The first 150 years of union with England were a time of extraordinary economic and intellectual development in Scotland, which thrived on access to free trade across the British empire. Even during its 20th-century revival – and despite relatively poor economic performance as heavy industry in the west of the country collapsed – romantic nationalism failed to gain a significant foothold.
Only in the 1970s, when the Scottish National party won parliamentary seats – thanks to an unromantic slogan: “It’s Scotland’s oil” – did the UK government respond with devolution plans. It has taken another 40 years for the SNP to win the chance to hold the referendum on independence that it has long pledged. Next Thursday voters north of the border will be asked whether Scotland should be an independent country. It is a deceptively simple question.
Here are some more complex ones they may wish to weigh up in the meantime.
Would an independent Scotland be economically viable?
Not an issue. Scotland has income per head more or less the same as that of Britain as a whole, and is the richest UK region outside London and the southeast. At just over 5m, it has a population about the same size as Denmark or Finland.
How does the economy differ from that of the rest of the UK?
Surprisingly little. The share of public sector employment is a little higher. The collapse of the two big Scottish banks in 2008 ended a proud banking history, but Scotland remains strong in other financial services such as insurance and asset management. Tourism, and premium food and drink – whisky but also products such as Aberdeen Angus beef and seafood – are important. And the North Sea oil industry has helped establish a strong energy services sector.
What would be the currency?
The Yes campaign unwisely began with a declaration that there would be a continued monetary union with the rest of the UK, prompting the main UK parties to say they would not even countenance negotiation. The SNP then threatened to refuse to acknowledge a share of UK debt. All this is posturing. In the interim, an independent Scotland would continue to use the pound, and Scotland and the rump UK would then need to discuss the next steps.
Who would then be lender of last resort?
Assuming Scotland joins the EU, the country would be required to have its own deposit-protection scheme and central bank. The country could protect depositors but its central bank could not bail out a big international bank. This might prompt Royal Bank of Scotland to redomicile its head office to London – where the critical executive functions are already located.
What about North Sea oil?
Most of the UK’s oil and gas lies within what would probably be Scotland’s territorial waters. Oil revenues would yield between £4bn in a bad year and £10bn in a good one. The two camps have based their arguments on figures at the extreme ends of this range. This amounts, on average, to about 5 per cent of Scotland’s national income and 10-15 per cent of its public spending.
So what does that mean for Scotland’s budgetary position?
An independent Scotland would surely inherit a pro rata share of the UK’s budget deficit and outstanding debt (although the government in Westminster will remain guarantor of the existing debt). At present the Scottish government’s income is based on a block grant from the UK Treasury, which has allowed public expenditure per head to be between 10 and 15 per cent higher than in the UK as a whole. Perhaps not coincidentally, this differential is similar, on average, to the value of North Sea oil revenues.
Thus an independent Scotland’s initial budgetary position would not be markedly better or worse than that of the UK. But over time, demographics seem likely to deteriorate further in Scotland than elsewhere in Britain; and North Sea revenues will sooner or later decline. What then matters is whether growth in an independent Scotland is faster or slower.
What does Scotland spend the extra money on?
Principally, higher staffing levels in health and education. But its morbidity and mortality record is poor, and the good reputation of Scottish education is based mainly on its past record, though its universities (which have been favoured in public spending decisions) are strong.
What new economic powers and policies would an independent Scotland have?
Holyrood already controls health, education, transport and most other infrastructure. Welfare policy is determined at UK level and so is almost all taxation. The Scottish government’s lengthy policy document mainly lists things on which it would like to spend money, most of which – including the flagship policy of extensive childcare provision – it already could do if it had the money.
So how will you be voting?
The electorate consists of EU nationals resident in Scotland – so, although I am a Scot, I cannot vote. While most of the debate has been about economic matters, the economic arguments are far from conclusive either way.
The real questions concern the sort of country Scots and Scotland’s residents want. The nation’s political future will drive the economics. Would an independent Scotland emulate the economic dynamism of some (but not all) other small European states? Or would it be mired in a combination of crony capitalism and municipal socialism that would damage initiative and depress growth? The recent history of Scotland admits both possibilities.
Get alerts on Financials when a new story is published