The UK government wants an early referendum on Scottish independence; the SNP wants to wait. Could a split really happen, and how would it work? Simon Wilson reports.
What’s happened?
The constitutional and political wrangling over the timing and nature of the Scottish National Party (SNP) referendum on independence began in earnest this week.
Under the terms of Scottish devolution, constitutional matters are legally reserved to the British parliament, who want the SNP to hold a vote sooner rather than later on the grounds that “uncertainty” is harming the Scottish economy. Alex Salmond doesn’t see it like that. He wants time to build his case, announcing a referendum for autumn 2014 – a few months after Scots will be celebrating the 700th anniversary of their great victory over the English at Bannockburn.
Is support for independence strong?
It depends on the exact question asked, but polling expert John Curtice reckons it is currently 32%-38% – a bit lower than when the SNP formed its first (minority) administration in 2007, ie, before the financial crisis and bank bail-outs.
Far more Scots favour “devolution max”: much greater powers, including full fiscal powers, for Holyrood, leaving just defence and foreign affairs in the hands of Britain. Salmond would like to get this option onto the referendum ballot paper – no doubt seeing it as a firm stepping-stone towards full separation.
But to achieve independence, says Curtice, the SNP needs to convince Scots “of the economic case for leaving the Union”. According to the latest Scottish Social Attitudes Survey, 65% of Scots would favour independence if they thought it meant everyone in Scotland would be £500 better off per year. If everyone were £500 worse off, only 21% would want it.
What are the key issues?
Can Scotland prosper as an independent nation? And how should Britain’s assets and debts be divided? On the first point, there can be little doubt that a separate Scotland is in principle viable. Of the ten new member states admitted by the European Union in its last big expansion in 2004, six are smaller than Scotland and six have won independence since 1990. More patents are issued to Scottish universities than to any other nation in the world; the past year has seen high-profile investments in Scotland by firms such as Amazon, Hewlett-Packard and Michelin.
Yet Scotland remains overly dependent on the public sector for employment. Between 1995 and 2008, research by Professor David Bell for think tank Reform Scotland suggests that 85% of the growth in jobs was attributable to health and social work, education and administration, defence and social security – all public-sector jobs.
This is “not a sustainable long-run growth path”. Independence may act as a galvanising force, nudging Scotland away from dependence on the public sector – but it’s hardly a sure bet.
What about dividing up assets?
Scotland has two key things England doesn’t: a disproportionately large slice of overall UK-funded spending (under the outdated but unrevised Barnett formula); and North Sea oil – the tax revenues from which go straight to the UK Treasury.
According to Dr Richard Wellings of the Institute of Economic Affairs, if Scotland’s share of Britain’s overall debt on any split accounted for the fact that it receives more government spending per head than the rest of Britain, then a figure of “around £110bn could be appropriate” (based on 10% of Britain’s £1,106bn debt pile as of 2010).
With Scottish GDP standing at around £140bn, that gives a high debt-to-GDP ratio of around 80%. So the key fiscal trade-off for a separate Scotland would be losing the block grant but gaining oil revenues. This raises crucial questions.
For one, is it wise to be dependent on such a volatile, declining and unsustainable (notwithstanding recent big finds such as the Clair field northwest of Shetland) source of revenue? And perhaps more importantly, is it really Scotland’s oil rather than Britain’s? Where would the new international boundary lie?
Isn’t that obvious?
Not at all. It would be one of the many tough issues at stake in any divorce. By international convention, maritime boundaries extend along the line of the land border. So a notional English-Scottish border in the North Sea would in theory head sharply to the north-east from Berwick (itself evenly split on whether to rejoin Scotland) pointing at Norway as far north as Bergen, rather than heading east to Denmark.
Such a division – fiercely contested by many Scots – would result in a surprisingly large proportion of the North Sea oil fields going to England. Moreover, if all future revenues flow to the Edinburgh Treasury, wouldn’t that mean that England (or whatever “continuity UK” emerges) needs compensation for its decades of investment in North Sea oil?
What about the currency?
Even if Scotland were to be fiscally stable – by slashing defence spending, say, and getting a “free ride” on the back of its big neighbour – there’s the question of currency and monetary policy. Some say that as a “new” entrant to the EU, Scotland would have to join the euro, but Salmond is clear that Scotland would keep sterling.
That raises a question: why would a small nation on the edge of Europe with an uncertain fiscal base embrace monetary union without fiscal union when this is precisely what has caused such turmoil across Europe? Even if Scotland and England came to a deal on how to split Britain’s debt fairly, it is less clear how international investors would view a separate Scotland. For example, it is highly doubtful, reckons M&G’s Jim Leaviss, that the country would continue to attract an AAA credit rating.