Published on 11 Jan 2012

Yours, for Scotland. Ten economic questions on independence

Not my words, but “Yours, for Scotland, Alex” was the handwritten signature to an excruciating letter written by Scotland’s first minister to Sir Fred Goodwin in 2007. The letter, here (and pictured at the bottom of the blog):  encourages, and backs the Shred’s disastrous bid for RBS to takeover ABN Amro, a step not even taken by Gordon Brown. And there is a relevance to the now furious debate on independence.

Firstly, it’s an apt illustration of the economic interlinkages between England and Scotland. But it also shows that even when an SNP First Minister thinks he’s encouraging something “for Scotland” it doesn’t always work out in her interests. So there’s are a multitude of questions about any divorce in the Union, which right now is being ignored in place of referendum procedure. Some are of vital interest to any voters in a referendum. Many are of important interest to voters across the UK.

1. Will an independent Scotland aim to join the euro? The 2009 Scottish Government White paper states: “Scotland would continue to operate within the sterling system until a decision to join the Euro by the people of Scotland in a referendum when the economic conditions were right.” page 31.

Surely the argument as made in 09 is transformed now, given the treatment of small indebted nations by the Euro big boys.

2. Would the evident loss of economic sovereignty to Brussels and the ECB in Frankfurt mean an even less sovereign Scotland than exists within the UK Union? If Scotland joined the euro, it would have to negotiate acquisition of gold and Forex reserves from Bank of England to give to the ECB in Frankfurt.

3. Would Scotland become part of the prosperous northern bloc, or instead go straight into the PIIGS – the acronym used to refer to Portugal, Italy, Ireland, Greece and Spain? If it inherits in 2014 a proportionate share of the national debt, it would be a highly indebted nation with a likely structural deficit (Calman commission analysis) even after oil revenues. It depends on the post-referendum negotiation.

4. Why would Scotland aim to join a currency union to which its exports were a total of £9bn (EU) when its intra-country “exports” to the rest of the UK are four times as much: £36bn? (2003 figures, for intra-UK figures, they are experimental).

5. Will an independent Scotland stay in the “sterling zone”? So will Scotland be any better off from being tagged to a central bank that takes no notice of its economic conditions? Surely the singular lesson of the past year is that  monetary union requires fiscal coordination/control. Could Scotland “print money” independently to lower its own long-term interest rates? Would the UK Treasury have to send inspectors to Holyrood in 2016, like the ECB/EU has sent teams to Dublin/ Athens/ Lisbon?

6. What proportion of the remaining North Sea Oil reserves will remain with an independent Scotland? Over 90%? Do you recognise other maritime divides other than the “median line”?

Read more: Salmond pledges 2014 Scottish independence vote

7. If you expect 90% of the oil revenues from the UK Continental shelf, what proportion of the UK’s £1.4 trillion national debt will you take on?

8. How do you expect to sustain higher public spending per capita than Wales and Northern England in Scotland, post independence? Higher taxes, the Laffer effect, becoming a tax haven, spending cuts?

9. What proportion of the Royal Bank of Scotland’s £187bn toxic asset exposures, currently residing at the UK Treasury’s Asset Protection Agency, will Scotland take on? SNP supporters blame “English” light touch regulation so did the SNP publicly critique light touch regulation?

10. Why did the SNP offer support, assisitance and “Good luck” to RBS’s disastrous bid for ABN Amro, which nearly bankrupted Britain.  Could an independent Scotland have ever bailed out RBS, representing 2,500 per cent of its GDP?

Of course, Scotland could survive economically as an independent nation with an economy bigger than New Zealand. There has been much carping about Mr Salmond’s arc of prosperity speech (Iceland, Ireland etc). But it is absurd scaremongering to suggest that Scotland would suddenly go bankrupt. The question is will Scotland be better off? I think it’s fair to say that a successful euro made the purely economic case for Scottish independence much stronger. The euro’s problems and evolution has changed the game though. Scotland would have to seriously consider its role within one of two currency unions: the eurozone, or the sterling zone.

Follow Faisal Islam on Twitter: @faisalislam


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35 reader comments

  1. scully says:

    Thanks Faisal for an excoriating broadside to Big Eck and co. I’ll be putting these questions to a few of my Nat friends and await their considered responses. Since the 2008 crisis the whole landscape has changed and it would be foolish not to recognise this. Cameron and Co’s intervention could persuade people here to vote in favour but it would be a disaster if we voted Yes in such a manner without taking into consideration all the factors you raise here. The linked letter shows Big Eck’s lack of financial intelligence and may be his downfall along with his strategy to call for a referendum in this Parliament. What’s the rush? Especially with the way events are going in Europe and moreover, Globally. Nice one.

  2. Arthur says:

    Why couldn’t Scotland have an independant currency? Perhaps the Scottish Pound.

    This would allow it to have fiscal control and full independence from being reliant on a foreign central bank. As you point out, they have a larger economy than New Zealand; yet New Zealand is using it’s own currency and as of 2010 was the 10th most traded in the world – source: http://bis.org/publ/rpfx10.pdf

    1. Andrew Dundas says:

      Scotland would be bound by the 1993 Copenhagen Agreement that requires ALL new EU members to agree to adopt the Euro when the Commission deems we’re ready.

    2. Steve says:

      Joining the Euro should not be an immediate concern for Scotland. If Scotland were to remain neutral it could operate an economy similar to the strength of New Zealand, and follow a defense policy similar to that of the Swiss, saving Billions on nuclear weapons. The chatter about the Euro is diversionary.

      An independent Scotland has more chance of setting up a public land & investment bank, properly regulated, criminalizing 30 percent annual mortage rate interest, and opting for say 12 percent (which is normal in some parts of the world – but terrifies British bankers and their political allies). When banking regulation is not left in the hands of Cameron’s friends (Cameron who coincidentally voted against Germany and France on an international banking transactions tax – as a reserve fund for future crisis), the Scots can plan a better direction for themselves and encourage a more sensible approach south of the border.

      Yes international sea boundaries should be respected, with Scottish surplus energy sold abroad (including to England) and cheap rates, a win win situation that cuts out corporate profit.

    3. Steve says:

      Joining the Euro should not be an immediate concern for Scotland. If Scotland were to remain neutral it could operate an economy similar to the strength of New Zealand, and follow a defense policy similar to that of the Swiss, saving Billions on nuclear weapons. The chatter about the Euro is diversionary.

      An independent Scotland has more chance of setting up a public land & investment bank, properly regulated, criminalizing 30 percent annual mortage rate interest, and opting for say 12 percent (which is normal in some parts of the world – but terrifies British bankers and their political allies). When banking regulation is not left in the hands of Cameron’s friends (Cameron who coincidentally voted against Germany and France on an international banking transactions tax – as a reserve fund for future crisis), the Scots can plan a better direction for themselves and encourage a more sensible approach south of the border.

      Yes international sea boundaries should be respected, with Scottish surplus energy sold abroad (including to England) and cheap rates, a win win situation that cuts out corporate profit. I’m in favour of independence, but not SNP pro business policy.

  3. S says:

    Salmond seemed very keen to blame things like the deficit and everything bad on “London” – when, were he to be honest he would be saying the UK Government – and people in Scotland had an equal say in who got to run things for the UK. Looking at it differently, suppose the Houses of Parliament were located in Glasgow (everything else being the same), could we in England/N Ireland/Wales walk away from the Glasgow created debt ? Of course not because we would have been part of the cause, just as people in Scotland are part of the cause for the UK debt.

    Salmond needs to stop telling “porkies” and presenting a sensible balance view. The public are not stupid and if he lies/distorts like on C4 News today they will reject him.

    Also, who provides a military, who pays for/own/operates infrastructure budgeted for when Scotland is part of UK. e.g. HS2 as a %age GDP gets more expensive should Scotland “go it alone”.

    1. Dave McKinnon says:

      Sir, I should point out that Scotland has not had an equal say in UK matters for many a year. Regardless of what the Scottish people want, it is the voice of the English electorate that makes the decisions in Westminster.

  4. Kaitlyn says:

    Thought Faisal Islam struggled with his presentation. His ‘questions’ were biased, predictably displaying the ongoing Westminster rhetoric of Scotland’s financial dependence on the rest of the UK – shame because it could have been a real opportunity for informed debate rather than the shallow anti-independence attack that it turned out to be.

  5. Stephen Boyd says:

    Excellent post raising mainly fair questions that will have to be addressed. However a couple of comments:

    Point 7 is posited in a misleading manner. The two issues are very different and there is no suggestion that an independent Scotland would not assume a fair proportion of UK national debt. This is rightly an issue for negotiation.

    Point 8 is well made. Too many in Scotland (both nationalist and unionist) continue to cling to Lafferism. In 2007 Mr Salmond told the WSJ that he was a ‘long time advocate of supply side economics’. The Scottish Government’s case for cutting corporation tax is risible http://bit.ly/nXUk7U

    10 misses the point entirely; yeah, we all enjoy speculating on what would’ve happened in different scenarios but the crucial question now is whether an independent Scotland will tolerate too big too fail financial institions. No-one on either side is talking about this; surely fundamental to the quality of democracy and fairness and stability of the economy in an independent state?

  6. DB says:

    I notice the references to nearby small countries never include Norway – the country with the most similarities to Scotland. Both have the same population and extensive oil resources.

    Could it be because Norway has one of the highest standards of living in the world, and Scotland is a relatively poor northern region of the UK, where all power and influence is concentrated in London?

    Why should the Scots put up with that?

    1. Andrew Dundas says:

      Far from it! Scottish media’s Advertising sales story has always been that Scotland has a larger spending power than all other parts.
      Scotland has the third highest income per capita amongst all parts of the UK. And because both housing & travel-to-work costs are lower than in the London and South-East parts, Scottish households have higher amounts of discretionary spending than any other part of the UK.
      Which was true in the 1960s when I was an business apprentice with Unilever. And our higher wealth remains true today.

  7. Dorice says:

    Oh dear. Here we go.
    Faisal. Go and read the McCrone Report. Then look at what’s happened since, and where the revenues have actually been spent.
    Successive governments kept that official report secret for a reason.
    And although Westminster has tried to defy international laws relating to the sea boundaries, the oil is still in Scottish waters.
    I suspect that the Nats are ‘keeping their powder dry’ as you suggested earlier, and those ‘bits of information’ actually prove that Westminster LIED. Repeatedly.
    And they did so because they didn’t want people to know the real value of the oil revenues. If McCrone had been made public, Scotland would have become independent in ’79/80.
    If today’s government did the same, there would be international/national outrage, and possibly criminal prosecutions.
    The only reason we get the actual revenue figures these days is because the Nats used the FOI to have McCrone released.
    Have you examined GERS ? The Aslen Reports ?
    Did you know that in 09/10 every Londoner received £10,655 ? All 8 million of them ? Yet Scottish residents, (5.2 million) received £10,400. That’s just for services.
    Who are the REAL ‘Subsidy Junkies’ in…

    1. Andrew Dundas says:

      And did you know that London’s Council Taxes are much higher because only 4% of its dwellings are in Band A, whereas 22% of Scotland’s are in that same Band? The average home in Scotland pays a lot less Council Tax.

      Let’s not get stuck in pointless point-scoring. It’s really all about relationships, not money.

  8. Kernow Castellan says:

    It is also not a done deal that an independent Scotland would be a member of the EU.

    They could, of course, apply (and would no doubt be accepted), BUT under Lisbon all new entrants must accept the full canon of EU law (ie. no opt-outs). Membership automatically includes membership of the Euro and membership of Schengen. (As England is outside Schengen, that would require border posts on the English/Scottish border.)

    A new Scotland could try to get the Lisbon Treaty modified to permit them to have opt-outs on Schengen and Euro – but good luck with getting 28 countries to unanimously agree!

  9. StuartDonald says:

    Judging by this coming on top of his hilarious case for the Shetland’s (where I am from and grew up) not being Scottish,I would suggest Mr Islam has an agenda. Two points, did he warn us about RBS in 2007? When are channel 4 showing us the pro argument, or have C4 declared early and given up on Scotland, like the Conservative and Unionist party?

  10. Saltaire Sam says:

    Faisal, when the Independent Republic of Yorkshire is declared, the intention is to revert to £SD with Alan Bennett on the £20 note, Barbara Castle on the £10, David Hockney on the £5 and Fred Trueman on the ten bob note.

    Think of the boost in trade with new tills and calculating machines, because there aren’t many of us left who could work out the change for 1s 11 1/2d from 5s 3 1/4d.

  11. David says:

    I used to love Channel 4 news but last night episode was something aking to Fox News.

    Faisal, grow up. Both Jon & you were beyond pathetic last night.

  12. pierregonzalez says:

    One of the reasons Salmond want to delay until 2014 might be the hope that the Eurozone problems will be solved by that time and allow him ( if he wins the referendum ) to create a Scottish Pound and join the Eurozone . Surely the motivation to leave the British Pound is great.
    He can also hope that until 2014 the British economy might not recover and allow him to present a choice between a Eurozone in a better shape than the UK ( which is always possible ).

  13. Yogi Chan says:

    Another interesting question would be about Scotland’s defence. Would it mean splitting the army up? Would we need to give it an air force and navy, too? How much would this cost?

    I don’t think Scotland can afford independence. They need their sugar daddy in Westminster.

  14. Southern Jock says:

    What an idiotic assumption regarding the Oil fields that are in SCOTTISH waters.
    It is widely accepted internationally that Scotland would retain just over 90% of existing Oil Fields.Natural resources are not basd on population size.If anyone worth their salt at Chnnel 4 News had taken the time to check before coming out with such guff as being based on population size.
    The current meridian line needs to be corrected to its pre 1999 position (this was changed by Blair just after devolution).So sorry England, nice try, we will have that chunk back a well!

  15. CWH says:

    “”Will an independent Scotland aim to join the euro? The 2009 Scottish Government White paper states: “Scotland would continue to operate within the sterling system until a decision to join the Euro by the people of Scotland in a referendum when the economic conditions were right.” page 31.

    Surely the argument as made in 09 is transformed now, given the treatment of small indebted nations by the Euro big boys.””

    As you say the situation has changed re the Euro which is why the quote from the ’09 White Paper is still relevant. It did not commit an Independent Scotland to the Euro but left it to the Scottish People to decide in the light of conditions prevailing at the time of Independence. To have made a firm committment in ’09, or even now, when Independence is some way off would be giving hostages to fortune on a grand scale.

  16. Charles Jurcich says:

    One way it could work for Scotland is if it had its own currency floating on forex markets, then it would be truly sovereign. Anything other than this, or fiscal union with the UK is folly.

  17. rum and ginger says:

    Is it actually possible to have such a thing as objective journalism? Perhaps from now until the referendum all media coverage should be outsourced to non “British” media. To be fair, Faisel makes a good attempt at being objective but i ask him to go and research the McCrone report, the 1979 referendum and “perfidious albion”.

    Is it possible to have a free and fair referendum without also a free and fair media?

    Who gave Fred Goodwin the knighthood?

  18. Andrew Dundas says:

    The biggest issues are to do with partition and family relationships.

    Suppose most folk in Southern Scotland or Shetland prefer to stay with the UK? Wouldn’t that imply some sort of partition of Scotland? As in Ireland. Or should we seek to impose a Scottish nationality on people who do not want to quit their UK nationality? What rights would be denied to that residual people in a fiercely independent State?

    How shall families treat their close relatives living South of our border – as foreigners? Don’t those relatives have some rights in deciding these issues?

    It’s these human issues that may be the deciding factor.

  19. Richard, Canterbury says:

    Using Mr Salmond’s Logic about Scotland receiving 90% of the oil revenue how could Scotland then resist the Shetland Isles or the Hebrides from becoming independent and claiming the oil revenue from their waters using median boundaries? Would every islander become a multi millionaire?

  20. arvkan says:

    Interesting points all. Scotland won’t be the first small country in the EU, you have Belgium, Denmark, etc. What I am struggling to understand is what specifically does Scotland want to do which it is currently thwarted by being a part of UK. Would it not make more sense to devote energies towards those goals instead of expending energies and resources towards carving out an independent state? I can definitely see an army of consultants and contractors being fully but not usefully employed putting all of this in place.

  21. B says:

    Faisal, number 7 is just a total non sequitur. I think you’ll find Scotland simply gets the oil which lies within it’s territorial waters, as defined by international law. This has nothing to do with how to apportion the debt.

    This was shockingly biased interview. Have to say I expect a lot more from Channel 4 News…

  22. Silverback says:

    Alot of predictable and all too common nonsense spouted by many, including Faisal, who don’t quite get it.
    Firstly, it’s not all about being better off financially, it’s about being a sovereign nation (again) with the ability to control our destiny. Economics is one facet of that.
    Please also remember that this is dissolution of the Union of two equals. It is Scottish Sterling, armed forces, membership of Europe etc as much as it is English, Welsh and N Irish. Yep- if Scotland isn’t in Europe then neither is England…
    Scottish Independence should not be seen as a adversarial split but a divergence of ways, we will always be best friends but we’re at a stage in our political maturity where we don’t want to share a bed with you- no offence!

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