Tag Archives: “Better Together”

Where I Stand on Scottish Independence

Much of my last post on “A Just Scotland” concerned the constitutional settlement for Scotland, and in particular the outcome of the proposed referendum in 2014 on Scottish independence.

I rarely post here about overtly party political matters, though much that I write about is “political”; but the arguments for and against independence go beyond (or, at least, ought to go beyond) party politics, and I thought it only right that I should explain where I stand on Scottish independence.

I have already made up my mind how I’ll vote (though of course I have plenty of time to change it – and if I do, I’ll post about it!).

I am against independence.

My decision stems from three arguments, any one of which I think would stop me voting “yes” to independence.

The first is the outright uncertainty in what we are voting for. Fortunately, the recent “Edinburgh agreement” restricts the referendum to a single question on independence. (The precise wording is being overseen by the Electoral Commission – the wording of the question may make a big difference to the outcome.) But quite what a “yes” vote may mean is unknown: in the EU or not, in NATO or not, contributing to UK armed forces or not, in sterling or the euro (or neither) or not, the amount of debt UK national debt that will be allocated to Scotland… The list of unknowables is long. Some of these might be decided – or at least a policy decided – before the referendum, but much which be decided as part of negotiations should there be a “yes” vote. Which of course means that we won’t know what we’re actually voting for in 2014.

The second factor is the complexity. Scotland and the rest of the UK have been so closely linked since unification in 1707 that common institutions are intricately tangled, and untangling them will be difficult. Rebuilding these from scratch would be costly. One of the advantages of union is the economies of scale resulting from being part of a larger whole. At its most basic, having the infrastructure for tax collection in place is a huge boon. (Imagine the economic hiccup in switching from one tax collection system to another: just as when one changes jobs, the Scottish government would need to build up a reserve to tide the country over the gap.) It might be possible to outsource much of the bureaucratic infrastructure – I’ll bet the UK government would happily do the job (for a cost). Or maybe not: HMRC might just laugh at us, and not hand over their share. Scotland would have minimal leverage. And no representation. Even if the Scottish government were able outsource the bureaucracy for so much of our day to day lives back to London, what then would be the benefit of independence? Nothing would have changed.

The difficulty for business would be immense: the large number of cross-boarder businesses which would, one way or another, need to account for their Scottish and other UK operations separately would make this a vast, and expensive, task. (I recently had a conversation with a friend who had been working on the transfer of over 300 RBS branches to Santander – a deal that has subsequently fallen through. Both organisations had large teams working on this, and the complexity of the process was mind-boggling.) Separating two countries that have been so tightly linked would be several times more complicated – an enormous and costly task.

It is also possible that there could be a large number of talented people who migrate from Scotland to greener grass south of the boarder if Scotland gains independence, leaving the country financially and culturally poorer.

The last, and frankly killer, argument is economic. Scotland’s economy is inextricably tied up with England’s. Excluding oil and gas, Scotland exports goods and services (excluding oil) worth £45bn (2010) to the rest of the UK (ie England), more than twice the £22bn it exported overseas [pdf]. (Of the £22bn of international exports, £10bn went to the EU, £4bn to the USA and £2bn to Asia.) For business reasons, it would make sense to keep sterling: the costs of transacting in another currency could be very large.

There are at least two other options: Scotland could join the euro (though it is doubtful that could take immediate effect – the Maastricht criteria for joining the euro have a minimum of a two-year lag period, during which the nation’s currency must be in ERM II (which sterling would not be, of course); or Scotland could issue its own currency (like Irish punts before Ireland joined the euro). Given the current state of the euro and the stringent economic conditions being set by the European Central Bank, it is unlikely the Scottish government would chose that path. And the costs associated with establishing its own currency (which would have no value in the money markets and which would impose large transaction costs on business) would, I believe, make this a non-starter.

(The SNP states that “…on independence day … the pound will be our currency“, but there are many views which dispute the workability of this.)

Without an independent currency, in what way could an economy be independent? Any economic decisions made by an independent Scottish government would be subject to decisions on monetary policy decided in London or in Frankfurt – that is, fundamental decisions on interest rates and monetary supply. Fiscal policy – tax raising and spending powers – would be determined in Scotland, but it is fair to assume that the yield on Scottish government bonds (the rate of interest charged by the money markets) would be higher than that on UK government bonds, if only because the market would be so much smaller (and hence less liquid). It would therefore cost more for the Scottish government to borrow money to fund its activities.

Either way, the Scottish government would have its hands tied – by the Bank of England, the European Central Bank – or even by the financial markets. It would be independent in name only, and at great cost.

And that is why I am against independence.

Other sources I looked at when trying to set out my views include