On May 6 the Scottish National Party (SNP), whose defining policy is independence for Scotland, won 69 of the 129 seats in the Scottish Parliament. The SNP became the largest party in the Scottish Parliament in an election four years ago and its charismatic leader, Alex Salmond, then became First Minister.  To even its own surprise, it now holds an overall majority, and can fulfill its commitment to hold a referendum on independence. This will be held in 2013 or 2014.

Scotland has a population of just over 5 million, similar to Denmark or Finland. While the world’s image of Scotland is of barren and beautiful landscapes, most people live and work in the central belt in and around Edinburgh and Glasgow. GDP per head in Scotland has been between 90 and 100 per cent of the UK average making Scotland the most prosperous region of the UK outside south east England and considerably richer than Wales or Northern Ireland.

This figure conceals wide disparities. Edinburgh, the capital, and Aberdeen, Scotland’s oil metropolis, are flourishing cities but there are pockets of severe deprivation in and around Glasgow and Dundee. ln this, as in other respects, the Scottish economy does not look very different from the UK economy as a whole. Economic growth has been lower, but the main cause is lower population growth. Until recently, Scotland faced population decline but recent immigration and revised demographic projections have reversed this trend.

The answer to the question ‘would an independent Scotland be economically viable?’ is plainly yes.   But would Scotland, or the remainder of the UK, or both, be better off?   The answer depends in the short run on the balance of transfers and subsidies to the Scottish government.  In the long run, the issue is whether independence would promote economic dynamism in Scotland, or lead it to sink into the partisan petty corruption which for so long characterized Scottish politics. The result would depend on the detail of the various negotiations which would follow a vote for independence.

An independent Scotland would certainly seek EU membership. While meeting the requirements of accession would be a formality, the formality would need to be observed. Other member states with their own secessionist issues might be unhelpful, but there could be no doubt of the outcome.

Scotland could join the eurozone, or continue to link its currency to the English pound, with the Bank of England remaining as monetary authority. Or the new state could issue its own currency, giving Scotland an independent monetary policy. But small countries operating within a larger free trade area find that exchange and interest rates are necessarily closely linked to those of its trade partners. Autonomy would be more apparent than real. And a separate currency would certainly work to the disadvantage of Scottish business. Monetary union demands coordination of fiscal policies, as Europe now understands.    

Scotland is currently funded through a block grant from Westminster, which gives Scotland annual increases based on the expenditure planned for the UK as a whole for those functions – principally health and education – devolved to the Scottish government.  The Scottish government spends between 10 and 15 per cent more per head of population than the comparable English figure. 

The modern rise of the SNP began with the use of the slogan ‘it’s our oil’ in the 1970s:  standard principles of territorial allocation would give most of Britain’s North Sea oil output (and therefore the corresponding tax revenues) to Scotland.  The generous expenditure settlement is a tacit compromise to defuse this issue.  Together with the sharing of Britain’s increasingly burdensome debt, the unwinding of these arrangements would be a central issue in any independence negotiations.

There is virtually no chance that the referendum will support independence. Opinion polls have shown support for independence at around 30 per cent. The 2011 campaign produced a large swing towards the SNP, but this was a vote not for separation but for the competence and assertiveness of Salmond’s leadership. A referendum campaign, unless grievously mismanaged by the UK government and other political parties, is more likely to erode support for independence than to enhance it as the risks and complications of separation emerge.

The SNP is more popular than the policy that is its raison d’être.  Forced by a victory of unexpected degree to hold a referendum he does not really want, Salmond began by making new demands of Westminster and will proceed by putting on the referendum ballot paper a compromise outcome supporting greater autonomy.

Faced with three options, many people will choose the middle one, and greater fiscal autonomy short of independence is the likely and desirable outcome. In the modern world  economic sovereignty for small nations is inescapably limited, and there is little economic autonomy possible for Scotland which is not available as part of the United Kingdom.  Political sovereignty is largely symbolic – flags, embassies and armies that cannot act unilaterally. The Battle of Bannockburn – the famous Scottish victory over the English in 1314 which is still celebrated as the defining event in Scotland’s nationhood – need not be refought.

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