Out of the frying pan into the fire. Sterling rallied in relief overnight as it became progressively more obvious that the outcome of the Scottish referendum would be a reasonably decisive no. But hold on a moment; that doesn't mean no change. The ol...
Jeremy Warner considers the following as important: China, democracy, Economics, financial markets, referendum, sterling, West Lothian question
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Out of the frying pan into the fire. Sterling rallied in relief overnight as it became progressively more obvious that the outcome of the Scottish referendum would be a reasonably decisive no. But hold on a moment; that doesn't mean no change. The old uncertainty has merely been replaced by a new kind of imponderable – what sort of union are we going to end up with?
In his post referendum statement, David Cameron, the prime minister, said that the West Lothian question – the anomoly under which Scottish MPs get to vote on matters affecting England even though English MPs have no say in matters devolved to Scotland – would have to be answered in view of the promise of more devolution for Scotland. He then went on to suggest that in future only English MPs would be allowed to vote on English laws. This in my view would be completely unworkable, raising the possibility that you could have a Labour government at a national level run from Westminster, but a Conservative one, again run from Westminster, on all matters to do with England alone. The potential for fiscal and political fragmentation is obvious.
However these matters sort themselves out over the weeks ahead – and the government has given itself an extremely short time table for doing so – the slow death of centralised government from Westminster seems assured. From a strictly libertarian point of view, this might seem a pretty good outcome. Yet as far as financial confidence is concerned, it may prove the very reverse.
Some years ago on a trip to China, I was astonished to learn from a reasonably high ranking member of the government that Britain was seen by the Chinese political hierarchy as a possible model for future democratic evolution in China, if only because the British system allowed for a very high degree of centralised power, which was quite unusual in mature democracies. For the Chinese leadership, this plainly had appeal, giving the illusion of democracy while allowing the centre to continue to rule with a very high degree of executive authority.
The economic danger for Britain of the muddled and uncertain approach to constitutional reform now proposed is that it will upset the established order of things. International investors continue to have a high degree of confidence in sterling because Britain has trusted institutions, political stability, and rule of law. All these things will be tainted by the coming shake-up. The transition is going to require very careful handling if it is not to end up upsetting the economic apple cart.