Scottish Independence - The Economic Debate
Key Economic Issues
Scottish Economy: Analysis of Scotland's economic strengths, weaknesses, opportunities, and threats (SWOT).
Example: A SWOT analysis might reveal that Scotland has strong renewable energy resources (strength), an aging population (weakness), the opportunity to become a leader in green technology, and the threat of economic instability due to reliance on oil revenues.
Currency: Evaluation of different currency options, including retaining Sterling, using Sterling informally, or adopting a new Scottish currency. Discussion of the pros and cons of each option.
Example: Retaining Sterling could maintain trade with the UK but limit monetary policy independence. A new Scottish currency could offer policy flexibility but risk instability.
EU Membership: Assessment of the potential benefits and challenges of Scotland rejoining the European Union, including trade, regulations, and political considerations.
Example: Rejoining the EU could boost trade and align regulations but might create trade barriers with the rest of the UK.
Balance of Trade: Examination of Scotland's trade relationships with the rest of the UK, the EU, and other countries. Analysis of export destinations and import sources.
Example: Scotland's main exports are often whisky, seafood, and oil. Understanding where these go and what Scotland imports helps assess economic vulnerabilities and opportunities.
Scotland’s budget: Overview of the Scottish government's revenue and expenditure, including devolved and reserved powers. Consideration of fiscal sustainability and the net fiscal balance.
Example: A large deficit in Scotland’s net fiscal balance might raise questions about fiscal sustainability.
Institutions: Consideration of the new institutions that Scotland would require if it gained independence, including the costs and challenges involved.
Example: Setting up a central bank would require significant investment and expertise.
Transition: Planning for a smooth transition to independence, including timelines, negotiations with the UK government, and potential disruptions.
Example: Negotiating the division of assets and liabilities with the UK could be complex and time-consuming.
Case for the union?: Arguments for and against Scottish independence, including economic, social, and political factors.
Example: Arguments might include economic stability within the UK versus the opportunity for tailored policies in an independent Scotland.
2014 Referendum Results
Referendum: In September 2014, Scotland held a referendum on independence, asking the question: "Should Scotland be an independent country?"
Example: The referendum was a binary choice: Yes or No to independence.
Voter Turnout: A high voter turnout of 84.6% was recorded, demonstrating significant public engagement in the issue.
Example: This high turnout indicated that the issue of independence was of great importance to the Scottish public.
Result:
55.3% voted against independence (No).
Example: This outcome reflected a preference for maintaining the union with the UK at that time.
44.7% voted in favor of independence (Yes).
Example: This indicated substantial support for Scotland becoming an independent country.
Polling Data on Scottish Independence
Polling data indicates fluctuating support for Scottish independence and various political parties over time. Trends in voting intentions can be influenced by political events, economic conditions, and public opinion.
Example: A poll might show a surge in support for independence following the Brexit vote.
The charts display trends in voting intentions for Scottish independence referendums, Scottish Parliament elections, and UK General Elections.
Example: These charts help visualize how public opinion shifts in response to different events.
Key parties include the Scottish National Party (SNP), Labour, Conservatives, and Liberal Democrats. These parties have different stances on Scottish independence and their levels of support vary over time.
Example: The SNP generally advocates for independence, while the Conservatives typically support maintaining the union.
Timing of Another Referendum
Negotiations: When would the Scottish government negotiate with the UK government on holding another referendum? Discussion of potential timelines and political considerations.
Example: Negotiations might be proposed after a significant shift in public opinion or following a general election.
UK Response: How will the UK government respond to calls for another referendum? Examination of different scenarios and potential outcomes.
Example: The UK government might agree to a referendum, refuse, or set conditions for one.
Circumstances: Is there a significant change in circumstances since the last referendum to warrant another vote? Consideration of factors such as Brexit, economic conditions, and public opinion.
Example: Brexit and its economic consequences could be argued as a significant change.
Section 30 Order: Would the UK government grant a Section 30 order, which temporarily devolves the power to legislate for a referendum to the Scottish Parliament? Analysis of the legal and political implications.
Example: Granting a Section 30 order ensures the referendum is legally sound.
Roadmap to Another Independence Referendum
The SNP set out a roadmap to another independence referendum before Nicola Sturgeon's departure. Discussion of the party's strategy and objectives.
Example: The roadmap includes various steps and conditions that the SNP believes are necessary for holding another referendum.
The roadmap presents three potential scenarios for the UK government:
Agree that the Scottish Parliament already has the power to legislate for a referendum.
Example: SNP argues the Scottish Parliament already has the power.
Agree to a Section 30 order, as was done previously, to ensure the referendum's legality.
Example: UK Government agrees to Section 30 order.
Take legal action to dispute the legal basis of the referendum and block the will of the Scottish people in the courts.
Example: UK Government challenges the referendum in court.
The SNP government would vigorously oppose any legal challenge in the courts. Analysis of potential legal arguments and outcomes.
Example: The SNP would likely argue that denying a referendum is undemocratic.
Supreme Court Ruling
In November 2022, the UK Supreme Court ruled unanimously that the Scottish Parliament does not have the power to legislate for a referendum on independence. Explanation of the legal basis for the ruling.
Example: The Supreme Court determined that the issue directly affects the UK as a whole.
The court determined that such a bill would relate to the future of the union of the UK, a matter reserved to Westminster. Discussion of the implications for Scottish independence.
Example: Scottish Parliament does not have the power to hold a referendum.
Pro-Independence Arguments
Scotland is comparable to other successful small, independent countries. Examples of countries with similar populations and economic characteristics.
Example: Norway and Denmark as small, successful independent countries.
Independence presents an opportunity to pursue different policies. Discussion of potential policy changes in areas such as economy, social welfare, and foreign affairs.
Example: Pursue policies tailored to Scotland's needs.
Proponents contrast the potential economic policies and ideology of an independent Scotland with those of Westminster. Analysis of different political perspectives and priorities.
Example: Emphasize social welfare and green policies.
Anti-Independence Arguments
Scotland benefits from substantial devolved powers. Overview of the powers and responsibilities of the Scottish Parliament.
Example: The Scottish Parliament has control over education and healthcare.
There are advantages to pooling and sharing resources across the four nations of the UK. Discussion of economic and social benefits of the union.
Example: Sharing resources ensures greater stability.
Transitioning to independence carries risks. Consideration of potential challenges and uncertainties.
Example: Currency volatility is a risk.
Economic Context
In 2014, the choice was between the stable status quo and independence. Understanding the economic conditions and political climate at the time.
Example: Pre-Brexit, Scotland enjoyed stable access to the EU market.
Now, in the context of Brexit, any choice involves change, uncertainty, and risks. Analysis of the impact of Brexit on the Scottish independence debate.
Example: Brexit changes the economic landscape.
Brexit has highlighted the challenges of structural changes when leaving a union. Lessons learned from the UK's experience of leaving the European Union.
Example: Trade disruptions after Brexit.
The economic context has changed significantly due to:
Oil revenues: Fluctuations in oil prices and their impact on the Scottish economy.
Example: Decline in oil prices impacts revenue.
Brexit (trade, immigration, and internal market bill): Changes in trade relationships, immigration policies, and the internal market.
Example: Reduced access to EU single market.
COVID-19 pandemic: The impact of the pandemic on the Scottish economy and public finances.
Example: Increased government spending.
Cost of living crisis: Rising inflation and its effect on household incomes and spending.
Example: Higher energy bills.
Inflation: Analysis of inflation rates and their impact on the economy.
Example: Increased cost of goods.
Domestic politics: Political developments in Scotland and the UK.
Example: Change in leadership impacts policies.
Geopolitics: Global events and their impact on the Scottish economy.
Example: War in Ukraine affects energy prices.
Then and Now
In 2014, the Yes campaign emphasized stability and continuity. Examination of the campaign's key messages and promises.
Example: Maintain the pound and keep open borders.
They proposed maintaining sterling as the currency, sharing economic institutions like the central bank, and keeping open borders with the rest of the UK. Evaluation of the feasibility and implications of these proposals.
Example: A currency union with the UK.
A second Yes campaign may be more radical, centered around Scotland adopting a different approach from post-Brexit UK on economic issues such as currency, immigration, and fiscal policy. Discussion of potential changes in strategy and priorities.
Example: Adopt a new currency and looser immigration rules.
Devolved and Reserved Powers
Devolved Powers: Restricted to long-term drivers of the economy, such as business development, skills/education, infrastructure, and planning. Explanation of the areas in which the Scottish Parliament has authority.
Example: Funding for universities is a Devolved Power.
Reserved Powers: Include macro-economic policy, trade and industry, regulation, and welfare. Explanation of the areas in which the UK Parliament retains authority.
Example: Setting interest rates is a Reserved Power.
Revenue and Expenditure
Devolved and Reserved Revenue: Scotland 2023-24
Reserved: 72%: Percentage of revenue controlled by the UK government.
Example: Income tax collected by HMRC.
Devolved under Scotland Acts 2012 and 2016: 16%: Percentage of revenue devolved to the Scottish government.
Example: Scottish Rate of Income Tax.
Assigned under Scotland Act 2016: 7%: Percentage of revenue assigned to the Scottish government.
Example: VAT assignment.
Previously devolved: 5%: Percentage of revenue previously devolved to the Scottish government.
Example: Council tax.
Devolved and Reserved Expenditure: Scotland 2023-24
Reserved: 40%: Percentage of expenditure controlled by the UK government.
Example: Defence spending.
Devolved under Scotland Act 2016: 5%: Percentage of expenditure devolved to the Scottish government.
Example: Social security payments.
Previously devolved: 55%: Percentage of expenditure previously devolved to the Scottish government.
Example: NHS spending.
Importance of Revenue and Expenditure
The issue of revenue and expenditure is important in the context of devolved and reserved powers to understand the financial autonomy and responsibilities of the Scottish government. Analysis of the implications for policy and decision-making.
Example: High reliance on reserved revenue limits policy options.
Scottish Economy
In 2014, there was a consensus that Scotland could be independent economically. Assessment of the economic strengths and weaknesses of Scotland.
Example: Strong oil and gas sector vs. reliance on UK market.
Scotland is one of the strongest economic regions in the UK, outside of London and the South East of England. Comparison of Scotland's economic performance with other regions of the UK.
Example: Higher GDP per capita than Wales or Northern Ireland.
Challenges and opportunities include:
Demographics: Analysis of Scotland's aging population and its impact on the economy.
Example: Increased pressure on pension system.
Net Zero vs. Oil: Balancing the transition to a net-zero economy with the importance of the oil and gas sector.
Example: Investment in renewable energy sources.
Economic flexibility: The ability of the Scottish economy to adapt to changing circumstances.
Example: Diversifying into new industries.
GDP per Capita
GDP per Capita: UK Regions
Scotland: £30,869
Wales: £25,665
Northern Ireland: £27,154
England: £34,690
UK: £33,745
GDP per Capita: English Regions
London: £59,855
South East: £36,174
East of England: £30,442
North West: £29,681
South West: £29,628
West Midlands: £27,649
Yorkshire and The Humber: £27,692
East Midlands: £27,505
North East: £24,575
Fiscal Position
Scotland’s overall fiscal position:
In 2022-23, Scotland had a net fiscal balance of -9% (-15.1% excluding North Sea Revenue) compared with the UK figure of -5.2%. Analysis of the factors contributing to the fiscal balance.
Example: Reflects higher spending and lower revenue.
Total expenditure per person in Scotland in 2022-23 was £19,459 compared with the UK figure of £17,243. Comparison of spending levels in Scotland and the UK.
Example: Higher spending on public services.
Net Fiscal Balance
Net fiscal balance data for Scotland and the UK from 1998-99 to 2023-24. Analysis of trends and patterns in the data.
Example: Data shows trends over time.
Scotland
Scotland - Excluding North Sea
UK
Spending vs Revenue
Spending vs Revenue data for Scotland and the UK. Examination of the different components of spending and revenue.
Example: Breakdown of different spends and revenues.
Health
Education
Other largely devolved services
Social protection
Other spending
Taxes on income and wealth
Taxes on expenditure and production
Local taxes
North Sea revenues
Other revenues
North Sea Revenue
North Sea Revenue: 1998-99 to 2023-24. Analysis of the contribution of North Sea oil and gas to the Scottish and UK economies.
Example: Fluctuating North Sea Revenues.
UK Scotland
Fiscal Balance
Sustainability is key for a small country like Scotland. Importance of sound fiscal policies and management.
Example: Borrowing within limits is key.
Smaller countries tend to have very tight fiscal strategies. Examples of successful small countries with strong fiscal positions.
Example: Switzerland and Norway as good indicators.
Currently, Scotland's fiscal position is 4% points weaker than the rest of the UK. Analysis of the reasons for this difference and potential solutions.
Example: Scotland is more reliant on public spending.
Currency Options
In 2014, the SNP pledged to retain Sterling as the Scottish currency (then chancellor George Osborne rejected this idea). Explanation of the political context surrounding the currency debate.
Example: Political issues in both countries.
The 2018 Growth Commission suggests that Scotland would retain Sterling (perhaps informally through sterlingisation if need be) or transition to a new Scottish currency. Analysis of the different currency options and their implications.
Example: Sterlingisation can be a short-term choice.
Currency Union Advantages
Retains Sterling: Maintaining the same currency as the rest of the UK.
Example: Supports cross-border trade.
Supports trade with the rest of the UK: Facilitating trade and economic integration.
Example: No currency conversion costs.
The Bank of England (BoE) provides liquidity and regulation to the Scottish financial sector: Ensuring financial stability and regulation.
Example: Stable financial system is key.
Currency Union Disadvantages
No independent monetary policy: Loss of control over interest rates and exchange rates.
Example: Scotland has to follow the BoE.
Not consistent with EU membership: Potential barriers to joining the European Union.
Example: Euro convergence criteria.
Restricts fiscal policy: Limitations on government spending and taxation.
Example: Limited ability to respond to economic shocks.
Using Sterling Without Formal Agreement
Using Sterling without any formal agreement (hasn’t been tried in a country of Scotland's size): Adopting the currency of another country without a formal agreement.
Example: Ecuador uses the USD.
Using a ‘foreign’ currency: The implications of using a currency that is not issued by the national government.
Example: No exchange rate control.
No independent monetary policy: Loss of control over monetary policy.
Example: Scotland is dependent on the monetary policy of another country.
Raises questions about balance of payments and EU membership: Potential challenges for the economy and international relations.
Example: Risk of economic instability.
New Scottish Currency
An increasingly popular proposal from SNP members and supporters is to introduce a new Scottish currency. Discussion of the political support for a new currency.
Example: Strong support within Nationalist Party.
This would allow for maximum flexibility in terms of economic policy. Potential benefits of having an independent currency.
Example: Scotland has freedom to set interests.
However:
Could impact trade with the rest of the UK: Potential negative effects on trade with the UK.
Example: Trade barriers.
Issue of the long term value of the Scottish currency: Uncertainty about the value of a new currency.
Example: Volatility could affect prices.
Disruption of transitioning from pound to new currency: Challenges associated with introducing a new currency.
Example: Logistical problems for businesses and individuals.
EU Membership
The Brexit vote was a catalyst for many to switch towards independence. The impact of Brexit on public opinion and the independence debate.
Example: Brexit increased desire for indepence.
The position for Scotland can be seen as straightforward:
Meets all the democratic requirements for membership: Compliance with democratic standards.
Example: Scotland has full democratic institutions.
Meets other requirements such as human rights and environmental standards: Adherence to human rights and environmental regulations.
Example: Aligned with HR standards.
Scots Law is already EU compliant: Compatibility of Scottish law with EU law.
Example: Scottish Law would not need large adjustments.
EU Membership Caveats
Politics of accession – would it be politically easy or straightforward to join? Political considerations in the accession process.
Example: EU members may have their own agendas.
Bargaining power – opt out of Euro? Ability to negotiate opt-outs from certain EU policies.
Example: Scotland might struggle because it's in a weaker position.
Fiscal criteria - Budget deficit has to be below 3%, Scotland's is higher. Tied in to that criteria in the future. Compliance with EU fiscal rules.
Example: Cuts to balance the budget to get there.
International Trade
If Scotland did gain independence, there would be some key issues:
Relationship with the EU whether we are in or out: Impact of EU membership on trade relationships.
Example: Membership in the EU makes trade easier.
Relationship with the rest of the UK: Trade relationships with the UK post-independence.
Example: Border issues affect trade.
Relationship with other countries and securing trade deals for Scotland: Opportunities to establish new trade agreements.
Example: Trade deals with the US.
Scottish Exports
Scottish Exports (Export value £ billion)
Total
Rest of UK
International
UK:EU Export Ratio
Ratio of UK:EU Exports from 2000-2025. Analysis of changes in export patterns over time.
ESS 2019 ESS 2021
Top Ten International Export Destinations
USA
France
Germany
Netherlands
Ireland
China
Belgium
Norway
Italy
Spain
Relationship with RoUK
Relationship with the rest of the UK post independence?
If re-join EU may need a border with the rest of the UK as the UK is no longer in the EU single market and customs union: Implications of EU membership for the border with the UK.
Example: Border checks would be implemented.
Could be a hard border or a customs border: Different types of border controls and their impact on trade and travel.
Example: Hard border impacts tourism.
Travel in the UK and things like VAT: Potential changes to travel and taxation.
Example: Passport needed for England.
Institutions
Scotland would require new institutions if it gained independence. The need to establish new government agencies and organizations.
Example: Scotland needs its own intelligence service.
Opportunities but also challenges. Potential benefits and difficulties in creating new institutions.
Example: Efficiencies but also large challenges.
Track record in devolved powers? The experience of the Scottish government in using its existing powers.
Example: How it runs NHS Scotland compared to NHS England.
In 2014, the SNP estimated the cost of new institutions required to be £200m and take 18 months. Cost estimates for establishing new institutions.
Example: Cost underestimated.
Further devolution of limited social security benefits to Scotland from 2022/23. Expansion of the powers of the Scottish government in the area of social security.
Example: Scotland is responsible for some benefit payments now.
Debt
If independence were gained, UK debt levels would be split between countries on a per capita or per GDP basis. Allocation of the UK's national debt to Scotland.
Example: Scotland has to pay percentage of UK debt.
Timing
Brexit has shown there is a need for a smooth transition regardless of the outcome to limit economic losses. Lessons learned from the UK's experience of leaving the European Union.
Example: Disruption of leaving hurt economy.
COVID impact likely to last years. The long-term effects of the pandemic on the economy and society.
Example: Impacts on peoples mental health.
Future of the Union
UK decisions in the future, better or worse? Potential impact of UK government policies on Scotland.
Example: Scotland might disagree with Conservatives.
Internal market and erosion of devolved powers? Concerns about the UK internal market and its impact on the powers of the Scottish Parliament.
Example: Parliament decisions might be blocked.
Further devolution? Possibility of further powers being transferred to the Scottish government.
Example: More economic powers may be gained.
50% of the Scottish budget will soon be determined by revenues generated in Scotland. Increasing financial autonomy for the Scottish government.
Example: Local revenue increase.
New social security responsibilities. Expansion of the powers of the Scottish government in the area of social security.
Example: Scotland now runs disability benefits.
Additional powers, for example, borrowing for capital investment.