The Economic Impact of Scottish Independence

By M. J. Coutts

On the 18th September 2014, to paraphrase the REM song, ‘’ It could be the end of the UK as we know it’’, the UKs relationship with Scotland could change. The beginning of the machinations concerned with the march to independence, started back in 1979, when the first referendum was held and defeated.

When the devolution of a number of powers from Westminster were transferred to Holyrood, Scotland, in 1997, it was felt that the opportunity for further devolution was both possible and mutually desirable. Since The Scotland Act 1998, there has been further devolution of powers with The Scotland Act 2012, including:

A Scottish rate of income tax and borrowing powers worth £5bn, stamp duty, land tax and landfill tax. Laws involving: air guns, drink driving and speeding limits.

Over the next months, we will be bombarded with argument and counter argument as to the benefits of Scottish independence. On the pro Union side is the cross party, ‘’Better Together’’ campaign, with active supporters including its Chairman, the former Chancellor of the Exchequer, Alistair Darling. In September, the Yes Campaign, headed by the previous director of STV, Blair Jenkins and more informally, Alex Salmond, will release a White Paper outlining the future for an independent Scotland. There are a variety of areas that this white paper will cover. However, some of the policy decisions will have considerably more attention than others.

Sir James Mirrlees, the Nobel Prize winning economist and member of Scotland’s Council of Economic Advisers, has recently co- written a paper outlining potential radical solutions for an independent Scotland tax system. These radical examples include: A merging of National Insurance contributions and income tax, VAT being charged on all goods and services, removal of savings from taxation and fuel duty being scrapped in favor of congestion charges.

For the SNPs part, ‘’A Scottish Government spokeswoman said last night that its September review would not be examining “specific taxes”, as proposed in the Mirrlees review. However, this is a man who sits on the Governments Fiscal Commission, so do not write these tax proposals from the table.

Oil and Gas reserves will be front and center of every economic, tax and public service debate. The interpretation of Scottish economic statistics has developed into a full on public relations war. The fossil fuel argument involves the extent to which the SNP and the UK government differ, in their belief of how important these resources can be, to a future independent Scottish economy.

The No campaign has taken issue with the premise that productivity of fossil fuels has already peaked, and that production of these resources will increase in perpetuity. The SNP argues that scientific evidence states over £1.5trillion worth of oil and gas untapped North Sea reserves. With £100billion worth of investment in current and future production investment being committed, the SNP are banking on continued increasing production to fund their independence dream.

It is highly ironic that the SNPs stated environmental aim is to move away from fossil fuels. So to give such importance to fossil fuels in their vision for independence, suggests a contradictory stance that drives home the accusation of poorly thought out, populist politics.

There is a great deal of importance being placed on these non-renewables as a way to develop an independent Scottish economy. The White Paper will argue for the use of oil and gas to boost the economy in the short term, so as to provide for the increased taxation spending per person relative to the rest of the UK. Over time the SNP hopes to transfer away from its dependence on fossil fuels, and develop its other industries with this economic cushion, such as; food and drink exports, manufacturing and financial services.

The true long-term economic benefit of oil and gas has come under significant scrutiny. The Office for Budget Responsibility (OBR) has predicted a £11-20bn shortfall in the Scotland budget versus SNP. Salmond has dismissed this economic prediction as oil prices are unpredictable and highly volatile and as such the OBR cannot accurately model these price changes. What is known, however, is taxes will have to rise and spending decrease to smooth out the impact of this movement on current spending.

The last key issue, which has already been discussed at length, and will certainly have to change, is defence. The SNPs defence spokesman Angus Robertson, has committed to having 15,000 serviceman and a £2.5bn a year budget in a post Union world. Further defence policies include Scotland only units and the Scottish removal of the Trident nuclear deterrent. A reduced military would, in theory, require Scotland to utilise a larger defence network, such as NATO. The Ditchley foundation, however, has suggested that membership will not be automatic, especially, if they choose to remove the core European Nuclear deterrent from Scottish soil.

In a further blow to the SNPs defence plans, a new report by Major- General Andrew Mackay, the former commander of UK forces in Afghanistan, has highlighted concerns with the SNP commitment of 15,000 front line personnel. He argues that for every one front line solider, a further two support staff are required. Placing the armed forces at 45,000 and entirely dismissing personnel involved in intelligence.

Over the next year, there will be argument and counter argument regarding what is best for Scotlands economy, defence, education and health. The cost of independence will be minimum £800mill in administrative costs, and we know the SNPs vision for an independent Scotland is not without significant cost and one that may mean a second tier, north of the border.

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