This blog having trodden light on politics for a week, its time to wheech the shoes off and climb back into the vat to tread the grapes of math. Those readers squeamish about numeracy may wish to skip this one altogether.
When the latest UK GDP figures were released by the Office of National Statistics (on Wednesday March 28th), they did not make for encouraging reading. The ONS said that the UK economy contracted by a quarterly rate of 0.3% between October and December, up from the previous estimate of a 0.2% decline. This disappointed market analysts, who had expected no changes.
But it also fuels the debate over Scotland’s viability as a separate economy. Leaving aside nostalgia, the UK government’s main forward-looking argument for the union seems to be the we are “stronger together”. The more we see such figures, the less tenable this statement appears. Newsnet Scotland published a cutting piece on what it called the “failure of UK government’s economic plan”. In it, SNP spokesman Stewart Hosie MP commented:
“The UK Government remains wedded to their austerity cuts and now want them to last longer and cut deeper than originally planned.”
But what are the relevant numbers? The current and former chairs of the David Hume Institute (not known cheerleaders of the independence movement) also published some figures that can be considered objective, even if—as they themselves admit—they are rather provisional. Peat & Sutton started by considering national debt to national output as a measure how well a country can withstand its debt burden.
Although some nations are over 120%, an acceptable figure of debt/GDP appears to be around 60%, with Gordon Brown having once set 40% as a goal in the days before Prudence was rudely handled round the back of the bike shed. The Office for Budget Responsibility calculates that the UK’s debt/GDP ratio will peak in 2014/15 at 76.3%, with the current Public Sector Net Debt (PSND) of almost £1tn, putting UK at 63%.
Taking Scotland as 8.4% of the UK population, that puts our share of PSND around £83bn. UK figures ignore offshore oil & gas but, by including them, we arrive at a GDP for Scotland of about £159bn. This would imply our debt/GDP is 52.2%—considerably better than the UK’s.
However, Peat & Sutton further argue that PSND is a fairly narrow measure of liability and that we must consider Whole Government Accounts (WGA) which takes into consideration debt burdens such as pensions (UK about to grow this by adding in Royal Mail pensions), PFI/PPP (which Irn Broon resolutely kept off the books). WGA is calculated as £2tn, which reduces to £1.2tn when assets are offset. The equivalents for Scotland are £152bn and £85bn—slightly better as we have slightly more assets per head.
Also coming into the equation are the £65bn in liabilities by which banks were bailed out in 2008/09. In theory, all this could be recouped if bank share prices recover. But, until they do and assuming they won’t pre-independence, we would need to assume our share of both the debt and the shares owned—meaning there could be a nice windfall post independence. Taking the debt in full adds £5.6bn—but could give us far more back if (when?) RBS/Lloyds share prices climb.
It is a fact (from GERS figures published this month) that Scotland’s own fiscal position has deteriorated with the current recession. From a net £554m surplus in 2007-08 (+0.4% of GDP), the balance has dropped to -£6.4bn (-4.4%) in 2010-11. These figures include North Sea revenues that would accrue geographically to Scotland, based in internationally recognised equidistant borders. (they would change a bit if Berwick were ever to return to Scotland but that is a whole different discussion). So, the ‘positive’ case seems not to look as positive as it did.
But, the picture for the UK as a whole is even less rosy. From a -£5bn (-0.4%) deficit in 2007-08, it has plunged drastically to -£98.4bn (-6.6%) in 2010-11. In other words, the UK is 50% worse off than Scotland would be if it stood on its own. As with the debt, there may be debates to be had about the exactness of the figures. But the incontrovertible fact is that Scotland would pay more by staying in the Union—by these figures to the tune of £2bn (or about 6% of current Scottish Government revenue) each year.
The above cases for independence based on debt or GERS are too simplistic to be conclusive. A large number of other factors need to be taken into account before any final figures could be calculated. These include major components such as:
- Who would pay to decommission Chapelcross/Dounreay/Torness/Hunterston?
- What would England pay to lease the Clyde Naval Base & for how long?
- What English services would Scotland wish to keep using (e.g. embassies)?
- Would defence savings (£1.8bn cost instead of current £3.4bn) be feasible?
- Compensation for major infrastructure investments (e.g. Olympics)?
Without full-scale examination based on negotiated settlements, it will not be possible to be fully accurate. When Eire became independent in 1922, they simply walked away from Britain with anything inside their borders and no compensation was made either way (although two naval bases were retained). So simple a solution is unlikely.
But the key issue is this: the present UK government fiscal policy has produced no recovery (the economy is flatlining) and our continued presence in the UK is accruing us debt at a rate 50% faster than if we were independent. While it is right that we need an extended period for information gathering and discussion—especially in light of the large number of ‘don’t knows’ in the population—a major decision on dissolving the British Union must be on the table.
Because the case for Scotland grows stronger daily, not least because the revenues from Scottish exports (not just oil: whisky recently reached a £4.4bn export record; we just reached 33% renewables generation while England’s next nuclear power stations have been ditched by E-on) will allow us to pay down any debt faster than the UK ever could. With Brent Crude over $110 a barrel and £1tn in known reserves remaining, a surplus going into an oil fund, such as Norway has, is no pipedream.
Read the articles—and any others that seem knowledgeable and attempt objectivity. The two years of discussion will slip by quickly. And the decision, when it comes, must be made looking forward to make the best of Scotland’s—and possibly even England’s—future. And those who believe in the Union need to abandon their peevish naysaying and marshal their economic arguments if they hope to win. Their pale arguments, vacillating between scare stories and nostalgia are helping us win the case for independence—by a mile.