish bloc grant from Westminster the money that the UK government now owes is the equivalent of over 30 Scotlands.

These Spiralling debts and collapsing tax revenues are the legacy of the last Labour government to Britain's public finances. In an attempt to wrestle with the magnitude of this problem the ConDem coalition have brought in an austerity package which is a combination of cuts in public services and benefits as well as today's VAT increase.

Holyrood Impact

This latest raid on family budgets will fuel further calls for economic independence in order to protect Scottish taxpayers, businesses and institutions from the worst effects of the UK's deficit crisis. Scotland's national accounts (GERS) shows a surplus and that is currently sent to London. On top of that, cuts to the Scottish bloc grant will see a further £1.3 billion leave Scotland this year and head to the London treasury.

With the Holyrood elections looming the governing party in Edinburgh, the SNP, will hope to be re-elected by arguing for economic independence. The nationalists' argument is that Scotland should not be made to take the economic medicine for an economic disease it doesn't have. This case will resonate strongly during the campaign as the ConDem austerity measures are introduced forcing the leading electoral contender, Labour, to argue why they support the Scotland Bill.

The Scotland Bill is Westminster legislation, falls well short of 'fiscal autonomy' which has the support of the Scottish population, if opinion polls are to be believed, and leaves the Scottish economy fully exposed to the UK's escalating deficit problems and the ConDem coalition cuts.

Social Impact

With thousands of families across Scotland already struggling because of the UK's rapid economic decline this latest measure will tip many more families into poverty and hardship. SNP Lothians MSP Shirley Anne Somerville said: "There will be few families in Scotland that can afford the cost of a Tory government in London."

Families are under a lot of financial pressure already. Stress on family budgets is known to contribute to break-ups, homelessness and domestic violence. The accountancy firm PKF has warned that that 440 Scots are likely to be declared bankrupt every week in 2011. Increasing VAT will tip many Scottish families into desperate circumstances putting an increased burden on social services which are simultaneously facing ConDem austerity cuts.

Institutions such as those in Scotland's university sector face a funding crisis as Westminster reduces Scotland's budget. The SNP have promised to keep access to university free but it is not yet clear how universities can afford to maintain standards and at the same time absorb the ConDem cuts.

Unless a percentage of North Sea oil revenues are assigned to ringfence university funding, or some other solution is found, it is likely that fewer students will be offered higher education places. Also, with less high paying jobs to graduate into, students from poorer backgrounds will think again before taking on student debts. The VAT effect on Scottish families will pressurise poorer students into taking a low paid job instead to contribute to the family budget.

Businesses, especially in the retail sector, will be hit hard as goods become more expensive to buy and so demand will drop off. There are also forecasts of job losses in the building industry where companies fear reduced demand for repairs and maintenance work. Many of these job losses will hit the low paid and part-time workers.

Economic Impact

These likely consequences raise the spectre of an increase to the VAT rate being counter-productive. This outcome is a very real possibility and economists, investors and business leaders are anxious. At a certain rate of VAT consumers are priced out of the market and move into the black market. A combination of this and falling sales could see VAT receipts remain static or fall meaning that there will be no gain for the treasury whilst private sector activity actually shrinks and jobs are shed.

Should this scenario play out at the same time as public sector cuts, the combination of the two could be a lethal concoction. The reaction by the ConDem government in London and the Bank of England will undoubtedly be more 'quantative easing' aka money printing, which will cause devaluation. Devaluation means that everyone's money becomes worth less as its purchasing power diminishes - your salary stays the same but you buy less with it. This is a backdoor wage cut.

Without economic independence money will continue to be drained out of the Scottish economy. The SNP government's freeze on council tax bills is therefore absolutely pivotal in offsetting the VAT hike in Scotland in order to ensure that as many families as possible can afford the essentials.

However, making matters worse is London's policy of devaluing the pound which combined with a sharp rise in commodity prices and oil - still to be priced in to the economy - has led to analysts forecasting increased inflation and so reducing the average household's purchasing power further still.

Salmond's Dilemma

The Scottish government has called for the VAT rise to be postponed, but in reality Alex Salmond's Cabinet has no influence over the principle economic powers that steer economies.

In view of increasingly grim economic assessments of the UK economy First Minister Salmond will come under pressure to explain to fellow nationalists how the powers of economic independence are sufficient to protect Scots from the UK's sovereign debt, financial and currency crises.

The UK's VAT increase will impact on the UK's monetary position. The powers of 'economic independence' will protect Scotland from the UK's fiscal impasse but not the deeply troubling monetary predicament south of the border.

It may not suit Salmond's political strategy to campaign for full independence but it is now imperative economically that full independence is prominent on the political agenda so that Scots have the comfort of knowing they can - if they need or wish to - escape from the pound, establish a Scottish currency and protect the Scottish population from the inherent dangers of the UK economy: sovereign debt default, currency devaluation and price inflation.