Economics has been called the dismal science and a joke with more than a little truth to it is if you want a bewildering number of projections, you simply ask a couple of economists what they think. But, sometimes, things are so bloody obvious that economics can cheer you up. Look at Scotland in detail: lift the bonnet; listen to that motor; kick the tyres. This is one vehicle that would get not just Clarkson but the Stig grinning.
First of all, what is going on in Scotland is not easy to distinguish from Britain. A lot of people from the Treasury to the Tories to several canny Scots businessmen have not wanted people to know the dosh that gets earned by Scotland, especially as major amounts do not wind up in the pockets of the Scots.
Britain’s GDP at just under $3tn lies in 7th place between Brazil and Italy, with France & Germany (along with USA, China and Japan) both ahead. Looked at per capita, UK drops to 22nd in the world (around $40k p.a.), behind most EU and all Scandinavian countries. Given that, 100 years ago, Britain led the world, this is a poor track record.
Britain’s balance of trade (exports minus imports) is more alarming, growing from a stable -£10bn to -15bn each year in the 1990’s to almost -£100bn recently. A short way of describing this is “we are living above our means”. One way this is feasible (at least in the short term) is to borrow. The UK has done this like a drunken sailor. From a stable £250bn in the early noughties, Net Public Debt has tripled to £750bn this year and is expected to reach £1,300bn within five years. At 15-year Treasury Bond rates of 3%, that means losing the equivalent of the entire Scottish budget in interest every year.
The reason for this is the fiscal mess of 2008. Whereas UK government income & outlay had risen roughly in step to around £600bn each year, since then, income has fallen off a cliff and this last year, a shortfall (= deficit) of £157bn (11.1% of GDP) was logged. This fiscal basket case is the Union whose protective shell Scotland should be grateful to enjoy? But, what if Scotland were to run its own finances entirely?
Douglas Fraser’s BBC figures indicate Scotland takes £48bn in, with an outlay of £62bn each year. This £14bn shortfall represents 10.6%, which is slightly better than the above. But this also presumes that Scotland would continue with a population share of current UK income and expenditure. Bringing North Sea revenues out of the Treasury cupboard where they are conveniently hidden and allocating 97% of the oil and 58% of the gas to Scotland, the income from this is heading towards £13bn for the coming year, neatly filling any revenue shortfall for a Scottish government.
Then we should look at expenditure the UK may see as useful but the Scots don’t. Defence of the UK costs £28bn (more than even Russia) and so, the Scots share of this should be £2.24bn. However, getting rid of Trident, heavy tanks, overseas deployment and any strategic strike ability would give Scotland forces appropriate to the country for half that amount, so—even with no other changes—a Scottish budget would start in balance at around £60bn.
Clearly there would be issues about clearing whatever our share of the UK’s horrendous-and-growing national debt turns out to be. Until that’s done, there is little chance of starting our version of the oil fund the Norway enjoys. But what we could do is finally have an international presence that is not masked by the UK. Currently exporting £19bn in goods, this is 9% of the UK’s £221bn total, Scotland already out-exports the rest of the UK. With our international reputation and world leaders like Weir (high-pressure pumps) and business already showing more confidence, Scotland is poised to out-perform the more laggard English, if given the chance through independence.
How would all this affect the individual? Clearly not all would be affected in the same way. But a study has been done about the unsustainability of current spending in the UK that was begun under Blair when North Sea oil money, windfall from the Treasury and sheer borrowing were all used to fund a welfare state programme we couldn’t afford. Since 2008, chickens have been coming home to roost. The Scots could avoid all this and have a rather better standard of living (for reasons see above). The comparison can be summarized in a single chart:
The financial burden carried by every Scot is, contrary to Westminster’s self-serving piffle about ‘benefits from the union’, growing annually. An analysis of the economic news for Scotland is actually good and needs to be discussed widely. Whether Scots want to ignore that and keep carrying that burden will be a decision they’ll take in the upcoming referendum.