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September 1, 2013 8:00 pm
Scottish Independence: Weighing Up the Economics, by Gavin McCrone, (Birlinn, RRP£7.99)
In 1972, the Scottish National party launched a campaign poster featuring a photograph of a forlorn old lady beneath the slogan: “It’s her oil”. Four decades and 3.5bn tonnes of North Sea crude oil production later, Scotland is preparing for a vote next year on whether it should become independent for the first time since 1707. The SNP’s case is about more than oil – but it is central. Those after analysis that goes beyond tendentious snaps of women in their dotage should read Gavin McCrone’s guide to the economics of the referendum.
Political grievances, cultural differences and oppression, more than money, normally form the basis of secession movements. Scotland, an occasionally patronised but rarely oppressed nation, would therefore make an unusual case. Although the SNP, the nationalist party that runs the devolved government, is keen to stress the country’s distinct history and culture, perhaps its main argument for independence is that Scots would be better off if they were ruled from Edinburgh. Rather than blood, sweat and tears, the nationalist movement north of the River Tweed is about whisky, gold and oil.
McCrone, chief economic adviser to the Scottish Office from 1970 to 1992, is a judicious analyst and lucid writer. He has also been here before. In 1974 he wrote a dossier explaining that North Sea oil would make an independent Scotland viable. The Labour government of the day, worried about the political implications, classified the McCrone report as secret. When it was revealed in 2005, the SNP claimed conspiracy. McCrone says his “wake-up call” was standard practice. Whatever the truth, he was prescient.
Nearly 40 years later, McCrone repeats the headline assessment of his controversial dossier: Scotland could easily survive as an independent country. However, it is unclear that flexibility on economic policy would bring prosperity. And according to McCrone, there would in several areas be large constraints upon the freedom of action of any independent government.
The SNP has claimed that the newly independent nation would be the “sixth-wealthiest in the world”. It also says Scotland’s public finances would be in better shape than Britain’s.
McCrone has a more sober interpretation. Scottish output per head is almost the same as the average for the rest of the UK. Tax revenue is “roughly proportional” to its population share. However, public expenditure per head is 10 per cent higher than the UK average. An independent Scotland would have to close this gap between what it raises and spends.
Unless the government of an independent Scotland were willing to raise taxes or cut spending, it would need tax revenues from North Sea oil and gas to bridge its deficit. McCrone estimates that if Scotland were to have received 90 per cent (a common estimate for its geographic share) of these revenues in 2011-12, its current deficit would have been 5 per cent of gross domestic product, less than the 7.9 per cent experienced by the whole of the UK in that year. The SNP clearly has a decent argument to make about the importance of the black stuff.
However, there are some caveats, as McCrone outlines. Scotland’s “share” would be subject to negotiation with London. Reserves have reached a peak. Prices, especially for oil, are volatile. The SNP’s “sixth-wealthiest” line is also worthy of qualification. For a start, it seems to refer to gross domestic product per head, which is not a measure of wealth. Furthermore, the majority of shareholders in North Sea oil companies are not Scottish; nor are many of the offshore workers. Their incomes will form part of GDP but this is largely irrelevant to Scots’ living standards, McCrone argues.
The slaying of nationalists’ casual optimism pervades the book. McCrone argues that the SNP’s policy of keeping the pound would mean subjecting itself to not only monetary but also fiscal control from London. The sanguine idea promoted by the SNP that an independent Scotland could automatically join the EU is squashed. McCrone also reminds Scots that without the British balance sheet, their banks could have gone the way of Ireland’s during the financial crisis.
This book is too intelligent, however, to be confused with a unionist rant. McCrone is damning of past UK governments’ decisions not to set up a Norway-style sovereign wealth fund using oil revenues. The SNP is right to be angry, McCrone implies.
More importantly, he argues persuasively that even if, as expected, Scots vote No to independence, the economic status quo is unsustainable. Overall, Scotland is too rich to justify being subsidised by the rest of the UK. The fact that the devolved government currently raises only a small share of its budget through direct taxation must change, McCrone argues. For though it is her oil, it is her taxes, too.
The writer is an FT commentator
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