Where is the economic case for Scottish independence?

Published : 20 May 2021 09:49 PM | Updated : 21 May 2021 03:18 AM

Getting a touch ahead of events, the New York Times noted last week that the recent electoral victories of the Scottish National Party could lead to “the biggest blow to a British prime minister since Lord North lost the colonies in America.”

The markets took a different view. In Monday morning’s trading, after the election results were clear, sterling rose against the dollar and the euro — a vote of confidence in a U.K. economy that is bouncing back quickly thanks to a successful vaccine rollout.

I recommend trusting the markets, not the newspaper pundits, on this one. The threat of an independent Scotland hasn’t gone away, but the U.K. government still has many cards to play to preserve the most durable union in democratic history.

Support for a referendum on independence actually fell during Scotland’s mid-terms election campaign. The most recent polls have shown 47% against and 44% in favor, while crucial undecided voters remains at 9%. Only a quarter of Scots would like a referendum this year or next, and 45% want one in the lifetime of the new Scottish parliament.

If independence is the brave new world, then Sturgeon must 

tell the Scots how she proposes to get there. Right now, her 

cause thrives on ambiguity and obfuscation, and her

economic prospectus is poor

Nicola Sturgeon, the SNP leader, changed her tune accordingly during the campaign. She told voters that a vote for the SNP was “not voting for independence.” In 2014 the nationalists lost the referendum by a 10-point margin. This time around, rather than making an overt pitch for “Indyref2,” she emphasized separateness from England on key policies.

Once she secured an impressive fourth term in office for her party, just shy of an outright majority, she immediately went back to demanding a referendum. If she hadn’t, she would have faced the fury of party fundamentalists, which shows the delicacy of her position. That the combined vote share of the unionist parties barely tipped 50% doesn’t bode well for her.

Most likely, her aim now will be to goad U.K. Prime Minister Boris Johnson into behaving like an autocratic George III or Lord North, denying the Scottish people their democratic rights (the Union with England in 1707 was voluntary). 

Sturgeon will plug away at issues that put Edinburgh at odds with London, and when the time is right, she’ll put a referendum bill before the Scottish parliament at Holyrood and dare Johnson to veto it. If he blocks her, she can take her case to the U.K. Supreme Court. 

Supporters of the 300-year-old union are divided about how best to respond to this prospect of legal warfare. One faction believes that Johnson shouldn’t refuse Sturgeon’s referendum demand outright. Playing for time, the prime minister should make a positive case for the U.K. and give support to distressed areas of Scotland — in other words, remind poorer voters of the risk of departure. The U.K. government could also try harder to claim credit for its vaccine success, which many Scots attribute to Sturgeon even though procurement was organized by London.

Labour leader Keir Starmer has an overwhelming interest in keeping left-leaning Scotland within the U.K. too. His lawyerly seriousness may prove more appealing to the Scots than Johnson’s buffoonery.

Opponents of this “make nice” strategy believe that throwing money at Scotland and handing over more devolved powers to Holyrood (the so-called “devo-max” proposal) will only feed the appetite for independence. After all, 25 years ago Labour promised that “devolution will kill nationalism stone dead.” Instead, the SNP replaced Labour as the party north of the border. The European Union badging its grants to U.K. projects didn’t prevent Brexit.

A third course is advocated by those who won the referendum battle in 2014: The SNP should be forced to show its hand on what a negotiated divorce settlement with London would look like as the price of a referendum. Lord North’s opponent, George Washington, famously “couldn’t tell a lie.” Sturgeon should be made to tell the truth. The SNP have had many years in which to lay out their blueprint for an independent country. They’ve evaded the hard questions about how one would be run and at what cost. 

What, for instance, would an independent Scotland’s currency be? This question is one SNP supporters have found most difficult to settle. Would Edinburgh shadow sterling, launch its own currency or join the euro?

If it shadowed sterling, it would cede control over monetary policy to London without enjoying the benefits of quantitative easing — and decisions over its finances would still be taken in England. If the new nation state created its own currency, it would be placed at the mercy of international markets for its hefty borrowing requirements. If Scotland eventually joined the euro, the SNP would have to reduce the deficit to the 3% ceiling required under the terms of membership. 

Voters would be entitled to ask how the SNP would reduce that deficit, which, according to the politically neutral Institute for Fiscal Studies, has ballooned during Covid from an already heady 9% of GDP to nearing a vertiginous 24%. Although more prosperous than many English regions, Scotland also gains from higher public spending from the central exchequer (£1,630 more per capita). The loss of London’s subsidy would be painful — and hard to make up without a growth spurt.

Furthermore, are Scots prepared to accept the hard border with England that EU membership entails, with an estimated loss to GDP in excess of 7%? Many Scots may look with trepidation at the mess that’s resulted from creating an internal customs border between Northern Ireland and the rest of Britain. Under any new tariff regime, there will be increased friction. A substantial body of Scottish opinion favors independence in their hearts, but not at any price.

The counter case is that a small, proud nation like Scotland has friends abroad and can make its own way in the world. Plenty others do, including small Nordic countries. But is Scotland in the right shape to take that leap into the unknown?

Two equivalent territories in Europe with long independent traditions, Catalonia and Bavaria (which gave up its independence 160 years later than Scotland), would be better placed economically to secede from their respective unions with Spain and Germany. Both are net contributors to federal budgets and their traditional ruling parties embrace the market economy. 

Scotland, meanwhile, has turned its back on the outward-looking economic philosophy of its famous son, Adam Smith, preferring nationalism and socialism-lite. But the country’s devolved welfare state hardly matches the performance of small Scandinavian countries either.

If independence is the brave new world, then Sturgeon must tell the Scots how she proposes to get there. Right now, her cause thrives on ambiguity and obfuscation, and her economic prospectus is poor. Behind the rousing anthem “Flower of Scotland,” lies uncertainty of what self-rule would look like, let alone how it would be paid for.

Martin Ivens was editor of the Sunday Times from 2013 to 2020 and was formerly its chief political commentator. Source: Bloomberg