Tricky questions for Scots lucky enough to have a vote

Scotland and England became a United Kingdom (under a Scottish monarch) in 1603. Parliamentary union followed in 1707.  In the century and a half that followed, Scotland experienced extraordinary economic and intellectual development, benefitting greatly  from access to  free trade across the British empire.

In the twentieth century, however, heavy industry in the West of Scotland, based largely on shipbuilding and other transport engineering, collapsed. Scotland’s relative economic performance deteriorated.  Attempts by the UK government to promote new industrial development in the 1960s were not successful in the long run, but  Scotland’s economic fortunes revived with the discovery of oil off the North Sea coast in 1969.

Scottish nationalism occupied a small, romantic niche until in the 1970s the Scottish National Party adopted the decidedly unromantic slogan of ‘it’s Scotland’s oil’. and won parliamentary seats.   The UK government responded  with devolution plans, but an initial proposal failed in 1979 and the Thatcher government which followed set its face against devolution.  That government was extremely unpopular in Scotland and by 1997  the Scottish Conservatives were virtually wiped out as a political force.

Labour regained power in the  UK and immediately passed a devolution bill. The SNP emerged as the principal opposition party in the re-established Scottish Parliament. In 2007 the SNP became the largest bloc and took control of the Scottish government.   Under the leadership of Alex Salmond, the party won re-election four years later with an overall majority and, somewhat to its surprise, is able to carry out its long-standing pledge to hold a referendum on independence.

Would an independent Scotland be economically viable?

Not an issue.  Scotland has income per head more or less the same as that of Britain as a whole, and is the richest region of the UK outside London and the South East.  At just over 5 million, it has about the same population as Denmark, Finland or the Republic of Ireland.

How does the Scottish economy differ from that of the UK?

Surprisingly little.  The share of public sector employment is a little higher. The embarrassing collapse of the two principal Scottish banks in 2008 ended a proud banking history, but Scotland remains strong in otter financial services such as  insurance and asset management.  Tourism, and premium food and drink – not just whisky, but also products such as Aberdeen Angus beef and seafood – are important.  And the North Sea oil industry has helped establish a strong energy services sector.

What would be Scotland’s currency?

The ‘yes’ campaign unwisely began with a declaration that there would be a continued monetary union with the rest of the UK (rUK), which prompted all three mainstream UK political parties to respond that they would not even countenance negotiation.  The SNP then threatened to refuse to acknowledge a share of UK debt.

All this is posturing. In the interim, Scotland would continue to use the pound and Scotland and rUK would then need to discuss the next steps.

Who would then be lender of last resort?

As an EU member Scotland would be required to have its own deposit protection scheme and  Central Bank, Scotland could protect depositors but the Scottish Central Bank could not bail out a major international bank, and this might prompt RBS to redomicile its head office to London – where, in fact, the critical executive functions are already located 

What about North Sea oil?

Most of the UK’s oil and gas lies within Scotland’s likely territorial waters   oil revenues would yield between £4 bn in a bad year and £10bn in a good year. The two camps have unsurprisingly based their arguments on figures at the extreme ends of this range. This. 

 amounts on average to around 5% of Scottish national income and between 10% and 15% of Scottish public expenditure.

  So what does that mean for Scotland’s budgetary position?

An independent Scotland would inherit a pro rata share of the UK’s budget deficit and outstanding debt (although the rUK government remains liable for existing debt).  At present, the Scottish government’s income is based on a block grant from the UK Treasury.  which has allowed public expenditure per head to be  between 10% and 15% higher than in the UK as a whole.  Perhaps not coincidentally, this differential is similar, on average, to the value of North Sea oil revenues.

Thus an independent Scotland’s initial budgetary position would not be markedly better, or worse, than that of the UK.  Over time, however, demographics seem likely to deteriorate further in Scotland than in rUK and North Sea revenues will sooner or later (probably later) decline.  But what then matters is whether economic growth in an independent Scotland is faster, or slower.

What does Scotland spend the extra money on?

Principally, higher staffing levels in health and education.  But Scotland’s morbidity and mortality record is poor, and Scottish education has a good reputation based more on its past record than present performance, through its universities (which have been favoured in public spending decisions) are strong.

What new economic powers and policies would an independent Scotland have?

The Scottish government already controls health, education, transport and most other infrastructures.  Welfare policy is determined at UK level and so is almost all taxation. The Scottish Government’s lengthy White Paper mainly lists things on which it would like to spend money., most of which- including the flagship policy of extensive childcare provision -it already could do if it had the money.

So how will you be voting on September 18?

The electorate consists of EU nationals who are resident in  Scotland so although a Scot, I cannot vote.  But although most of the debate has been about economic matters, the economic arguments are far from conclusive either way. The real issues concern the sort of country Scots and Scots residents want to have and Scotland’s political future will drive the economics. Would an independent Scotland emulate the economic dynamism of some (but not all) other small European states?  Or would it be  mired in a combination of crony capitalism and municipal socialism which would damage initiative and depress growth? The recent history of Scotland admits both possibilities.