The issue over Scottish independence has been hotly contested and is now set to be even more so. At the heart of the debate sits the notion that people in the modern world have the right to self-determination, and that this moral principle should be respected and protected. And so it should be. However, can it win out when in terms of economics when independence is such a bad deal for the Scottish people? Could the Scottish people effectively vote themselves into being worse off, as a result of a lack of knowledge about their own situation? Is independence really for the betterment of everyone in Scotland, or will fulfilling the dreams of the Nationalists come at the expense of Scots?
Scottish independence calls into question many aspects of the Scottish economy. For example, how could Scotland continue to finance its current public spending bill of £40bnwith a total revenue of £27bn. The Scottish government would also like to keep in place a ‘nurturing’ state which encompasses things like; free university tuition, free elderly care, free universal childcare and more generous pensions. Contrast this with the SNP’s main idea on how to fix the leaks which would occur in the Scottish economy if independence were to go ahead: the idea is to prop up the economy by slashing corporation tax and attempting to create a ‘business haven’ within Scotland. However, these two goals contradict each other, as you can’t have a ‘nurturing’ state, which offers so many free services, without sufficient revenue from taxation. Normally a large amount of this taxation would come from businesses, but with low corporation tax, it is likely that the everyday taxpayer will have to contribute a lot more in order to provide this ‘nurturing’ state, and as a result will be worse off. Yes, the mentioned public services will contribute to a better standard of living, but would this effectively be offset by the loss of income through taxation? Remember, this is on top of the likely increases in taxes anyway, which will be required in order to cover the difference in public spending and revenue.
Furthermore would Scotland even be able to secure its own financial stability? If Scotland had been independent while the 2008 banking crisis was taking place it would not have had nearly enough money to bail out its two biggest banks, RBS and HBOS. An even more daunting fact is that the UK treasury had put aside £465bn in cash and guarantees in order to combat any potential crisis among various financial and banking firms, just to be safe. This figure is well over three times Scottish GDP and the RBS balance sheet itself is over 13 times Scottish GDP. Scottish independence would also incur much higher borrowing costs on world markets, as an investment in an independent Scotland is much riskier than one in the United Kingdom, which has a triple A credit rating. Scotland’s bond market would also be small and illiquid, again making it harder for Scotland to raise finance from outside of its borders.
Scotland would also have to install independent defence and security structures, while at the same time taking on their portion of the UK’s national debt. This would greatly stretch Scotland’s resources and may even overstretch them. Add into the mix the fact that Scotland would keep the pound and remain in a monetary union with England and Wales, whilst being free to pursue its own fiscal policies (which basically means that Scotland has very little control over its currency). With the recent experience of Greece and Ireland, this raises serious questions and quite frankly presents the whole idea of independence as a disaster waiting to happen.
Scotland may gain a stronger sense of national identity and be fully able to express its own uniqueness through independent government culturally aligned with its own people but the economic and financial uncertainty that would arise from independence would directly affect the welfare of the Scottish people for the worse.
Sound worth it?
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George Spiller is an economics student
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