Sunday, 31 August 2014

Scotland pre-referendum special

OK, so I said I'd be away for three months and this is only two. But some things can't wait.  This is a one-off post and I won't be posting again for another month.  Honest guv.

The biggest political betting story at present is the Scottish referendum. While I have firm views on how this is going to play out, I don't pretend to have any new insight that I can back up with hard facts.  So I'm not going to waste any time writing about that.  But it raises a set of questions in relation to the constituency markets for 2015.  And that I do have something to say about that and it needs saying now.

The referendum has consumed Scottish politics for what seems like an eternity.  It towers over all other Scottish politics.  And it is a binary question.  Scottish politics will be very different afterwards depending on whether there is a Yes vote or a No vote, and different from the current path in either case.  We are approaching a major fork in the road.

However, the constituency betting markets at present cannot fully handle that fork in the road, precisely because it is so binary.  This gives rise to interesting possibilities.

The trajectory of Scottish politics after a No vote is quite hard to predict.  Would demoralised and embittered Yes voters turn away from politics for the near future, resulting in a decline in SNP support, or would the newly politicised Yes campaigners and supporters keep up their momentum?  Both views are entirely defensible.

I don't propose to look at that right now (because it would make this post very long and because it involves more thinking than a man should do on a sabbatical).  I'd rather focus on the consequences of a Yes vote, because the consequences of that are both more predictable and potentially lucrative.

In the event of a Yes vote, we can expect the following:

1) Amazement
2) Despair from the Conservatives and Labour (and, to a lesser extent, the Lib Dems)
3) Ecstasy from the Yes camp.

The remainder of this Parliament would then be dominated by settling the Scottish question (this, incidentally, would potentially be problematic for UKIP in particular because they would struggle to get airtime).  The Westminster general election would in large part be about who would negotiate the Scottish settlement, and how.  That would be true in the rest of the UK, but it would be especially true in Scotland.

There would be consequences from this for May 2015.  First, the SNP would not have to contend with the message that only Labour could form a progressive British government - the role of Scottish MPs would be to help to represent Scotland in the divorce settlement, which could only help the party advocating a divorce.  Secondly, the election would be about Scotland rather than Britain.

The Scots have shown very different voting patterns when voting in an election about Scotland from the patterns when voting in an election about Britain.  Here are the constituency results from the Holyrood election in 2011:

In an election where the SNP's morale would be through the ceiling and their opponents' morale would be through the floor, I would expect the SNP to do at least as well as they did in 2011 when they took 53 out of 73 constituency seats.  Why wouldn't they?

Would the Scottish seats be excluded from the 2015 Westminster election?  That would seem to be a breach of the European Convention on Human Rights (Article 3 of the First Protocol), so I don't see that happening.  The 2015 election might conceivably be deferred pending resolution of the terms of independence, but that seems  pretty unlikely too.

So, where does that leave us?  Let's look at the Scottish seats ranked in order of the odds on the SNP taking the seat:

As you can see, most seats are treated as longshots for the SNP.  If I am right, the SNP can not just hope but expect to take many of these seats in the event of a Yes vote.

The last traded bet on Betfair placed a probability of a Yes vote at 9/2.  I would far prefer to back the SNP in constituencies such as Glasgow East, Edinburgh North & Leith and Dunbartonshire East at odds of anything up to 50/1.  (I much prefer the longshots to the shorter priced SNP chances, which already look to have the chances of a Yes vote very fully priced in, given the swings required.  But this leads me back to the question of what happens in the event of a No vote, which I'm not touching for now.)

A Yes vote remains firmly odds against.  But the future is unwritten and if a Yes vote is coming, I'd rather wait a few months and get a much bigger pay-out.

Now, back to my sabbatical.