In an excellent, thorough investigation of the financial crisis in the last issue of the London Review of Books, John Lanchester had presented the scrapping of pensions in the public sector as a worst case scenario. Looks like it has already started to happen in the private sector with Barclays scrapping the pensions of its 17,000 employees. This does not, of course, affect the President Bob Diamond who last year raked in £21 m, nor does it affect the rest of the the 1,500 best paid employees. Here is Lanchester (however, let me warn that this piece is more than 14,000 words long, so you better have a good strong copy of coffee and plenty of free time before diving in; also, I’ve appended a reader’s letter correcting an accounting error made by the author):
It’s a moment of confusion and loathing that most of us have experienced. You’re in a shop. It’s time to pay. You reach for your purse or wallet and take out your last note. Something about it doesn’t feel quite right. It’s the wrong shape or the wrong colour and the design is odd too and the note just doesn’t seem right and . . . By now you’ve realised: oh shit! It’s the dreaded Scottish banknote! Tentatively, shyly – or briskly, brazenly, according to character – you proffer the note. One of three things then happens. If you’re lucky, the tradesperson takes the note without demur. Unusual, but it does sometimes happen. If you’re less lucky, he or she takes the note with all the good grace of someone accepting delivery of a four-week-dead haddock. If you’re less lucky still, he or she will flatly refuse your money. And here’s the really annoying part: he or she would be well within his or her rights, because Scottish banknotes are not legal tender. ‘Legal tender’ is defined as any financial instrument which cannot be refused in settlement of a debt. Bank of England notes are legal tender in England and Wales, and Bank of England coins are legal tender throughout the UK, but no paper currency is. The bizarre fact of the matter is that Scottish banknotes are promissory notes, with the same legal status as cheques and debit cards.
These feared and despised instruments, whose history has long been of interest to economists, come in three varieties from three issuing banks: the Bank of Scotland, the Royal Bank of Scotland and the Clydesdale Bank. Small countries with big ambitions but few natural resources need ingenious banking systems. The history of the Netherlands, Venice, Florence and Scotland show this – and so does the tragic recent story of Iceland. ‘In the 17th century, when English and European commerce was expanding by leaps and bounds,’ James Buchan wrote in Frozen Desire, ‘the best Scots minds felt acutely the shortage of . . . what we’d now call working capital; and Scots promoters were at the forefront of banking schemes in both London and Edinburgh, culminating in the foundation of the Bank of England in 1694 and the Bank of Scotland in 1695.’ The powers down south, however, came to think – or pretended to think – that the Bank of Scotland was too close to the Jacobites, and so in 1727 friends of prime minister Walpole set up the Royal Bank of Scotland.