This second installment from the Wee Blue Book addresses an area over which considerable debate has raged. The economy underpins every aspect of Scotland’s future. In the interests of objectivity on so crucial a matter, this section has received a fiercely partisan—but nonetheless considered and articulate—critique from Kevin Hague’s Chokkablog.
The choices that any independent Scottish Government makes, and whether those choices will be easier or harder than those faced by a devolved Scottish Government, will be dictated by how much money is available. For that reason, the UK government and the No campaign desperately want you to believe that Scotland would be poorer as an independent country, and that it would therefore have to raise taxes and/or cut public spending to protect services.
But that simply isn’t true. In fact, it’s not even close – the Financial Times stated unequivocally in February 2014:
“An independent Scotland could expect to start with healthier state finances than the rest of the UK.” Scotland subsidises the UK by billions of pounds every year, and has done for many decades. On the rare occasions when it’s forced by Parliamentary rules to tell the truth, the UK government admits that fact plainly.
On 27 March 1997, the Herald newspaper reported:
“Mr William Waldegrave, Chief Secretary to the Treasury, has been forced to concede figures in Commons questioning in recent months, which show that if Scotland’s share of North Sea revenues had been allocated since 1979, then the net flow in favour of the Treasury from north of the Border ran to £27bn.”
The Herald went on in the same article to note that Mr Waldegrave (the 1997 ministerial equivalent of Danny Alexander) later admitted to the House that the real figure was even higher, at £31 billion over the 18-year period.
The extent of Scotland’s wealth after the discovery of North Sea oil in the 1970s was so great that successive Labour and Conservative governments hid it from the Scottish people for three decades. When a 1975 analysis for the UK government by economist Professor Gavin McCrone was finally made public in 2005 after a Freedom Of Information request, The Independent newspaper reported:
“An independent Scotland’s budget surpluses as a result of the oil boom, wrote Professor McCrone, would be so large as to be ‘embarrassing’.
Scotland’s currency ‘would become the hardest in Europe, with the exception perhaps of the Norwegian Kronor.’ From being poorer than their southern neighbours, Scots would quite possibly become richer. Scotland would be in a position to lend heavily to England and ‘this situation could last for a very long time into the future.”
In short, the oil would put the British boot, after centuries of resentment, firmly on the foot standing north of the border.
Within days of its receipt at Westminster in 1974, Professor McCrone’s document was judged as incendiary and classified as secret. It would be sat upon for the next thirty years.”
The pro-Union economist Professor Brian Ashcroft (husband of former Scottish Labour leader Wendy Alexander) calculated in July 2013 that had Scotland been independent since 1981, it would by now have an accumulated basic budget surplus of at least £68 billion. The real figure, including interest and other benefits, would likely be an “oil fund” of well over £100 billion.
But instead of that huge surplus, Scotland is part of a UK with a massive £1.4 trillion debt – our population share of the debt is approximately £118 billion.
In short, membership of the UK for the last 32 years has left Scotland anywhere from £180 billion to £250 billion worse off than it would have been as an independent country. Thanks to Westminster we’re massively in debt, where we should have had money in the bank.
There’s no point crying over spilt milk – that’s all in the past. (Although the vast subsidy Scots have paid to the UK could still play a big part in reducing how much of the UK’s debt Scotland takes on in independence negotiations – see Chapter 5) But the fundamental economic facts making Scotland stronger than the UK are the same now as they’ve been for the last 40 years, as the Financial Times observed.
Unionists don’t care about that. In February 2014 the Labour MP for Lanark and Hamilton East, Jim Hood, stood up in the House Of Commons and said:
“If the Scottish people are going to be better off economically etc, I would still be against breaking away from the Union.” (and video)
But Scottish Labour MPs can afford not to care. They’ve got safe jobs for life (Jim Hood has a 13,000 majority and has been in place for 27 years) and they get to decide their own salaries. If you’re living in Scotland and you DON’T have an MP’s lavish expense account and gold-plated pension to fall back on, you probably do care whether you and your family would be better off or not.
Scotland can’t afford to keep paying tens of billions of pounds over and above its fair share. The simple fact is that by any reasonable calculation, and even BEFORE the effect of different policies (such as scrapping Trident) is taken into account, Scotland will have more money as an independent country than it does as part of the UK.
Q: “But isn’t UK government spending higher per person in Scotland?”
A: Yes, it is. But Scotland pays for every penny of that spending and more besides. As the Financial Times article from February points out:
“Although Scotland enjoys public spending well above the UK average – a source of resentment among some in England, Wales and Northern Ireland – the cost to the Treasury is more than outweighed by oil and gas revenues from Scottish waters.”
On average, UK spending is around £1,200 higher per person in Scotland than in the UK as a whole. But on average Scotland sends £1,700 more per person to the UK in taxes. We only get back around 70% of the extra money we send to London. The other 30% is kept by Westminster and spent in England, Wales and Northern Ireland.
Q: “But doesn’t Scotland get more money spent on it than it generates in tax?”
A: Sort of. In 2011-12, for example, Scotland generated roughly £57bn in tax and had £64.5bn spent on it. But that extra spending isn’t a generous gift from the UK – it’s borrowing, taken out by the UK government in Scotland’s name. It’s not money from the rest of the UK, it’s money from international banks – it becomes part of the massive debt referred to above, and Scotland has to pay it back.
(And we have to pay it even if we didn’t need or want the things it was spent on – like nuclear weapons, the London Olympics and the HS2 railway from London to Birmingham, all of which Scotland pays billions of pounds towards because Westminster claims they’re for the benefit of the whole country.)
The gap between what a government gets from tax receipts and what it spends is called a deficit, and almost every country on Earth (except Norway and Switzerland) has one. It’s a normal state of affairs – it’s just how modern governments work, though the No campaign likes to make out that Scotland would be the only country in the world with a deficit.
Scotland’s deficit is in fact considerably smaller than the UK’s – in 2011/12 the UK’s deficit was £126bn, making Scotland’s population share of it £10.6bn. Yet Scotland’s own deficit that year, according to Alistair Darling, was only £7.6bn.
In other words, in just one year Scotland had to take on an extra £3bn of the rest of the UK’s debt, as well as all of its own.
For perspective, £3bn is roughly three times the cost of free university tuition (£590m), free prescriptions (£60m), free bus passes for pensioners (£180m) and free personal care for the elderly (£200m) combined.
Most of Scotland’s deficit (roughly £5bn a year, or two-thirds of it) is in fact made up of UK debt repayments. We only have to pay that because we’re in the UK and the UK keeps loading extra debt onto Scotland, even though Scotland already pays far more than its share.
The facts are clear – the longer we stay in the UK, the worse Scotland’s deficit and debt will get.
Q: “But what if there was another banking crisis? Scotland couldn’t afford to bail out the banks.”
A: That’s simply not how bank bailouts work. There have been numerous bailouts of banks across Europe and the USA in the last few years, and they’ve all operated under the same principle – governments fund the bailout proportionate to the business the bank does IN THAT COUNTRY.
So if a bank is based in Scotland but does 90% of its business elsewhere, the Scottish Government would only be liable (if it chose to bail out the bank at all) for 10% of the bailout. That’s why, for example, the US Federal Reserve contributed an eye-watering £640 billion to save Barclays in 2008, despite Barclays being a UK bank registered in London.
Q: “But won’t independence create barriers to trade with the rest of the UK, which will damage the economy?”
A: No. Scotland and the rUK will both remain inside the European Economic Area (EEA), a free-trade zone which incorporates both EU and non-EU states.
Q: “But aren’t those figures about a wealthy Scotland mostly from the boom years of North Sea oil? Isn’t the oil running out and getting harder to extract and less profitable now?”
A: For most of the 1990s the price of oil was around $20 a barrel, but it’s been consistently over $100 for the last two years. The price of increasingly-rare commodities on which the world depends tends to go up, not down. But don’t listen to us – how about the Investors Chronicle (part of the Financial Times group), which in July 2014 told its readers to buy shares in oil company EnQuest, saying:
“We think that Westminster has been deliberately downplaying the potential of the UK Continental Shelf (UKCS) ahead of September’s referendum on Scottish independence.”
Unionist politicians are desperate to talk down Scotland’s oil wealth, for obvious reasons. As we’ll find out later in this book, they’ve been doing that for most of the last 40 years. If you want an honest, impartial assessment, ask the people whose living depends on making money out of it. Because unlike the government, they can’t afford to lie to you.