An Island Divided: Considering Britain’s Future As Scottish Independence Looms

Tug of War Scottish independence

On 18th September 2014, Britain will gear up for one of the most important referendums of its long history. Scotland will vote ‘Yes’ or ‘No’ to independence, in a decision which will have wide-ranging repercussions on the lives of all natives, north or south of the border. At stake is the 307-year-old partnership which has helped secure Britain’s position at the high table of the world’s economies, its long-held alliance with other global powers (the US is unlikely to invest as much in relations with a divided Britain, and the Chinese investors Mr. Cameron aims to court will be similarly unimpressed), and the union which added, in the combination of two potent historical empires, the ‘Great’ to Great Britain. English tabloids have recognised what their nation has to lose, rebranding ‘Yes’ vs ‘No’ as a straightforward choice between ‘Great Britain’ and ‘Little England’, while the political class have made (notably limited) efforts to convince everybody that we are all ‘better together’.

Yet north of the border, the feeling is very different. A growing number of disillusioned Scots don’t feel part of a Union in which they find themselves in thrall of a Tory majority despite having elected only one Conservative MP. In a recent poll, when asked to elect a single national identity, only 23% of Scots called themselves British, compared to 39% in 1970. The time is now for rational, weighted debate. Are there logical reasons to support the divorce of two nations that have, in recent years, seemingly been antagonists almost as much as allies?

The ‘Yes’ campaign is built on three promises. Independent Scotland, they chime, would be more democratic, its people no longer having to suffer the Tory rule they didn’t vote for. It would be more equal, because the SNP would better reflect the social democratic policies Scottish voters favour. It would also be richer. That latter point will be the main examination of this article, but there are notable flaws in the former two. Scotland is not the only region living in the shadow of the prosperous South-East and London; the North shares their distaste for Tory rule and penchant for social democracy. Scotland’s secession would not only doom Northern English voters to political isolation, but would fail to recognise the fundamental similarities between Scottish and English voters. This union has reached its third century alive and well for a reason. Aside from its nationalist sentiment, the SNP’s most popular policy to date is a freeze in council tax – this a distinctly unprogressive move from a party claiming to have social democratic interests, and hardly a radical change of direction from the Tory incumbents.

UK GVA by region 2012
What, then, of the wealth argument? The ‘Yes’ campaign is backed by a number of ostensibly promising economic signs. Alex Salmond is speaking the truth when he says that Scotland is a wealthy country. Indeed, with an average output per person of over £20,000, it trailed only London and the South East in GVA in 2012. Edinburgh, the capital, and oil hub Aberdeen each boast wages which are rapidly rising, even as most of Britain’s fall or stagnate. Furthermore, the country’s destinations for its exports are also encouraging. The US is the biggest buyer, with exports to China also quickly rising. With large and ever-growing middle classes, neither of these nations are likely to lose their taste for Scotland’s whisky or salmon exports anytime soon, nor indeed its oil reserves or world-class business services operations.

Yet look deeper, and cracks begin to show. Scotland has too few people in its workforce to sustain its economic prosperity. In 2012, there were 3.2 people of working age for every Scottish pensioner. By 2037, this is expected to drop to 2.6. The Institute For Fiscal Studies concluded that over the next 50 years, Scotland’s workforce will shrink while the rest of Britain’s grows. This is due in no small part to the health problems which plague the nation. The ONS’ 2014 study on life expectancy examined 404 local authority areas across Britain, and found that 8 out of the bottom 10 were in Scotland. A Glaswegian man is considered lucky to reach 70 – a figure almost ten years below the national average.

All this would undeniably put pressure on Scotland’s ostensible wealth. An increasingly elderly and ill population would necessitate higher costs in pensions and health-care. This would certainly trouble a government hardly known for its frugality. To take oil out of the picture, Scotland’s deficit in the public sector was £14 billion in 2012-13 – a sum which, at 11% of GDP, dwarfs even that of the despondent Greece and Ireland. And the SNP plots to increase expenditure by 3% year-on-year. State-funded steps towards social equality seems to be the plan, when stultifying austerity may be the wiser option, especially as the insustainability of its main exports becomes apparent.

Indeed, it is Scotland’s activity in commodities such as oil which has so effectively papered over these cracks. But it does so less with each passing year. From a 2008-09 zenith of £12.4 billion in oil exports, tax revenues have plummeted to £6.5 billion in 2012-13. Since 1979, two thirds of Britain’s estimated 60 billion oil barrels have been extracted from the North Sea, yielding 183 billion in revenue. Much of the rest would rightfully fall to Scotland’s independent government if secession does go ahead. This would lead to revenues of £7.3 billion by 2017-18 according to Mr. Salmond, the spearhead of the ‘Yes’ vote and a former oil economist.

whisky oil

This publication remains sceptical. Even if those rosy predictions of oil prices prove prescient, to hit this target would require firms to boost their extracting capacity significantly. One cannot help but feel that if a boost in production was to go ahead, it would have done so some time ago. The Office for Budget Responsibility offers a much more conservative estimate of tax revenues, at £3.4 billion. And then there’s the costs of cleanup once the machinery has run its course. Almost 50,000 kilometres of oil cables span Scotland’s borders, delivering fuel to the mainland. Oil and Gas UK, the trade body, have predicted that dispensing of all this will come at a minimal cost of £10 billion.

The oil, then, will soon expire, and at unavoidable cost. Job one for Mr. Salmond would be to make sure his country’s prosperity does not perish with it. At the moment, its economy lacks diversity away from commodities. A rich nation cannot plan a future on exporting whisky, which is, at £3.9 billion, the most lucrative single product in Scotland’s roster.

Escaping Scot Free: A Question Of Currency

Then there is the question of currency. Mr Salmond has made his intentions unambiguous on this front: a ‘formal currency agreement’ will be arranged with Westminster, he has promised. Scotland would continue to use the pound. Yet this would be no small undertaking for the UK government, and Salmond would do well not to take it for granted. Even if the Treasury were convinced to allow the Scots to keep the pound – and their reticence up to now suggests it would not be an easy negotiation – it is likely that the agreement would come with the caveat of fiscal restrictions to ensure the pound’s stability. This is a burden which would threaten the nationalists’ stated aim of more autonomy for Scottish government. The flaw here is obvious. How can Scotland call itself independent when its currency bears the profile of another nation’s monarch? Yet this goes beyond mere political sentiment. Should sterling be informally adopted, Scottish banks will surely flock south of the border, to gain access to the Bank of England’s lender-of-last-resort facility. This is a form of economic self-mutilation Mr. Salmond could do without.

Yet the alternatives may not be much better. If the Euro is to be Scotland’s currency, a lengthy bureaucratic process awaits. As detailed in Article 49 of the European treaties, Edinburgh may have to become independent in order to apply for membership as a non-member country. This would mean significant costs for the government and businesses, with the effects likely to trickle south of the border. It may then fall to Mr. Cameron’s goodwill to fight Scotland’s corner, securing its EU membership through the ‘fast-track’ route of Article 48 – treaty change with a simple majority of member states. And although Mr. Salmond is keen to establish Scotland as a European player, using the Euro would be an unpopular move. Let’s not forget that the recent rise of Euroscepticism swept the whole of the UK, not just England and Wales. There are many who might view such a close allegiance with Europe as the simple shift from one unproductive, bureaucratic union to another.

The final option is to create a new currency. If Salmond should go down this route – as the most ardent nationalists would like him to – the result will almost inevitably be upheaval, and a loss of yet more power to the English. The UK is a tightly interlinked entity; 307 years of political and economic union tends to have that effect. With a new currency, the many businesses based both north and south of the border would be exposed to currency risk, and potentially a great deal of volatility. Those which are headquartered in Scotland may choose to move south for reasons of stability, which would pose a huge early blow for the nation’s economy. The country’s banks may also take a hit, as savvy savers withdraw their funds in anticipation of a crash in the newly formed currency. Ireland took 40 years to stabilise their currency following secession. That was with a demography much more favourable to economic expansion.

As cloying as the sentiment may be, this publication feels strongly that Britain is indeed ‘better together’. Our union will be tense and fractious at times, especially when Tories are in government. But which marriage doesn’t have rocky periods? There are too many benefits to the continuation of this union to let it fall now; the economies of scale, the close cross-border cooperation we enjoy, the geographic diversity, the collection of prestigious and culturally significant universities and cultural institutions which are the envy of most of the free world. Scottish independence may seem attractive on the surface, and there is little doubt that the SNP is winning the propaganda battle over a fairly staid unionist campaign. Yet the advantages Scotland has now would soon dissipate, with the economy not robust enough, nor the demography adequately conducive to sustain growth as a standalone nation. For all its many problems, this is a three-hundred year union almost unprecedented on a global scale. It has helped to turn a small, unassuming island in the North Atlantic into one of the world’s most important, free, and industrious nations, which has left an indelible mark on the building of civilisation. It has been an enduring testament to the human spirit of cooperation, and the possibilities of union to benefit all parties. For all these reasons, and many more besides, it should be in the interests of any Briton with aspirations of a continued weight in global affairs that the referendum of September 18 votes ‘No’ to independence.

Only together can Britain truly remain Great.

Words: Josh Lelliott and Richard Saint
Images: Josh Lelliott

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