Independent Scotland will be a skint Scotland
Ignore the fantasists – oil and gas will not provide the basis for a New Jerusalem.
As has been argued previously on spiked, the narrow discussion about the economic future of Scotland under independence has rather missed the point about the nature of the question being asked in the referendum on 18 September. If Scots have a strong, principled desire to separate from the rest of the UK, for political, cultural or any other reasons, then the fact that Scotland may be slightly worse off or slightly better off should not be an issue. But given the fantasies of some proponents of independence, the economics are worth examining.
As The Economist has pointed out, working-class Scots (especially young men) are more likely to favour independence than their well-to-do compatriots. Given that working-class Scots rarely get to influence major political decisions, this is clearly seen as an opportunity to flex their political muscles, to register their disaffection from the political status quo. But according to the pro-independence campaign, Yes Scotland, an independent Scotland would also be ‘a different country with different priorities’, in the words of one campaign organiser. There is an assumption that an independent Scotland would be more left-wing than the UK, with higher public spending than now.
According to the Scottish National Party’s John Swinney, the Scottish finance secretary, the UK government has failed to share the proceeds of economic growth equitably: ‘One particular feature of Scotland’s economic growth within the UK to date has been the failure to spread the rewards of growth more fairly across society.’ As a result, many have assumed that an independent Scotland would be more redistributionist than the UK government has been, and they are voting for independence in that expectation.
There is no reason to assume that any and every future Scottish government will be more generous. Independence merely grants Scots the right to vote for a parliament in Edinburgh – it doesn’t automatically follow that Scots will always vote for left-leaning parties. Moreover, the SNP hasn’t much of a record on redistribution of wealth, according to former Labour MP Brian Wilson: ‘Scottish nationalism is not a progressive force. I have repeatedly asked for one example of a redistributive policy which the SNP has adopted during its seven years running Holyrood, and I am still waiting for an answer. Like every nationalist movement, it tries to cloak itself with the dignity of social justice – but its performance is of the centre-right, keeping the middle classes happy. That is how it would continue. When the money ran out, the poor would still be waiting.’
What would Scotland’s economy be like, post-independence? The Scottish economy is pretty similar to that in the rest of the UK. It is well developed by global standards, with areas of dynamism like oil exploration (not just in the North Sea), food and drink (particularly whisky), medical research and computer games. The finance sector is strong, too, but some of the biggest companies may take flight or downsize their Scottish operations if there is a ‘Yes’ vote.
It seems unlikely, however, that the government of an independent Scotland would have money to throw around. In a report in November 2013, the Institute for Fiscal Studies (IFS) examined the state of Scotland’s finances now and in the event of independence. The IFS assumes that under any independence deal, oil and gas production in the North Sea would be split along geographical lines, which means that 90 per cent of what is currently taxed by the UK would be under Scottish control post-independence. On that basis, Scotland’s current fiscal position looks good: in 2011-12, tax revenues per person were (at 2013-14 prices) £11,079 in Scotland, compared with £9,432 for the rest of the UK. Public spending was also higher in Scotland (£12,629 per person) than in the rest of the UK (£11,381 per person), but the shortfall between revenues and spending was lower in Scotland. Good news for independence supporters, then.
However, an independent Scotland would be disproportionately dependent on tax revenues from the North Sea, which can be extremely volatile depending on output and oil prices worldwide. In 2008-09, the North Sea provided 20 per cent of Scottish tax revenues; the following year, that fell to 12 per cent. The IFS notes, looking at the most recently available figures, that ‘revenues from the North Sea made up a much larger share of total Scottish revenues (18.6 per cent) in 2011–12 than they did for the UK as a whole (two per cent).’ And those revenues look likely to decline sharply, increasing pressure on public finances. An earlier IFS report points out that the UK Office for Budgetary Responsibility ‘expects revenues from oil and gas production to fall by over 80 per cent between 2011–12 and 2022–23’.
Then there are demographic changes to deal with. The UK population as a whole is expected to rise, but Scotland’s is expected to rise more slowly, so its workforce, GDP and tax revenues are likely to grow more slowly than the UK’s, too. Scotland’s population is, on average, older, so there is likely to be greater expenditure required on pensions and social care. Another complication is that an independent Scotland is unlikely to be able to borrow to finance its debts at the same low rate as the UK. So, overall, an independent Scotland’s fiscal position may be even worse than the UK’s, which is already appalling.
The most likely response in the short-to-medium term would be to adopt an even harsher version of the current UK government’s austerity measures, combining higher taxation with lower public spending. That’s rather at odds with the assumption of a fairer, more equal society under a more generous government.
As David Smith, economics editor of The Sunday Times, put it in his column on Sunday: ‘The economics of independence are not close at all. Scotland will be worse off in the short-term, in the medium-term and in the long-term if it votes for independence. A vote for independence will be a vote for a Scotland that is poorer, more unstable, and will require deeper cuts in public spending than if it remains part of the UK.’ In the Guardian, Larry Elliott says: ‘Scotland would not face economic collapse or ruin. Countries much poorer than Scotland have thrived after independence. But it would not be a land flowing with milk and honey either. Gavin McCrone, author of a book on the pros and cons of independence (Scottish Independence: Weighing Up the Economics), says: “Scotland could survive but it would be tough in the early years. The fiscal position would be pretty tight.”‘
All that said, the threat of greater economic hardship may be a risk that Scots want to take in order to feel they have more control over their affairs. That would be a mistake, given that the failings of the political class are every bit as apparent at Holyrood as at Westminster. But even if a new breed of politicians should emerge after independence, politicians with the interests of the people at heart, there should be no illusions about oil and gas providing the basis for a New Jerusalem.
Rob Lyons is a columnist for spiked.
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