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Banking on bonds after Yes vote a big saving

If Scotland votes Yes in September, Scottish savers will apparently not be able to own Premium Bonds or other products marketed and sold by UK National Savings and Investments (NS&I).

These products, which include income bonds and direct saver accounts, are very popular, despite the low interest rates. They are regarded as very safe, and so they should be, as they are directly backed by the UK Government; NS&I, set up as recently as 1996, is one of its key financial agencies.

When I heard that Scottish savers would be barred from owning NS&I products, I thought this was rather petty, and quite possibly in technical contravention of the European Single Market. Then I realised that it would represent an excellent opportunity for the government of an independent Scotland - if it had the gumption to set up its own national savings body, preferably with savings rates superior to those on offer south of the border.

A significant outflow of Scottish savers' cash from England back to Scotland could be very good news for the new Scotland, especially when some bankers are warning of a potential flow in the opposite direction.

Also, the old tradition of saving in Scotland, which has been weakening for some time, could be greatly encouraged by the introduction of new Scottish-government backed products called Scotbonds or something similar. This would be an excellent way for the Scottish government to borrow from its own people.

Whether this is actually envisaged is another matter entirely. The White Paper on Scotland's Future is depressingly vague about such matters. Its general emphasis is on how money will be spent in the new Scotland, rather than where it will come from.

I am personally convinced that an independent Scotland would be a comparatively rich state, but at this stage there could be more emphasis on wealth conservation and generation, rather than its spending. It's certainly clear that a Scottish government-backed savings and investment agency does not appear to be an immediate priority.

Further, the White Paper states that, in an independent Scotland, business and personal customers will continue to have access to banks and banking services based in the UK, in the same way as now. This appears to contradict the official position of NS&I, although I accept that the organisation is technically not a bank, as such. But it does offer what are generally recognised as banking services for investors.

So there is a significant missed opportunity here. It would have been so much better if the White Paper directly set out a specific intention to create a superior Scottish version of NS&I. Not only would this new institution offer superior guaranteed savings rates, it could also have an educational department, to explain and encourage the habit of saving for young people. I well understand that the current pressures on our young folk are such that most of them have to grapple with debt and see little opportunity to save.

Even so, it should still be possible to encourage saving from a young age, through special bonds or other tailored products. It would also be good if young people were given more basic financial education. I don't see why this should not be a key task for our schools. Ignorance about saving, finance, credit, debt, interest rates, and investment is dangerous in any sophisticated society.

Meanwhile, the current Scottish Government is understandably wary about making too many hard promises about investing and saving in a newly independent Scotland. But the new Scottish Treasury would inevitably have to raise money from its own people, and not just by taxation.

Of course, before that there would have to be negotiations about exactly how much of the colossal, almost unthinkable, UK national debt would have to be accepted by the new Scottish state. That in turn would be dependent on whether there was currency union. Such matters would obviously have to take precedence over the setting up of a new Scottish national savings body. But a statement of intent would still be worthwhile.

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Finance

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