BFSCaseforIndy_Nov13

The Case for Independence
Who are Business for Scotland?
Business for Scotland is a co-operatively owned business network
for business people and professionals who believe that Scotland will
prosper as an independent country and is one of the largest business
organisations in Scotland.
We have no party or government affiliation and we are not formally
linked to or funded by the Yes campaign. Our members come from
right across the political spectrum and include members of all political
parties and none.
Data Sources and Veracity
The Government Expenditure and Revenue Scotland (GERS) report is
compiled by the Scottish Government using ONS data and is approved by the
UK Treasury. GERS provides annual data for both revenue and expenditure
for Scottish public spending along with GDP data for the Scottish and UK
economies.
http://www.scotland.gov.uk/
Resource/0041/00415871.pdf
This is the primary data source for most numbers in this document. The data in GERS isn’t disputed by either side. GERS is
published annually around March for the last full financial year. GERS for FY 2011-12 was published in March 2013 and is
the most recent data set available. Figures and percentages given are from GERS 2011-12, although the picture they paint
holds true for all of the last 30 years.
GERS reports Scotland’s economic performance with geographical share of oil (i.e. revenue from what would be
internationally recognised as Scotland’s waters in the event of Independence). It also reports the data without oil revenues
and with Scotland having a pro-rata population share of oil revenues. The data in this document uses the numbers as they
would apply were Scotland Independent. The other two data sets (without oil revenues, and with a pro-rata population
share) are accounting treatments for review of the data within a UK context so aren’t relevant to an independent Scotland.
(See oil section)
The GERS numbers have been used by the Scottish Government to compile Scotland’s
Balance Sheet .
While GERS is the closest that we have to a full set of national accounts, it is likely that they
are pessimistic compared to the national accounts of an independent country.
http://www.scotland.gov.uk/
Resource/0041/00418420.pdf
For many companies, VAT and Corporation tax for the whole of UK operations are paid at
company headquarters which is most often in London or the South East of England. It doesn’t count as Scottish revenue,
despite the fact it’s a tax paid on sales / profit generated in Scotland. Put simply, if you buy a packet of Walkers shortbread
in Tesco in Edinburgh, the VAT you pay is taken to be generated at Tesco’s head office in Hertfordshire.
There are other ways in which Scottish revenues are invisible in GERS. Much of the alcohol duty paid by the whisky industry
is not counted as revenue from Scotland. Alcohol produced in the UK which is exported abroad becomes subject to UK
alcohol duty at the point of export, and a large proportion of Scotland’s multibillion whisky exports gets shipped out from
ports in England. The UK Treasury counts the duty levied on this whisky as income from the tax region in which the port is
situated.

Can Scotland Afford to be Independent?
The key question to be answered in respect of an Independent Scotland’s economy is that of affordability. How can we
manage without Westminster to pay our bills? The perception that Scotland needs external financial support to survive is
simply untrue.
Scotland generates 9.9% of all UK revenue (taxes) and incurs only 9.3% of UK expenditure.
In fact Scotland’s accounts have been far healthier than the UK’s for the last 30 years, so the 2011-12 data isn’t a one-off.
Of course, these are percentages of two different numbers and that in cash terms the expenditure number is higher than
the revenue number. Across the UK as a whole expenditure exceeds revenue. This is called a deficit, and almost every
country in the Western world is currently running a deficit (with the notable exception of Norway).
The point is that were Scotland to run the same % deficit as the UK then we would have an extra £4.4bn to spend based
on 2011-12 figures. (£4.4bn being the difference between the 9.9% and the 9.3% in cash terms). Alternatively we could
decide to spend the same as we are today and have a deficit which was £4.4bn lower, or a combination of the two.
So the real question is can Scotland afford not to be
independent?
http://www.businessforscotland.co.uk/breaking-news-9-3-is-a-smallernumber-than-9-9-indyref/
http://www.businessforscotland.co.uk/independence-thebusiness-case-for-scotland/
GERS gives quite a bit of detail on the various elements
of both the revenue and expenditure sides of the
equation.
On the expenditure side there are a couple of things
worth pointing out. The vast bulk of Scotland’s public
expenditure is based on actual numbers (Scottish
Government spending on Health, Education or Police
for example). This clearly identified expenditure
comprises about 86% of the total expenditure.
http://www.scotland.gov.uk/Resource/0041/00418420.pdf
The other expenditure within Scotland’s accounts is
what is called ‘Non-Identifiable’ expenditure. This 14%
equates to about £9bn of spend and the two biggest
items by far are Defence (£3.3bn) and Debt Interest
Payments (£4.1bn). The concept here is that while that
money isn’t necessarily spent ‘in’ Scotland it is judged
as having being spent ‘for’ Scotland (a distinction
explained in more detail within GERS itself).
So just to be clear Scotland’s 9.3% share of UK spending
already includes those non-identifiable items. Both the
Defence and the Debt Interest payment numbers are
simply calculated by using a pro-rata population share
of the total UK numbers. These are considered in more
detail below.

Revenue
The average tax paid per head in Scotland is
£10,700, the average for the UK is £9,000.
Tax revenues per head in Scotland have
been higher than the UK average every year
for the past 30 years.
http://www.scotland.gov.uk/Resource/0041/00418381.pdf
For the first time HMRC also explicitly produced
disaggregated revenue figures for UK countries in 2013
(although this data was already available from historical
GERS reports). The data, as you would expect, confirms
the picture from GERS.
http://www.hmrc.gov.uk/statistics/receipts/disagg-info.pdf
Expenditure
The issue of spending per head is also worth understanding. In summary Scotland represents 8.4% of the UK population,
but as we saw while it generates 9.9% of UK taxes it also accounts for 9.3% of UK spending (this is where the ‘subsidy’
myth arises). So while our tax take is higher than our spending in % terms, spending per head is higher in Scotland than
the UK average.
There are some reasons for that, historical, to do with calculations in the Barnett formula which defines the Scottish Governments
annual budget, geographical factors and the fact that some services that are privatised in England still fall under
the Public Sector in Scotland.
Under the current system, the majority of revenue is paid directly
to HM treasury and the Scottish Government receives a block
grant from the Westminster Government. The size of this grant
(9.3% of UK total in 2012) is calculated using the Barnett Formula.
The formula is named after Joel Barnett, who devised it in the late
1970s, while Chief Secretary to the Treasury as a way of allocating
additional or reduced finance based on population (and not need)
as a short-term solution to minor Cabinet disputes in the run-up
to the planned devolution in 1979. The Barnett formula is said to
have "no legal standing or democratic justification", and, being
merely a convention, could be changed by the Treasury at will. In
recent years, Barnett has called for a review of its long-term
viability.
http://www.publications.parliament.uk/pa/ld200809/
ldselect/ldbarnett/139/9012802.htm

In July 2013, council leaders in England announced that they would
campaign for Scotland's block Grant to be cut. The Local Government
Association has confirmed it will press the Treasury to create a new
system of sharing funding across the UK which would be likely to reduce
the 30 billion GBP block grant that Scotland receives each year to spend
on schools, hospitals and roads.
http://www.scotsman.com/news/uk/welsh-first-ministerurges-barnett-formula-rethink-1-3170833
http://www.scotsman.com/news/holyrood-facescampaign-to-scrap-barnett-formula-1-3018639
Carwyn Jones, the First Minister of Wales, also revealed he would
be campaigning for an overhaul of the Barnett Formula.
As part of the UK, such cuts would barely dent the UK’s deficit but
equivalent cuts if Scotland were independent would put Scotland in
an extremely healthy financial footing.
The final point to note is that public sector spending in
Scotland represents 42.7% of GDP, lower than the UK
figure of 45.5%. So contrary to popular belief Scots are
actually less reliant on public spending than the UK as
a whole is.
http://www.scotland.gov.uk/Resource/0041/00418420.pdf
GDP
GDP (Gross Domestic product) is a measure of the output of an economy. It isn’t the only measure of an economy’s
strength but it is the one used to compare different countries globally, and GDP growth is keenly monitored at a national
level as a key indicator of the health of the economy.
GERS 2011-12 gives Scottish GDP as £151bn, compared to a UK figure of £1,526bn. Based on the 2011 census statistics
(Scotland 5.3m, UK 63m) this equates to a GDP per head of £28,500 for Scotland vs a UK average of £24,350. In other
words Scots are 17% richer in GDP terms than the UK average. That GDP per head figure puts Scotland at number 8 in
the OECD league table of wealthiest nations (with the UK at number 17).
Even completely excluding Oil and Gas revenues Scotland’s GDP per head is 99% of the UK average.
The key point to note here is that this data isn’t based on future forecasts of fanciful oil revenue projects, these numbers
are what actually happened in Scotland in 2011-12.

Deficit
Despite higher spending, due to a higher tax take,
Scotland’s deficit as a % of GDP is 5% compared to a UK
average of 7.9%.
Interestingly, of Scotland’s £7.6bn deficit last year £4.1bn of
that was actually the amount we were charged as our share of
the UKs debt interest payments. The more astute amongst you
will already be asking the question why if Scotland runs a lower
http://www.businessforscotland.co.uk/revealed-the-accountingtrick-that-hides-scotlands-wealth/
deficit in % terms than the UK should we be saddled with a pro-rata percentage share of the UK’s Debt Interest payments.
Good question.
The precise debt level that Scotland inherits at Independence will be a matter for negotiation. (When the Soviet Union brokeup
Russia kept 100% of the debt in a deal involving the other 14 new states supporting Russia’s maintenance of its nuclear
deterrent and permanent seat on the UN security council.)
While we are unlikely to get such a good deal from Westminster there is plenty of evidence (based on GERS data) that
Scotland has generated a far lower % debt over the past 30 years than the UK total. In fact analysis by Prof. Brian Ashcroft of
Glasgow University has come to the conclusion that when we take into account the debt interest payments charged to
Scotland in GERS for debt we didn’t generate then Scotland would actually
have been in Surplus over the past 30 years to the tune of about £68bn...
and he’s married to former Scottish Labour leader Wendy Alexander so
nobody can accuse him of pro-independence bias!
“Come and look at what you could have won”
Debt
If we assume, for the sake of argument, that Scotland were to
take on a population share of the UK’s net public sector debt
(around £92 billion), due to a 17% higher GDP/capita in
Scotland, Scotland’s net public debt to GDP ratio would be
17% lower than the UK’s at 62% for Scotland, 72% for the UK.
http://www.businessforscotland.co.uk/westminster-debt-is
-harming-scotlands-economy/
It is amusing to hear the UK’s big debts being used as an argument against independence and the argument that Scotland
would be too debt laden after it took on a share of the UK’s debt given that we already owe this as part of the UK (and pay
to service the interest), the debt burden would be significantly less (in GDP terms) in an independent Scotland and we
would have a £1.5trillion gross value asset as collateral.

Could an Independent Scotland afford to defend itself?
Scotland’s share of UK defence expenditure included in the GERS numbers is £3.3bn The total value of the UK defence budget
actually spent in Scotland is £1.9bn.
The cost of defending an independent Scotland has
been put at £1.8bn/year by the Royal United
Services Institute in a Whitehall report although the
current Scottish Government actually plan to spend
£2.5bn/year. This is equivalent to that spent by
similar sized countries with similar geographical
characteristics and defence requirements (e.g.
Denmark) and considerably more than others (e.g.
Ireland at approx. £1.5bn).
http://www.rusi.org/news/ref:N507BDE949F81D/#.Unp1pRBUb-s
So in summary an Independent Scotland could adequately provide for its own defence, save £800m annually from what we
are currently charged by the UK government for defence within GERS, AND be able to spend some £600m more on
defence than is currently spent in Scotland by the UK MOD (with the job generation potential that goes with that).
A Scottish defence force would also, for obvious geographical and
economic reasons – oil and fisheries protection, have far more of a
maritime focus than the current UK MOD. Hence the scope for
shipbuilding spend in Scotland is actually larger with Independence.
Oil
The key point to note regarding oil revenues is that even
without any Oil Scottish GDP is 99% of the UK average. Arguing
about how much oil is left is like arguing about whether your
lottery win is mega or merely life changing. Our neighbours
have done just fine without oil (in many cases also without
Scotland’s other great economic strengths in tourism, whisky or
http://www.businessforscotland.co.uk/12-defence-factsthat-the-no-campaign-dont-want-you-to-know/
http://www.businessforscotland.co.uk/10-facts-about-scotlandsoil-and-independence/
fisheries either). Sweden, Finland and Denmark all are richer per head than the UK. (As are post-recovery Ireland and Iceland
now as well). Scotland has a fairly well balanced economy with strengths in a number of sectors. Oil accounts for about 15%
of the Scottish economy, far less than the share it represents of Norway’s economy.
It’s also important to remember that the biggest cash generator for the UK as a whole is the financial services sector mainly
based in the City of London, comprising about 10% of the UK economy. Oil is in the ground and it’s not going anywhere until
we pump it out. The ‘services’ provided by the City of London are highly transportable and are being actively targeted by
financial centres in Asia (Singapore, Shanghai etc) and Europe. It’s a brave person who would predict that the City of London
will still be a mainstay of the UK economy longer than oil is contributing to the Scottish economy.
According to research by Professor Alex Kemp of Aberdeen University, in 2010 the Scottish share of total oil production in the
UKCS was more than 95% while for gas it was 58%. The Scottish share of total hydrocarbon production (including NGLs) was
80%. The Scottish tax share exceeded 90%.

He also suggests that Scottish and UK waters would be divided on a 'Median Line' principle
which was the approach which was also used to determine the boundary between
Scotland and the rest of the UK for fisheries after devolution in 1999. It is the same
principle as the United Nations Convention on the Law of the Sea (UNCLOS) and the
principle on which the rest of the North sea is divided. This would actually be more
favourable to rUK than the line dividing Scottish and English legal jurisdiction.
Although the exact positioning of the line could be subject to negotiation, there is very
little oil close to any dividing line with the vast majority of the oil north of Aberdeen and
potentially lucrative new fields opening west of Shetland.
There is no real debate around whether the oil revenues from Scottish waters would
accrue to Scotland or not - they would.
Scotland’s Maritime Boundaries
- Median Line Principal
According to the UK’s Department of Energy and Climate change
and Oil and Gas UK and the Scottish Government (basically
anyone who isn’t Alistair Darling), there are an estimated 16-24
billion barrels of oil in known reserves which, at $100 per barrel,
means at least £1.5 trillion worth of oil and gas still to be
extracted.
Put simply, less than half the value of known North Sea oil
reserves have been extracted.
The key question is how best to manage the remaining oil reserves to most benefit the Scottish economy now and in the
future – continue to allow it to be spent by Westminster as previously, or invest it in the Scottish economy for the future.
http://www.scotland.gov.uk/Resource/0043/00435303.pdf
The Fiscal Commission Working Group is an independent panel
containing senior economists from around the world who regularly
advise the UN, OECD, IMF and European Commission. Two were
awarded Nobel prizes in Economics. They concluded that there
should be both a short-term stabilisation fund and a long-term
savings fund.
Norway established its oil fund in 1990, although it did not start transferring money into the fund until 1996. The fund is now
worth £450 billion, equivalent to £90,000 per person in Norway, and is the largest sovereign wealth fund in the world.
According to Neil Kinnock, former leader of the
Labour party:
“In the end, Thatcher's governments prodigiously
wasted those revenues, they did damn all; they
didn't even have a couple of miles of motorway or a
new hospital to show for it.”
http://www.businessforscotland.co.uk/prominentbusinessman-challenges-darling-on-the-economy/
http://www.holyrood.com/2013/11/kinnocks-regret-over-squanderedpotential-of-oil-fund/
http://www.businessforscotland.co.uk/why-the-nocampaign-really-dont-want-a-scottish-oil-fund/
Gavin McCrone, former chief economic adviser to the Scottish Office
(and author of the infamous McCrone Report) said if the UK had
established such a fund 40 years ago, the country's "whole economic
situation would have been different" and described the UK
Government's failure to establish an oil fund as "one of the great missed
opportunities of the last 30 years or so".

Much is made of the volatility of oil. The key thing about oil
price volatility is that it is volatile in an upward direction (which
is easy to understand when you consider that it is a finite
resource with an increasing demand).
The second thing to know is that even during the crash in oil
prices in 2008-2010, Scotland’s accounts were still healthier
than the UK’s. In 2009/10, the UK’s deficit peaked at 11.2% and
Scotland’s peaked at 10.7%.
In May 2013 when economists at the Paris based Organisation
for Economic Co-operation and Development (OECD) forecast
that the price of a barrel of oil will rise to between $150 and
$270 throughout the coming decade. The OECD envisaged a
baseline value for a barrel of oil of $190.
http://www.financialsense.com/contributors/joseph-dancy/
oecd-study-forecasts-sharply-higher-global-crude-oil-demand
The David Hume Institute calculated that, using OECD oil price
predictions, the remaining value of known reserves in Scottish
waters would be £4 trillion.
All organisations except the OBR (which, although operationally
independent of the Treasury is located in the Treasury offices
using Treasury staff on secondment) predict level or increasing
oil prices over the coming years.
The Fiscal Commission working group has described this as ‘inexplicable’ but we think clues can be found in interviews from
former Chancellor Dennis Healey in Holyrood magazine and from Alistair Darling in a 2010 interview with the Financial Times:
“I think we did underplay the value of the oil to the country
because of the threat of nationalism but that was mainly down
to Thatcher.” - Lord Healey
http://www.businessforscotland.co.uk/uk-governmentmisplaces-six-billion-barrels-of-oil/
“Right from the start the Tories used the OBR not just as part of
the government but as part of the Conservative Party. They have
succeeded in strangling what could have been a good idea at its
birth.” - Alistair Darling
Capital spending this year is forecast to race to its highest level in 30 years,
with companies planning to spend at least £13bn, according to data
collected by Oil & Gas UK, the industry trade body.
Overall, offshore operators are working on plans involving longer-term
investment of almost £100bn that would create thousands of new jobs and
extend Britain's role as an oil producer to 2040-2050, the survey finds.
http://www.telegraph.co.uk/finance/
newsbysector/energy/oilandgas/9891447/North-
Sea-oil-to-give-George-Osborne-25bn-boost.html
Chief Executive of Oil and Gas UK, Malcolm Webb said that tax revenues can
now be confidently expected to rise over the coming years. Speaking to
energy magazine 'Enterprising Energy' earlier this year, he said:"...the projects approved in 2011 and 2012 alone will over
time produce more than two billion barrels of oil and gas, generate 100 billion GBP value for the economy and an additional
25 billion GBP in production taxes for the Exchequer."
Challenging claims that the sector is running down, Mr Webb added: "The North Sea oil and gas sector, contrary to what
some sources say, still has a long productive life ahead of it; we estimate 50 years or more."

Pensions
Pensions come in a variety of shapes and sizes:
1. The Basic State Pension. This is funded by the government of
the day from current revenues. (There isn’t a big biscuit tin with
‘Pension Pot’ written on it somewhere in the Treasury). The
ability of the government to fund the state pension at any point
in time depends on the strength of the national finances at that
point in time. Although we’re not saying that Scotland, like all
western countries, doesn’t face challenges, the fact that
Scotland has stronger public finances than the UK as a whole shows
that far from being less likely to be able to afford pensions Scotland
is actually better placed to be able to fund state pensions going
forward.
The current Scottish Government has pledged to protect pension http://www.scotland.gov.uk/Resource/0043/00434502.pdf
values with a ‘triple lock’ guarantee meaning that state pension
payments would increase with the higher of inflation, earnings or 2.5%
They have also suggested that they may be able to delay the UK’s planned increases to retirement age due to a lower life
expectancy in Scotland than in the rest of the UK and the implicit subsidy that creates.
2. Public Sector Pensions. In many cases these are already paid for by the Scottish Government (employees working in
devolved services). In others cases public sector employees currently employed by the UK government in Scotland would
move over to the Scottish government. In the same way as the basic State pension is more affordable under Independence
due to stronger Public Sector finances then the same is true of Public Sector pensions.
3. Private provider pensions. These pensions are a contract between the individual and the private sector pension provider.
This arrangement wouldn’t change under Independence.
4. Company Pensions: Again these are an arrangement between an individual employee (or ex-employee) and a private
sector company. This arrangement won’t change under Independence .
The recent scare story on Pensions was in relation to an EU rule relating
to full funding requirements of cross-border company pension schemes.
In summary, many company pension schemes are currently in deficit
(due to recent stockmarket downturns etc and in some cases earlier
pension ‘holidays’ by the companies themselves during the good times).
http://www.businessforscotland.co.uk/scotland-betterplaced-than-the-uk-to-support-pensions-claims-expert/
http://www.businessforscotland.co.uk/pensionsinvestment-and-the-building-of-a-new-scotland/
There is a requirement that these schemes should be brought back onto
an even keel within a specified timeframe. Which makes sense if you
want people’s pensions to be protected.
The EU has implemented rules that where a company scheme is in deficit and the company operates across international
borders then the timescale to bring the scheme back into surplus is shorter.
So what that means is that companies would, in theory, have to find the cash to fund these schemes quicker than they
otherwise would have had to. (We’re not sure that most people would think it was a bad thing that companies need to fund
pension schemes so they can pay people’s pensions when they are due – but that’s what the scare story was based on so
let’s assume it is).
The problem with the scare story was that the EU had already given an exception to cross-border schemes in existence
between the UK and the Republic of Ireland, and it’s hard to see why the same wouldn’t apply to Scotland.

Europe
The Scottish Government proposes to agree the terms of Scotland's continued membership of the European Union between
the date of the referendum (18th September 2014), and the proposed date of independence in March 2016, arguing that
continued membership would be negotiated 'from within'. This is broadly in agreement with the UK Government's (current)
position.
In February 2013, Professors James Crawford and Alan Boyle produced a report on Scotland's EU membership
commissioned by the UK Government
Professor James Crawford of Cambridge University said in a BBC radio interview that the negotiations for Scotland to
continue its membership of the European Union, which would take place during that 18 month period were not "necessarily
going to be difficult" and that the 18-month period set out by the Scottish Government for the negotiation of Scotland's
independence in the wake of a 'Yes' vote is realistic.
Graham Avery , Senior Adviser at the European
Policy Centre, Brussels, and Honorary Director-
General of the European Commission who took
part in successive negotiations for EU
enlargement gave evidence to the House of
Commons Foreign Affairs Committee in which
he stated:
In July 2013 Rasmus Helveg Petersen MP, a
spokesman on foreign affairs for the Denmark's
Social Liberals said: "The criteria is very
objective Scotland would qualify. If Scotland
wants it, yes. It would be a mere formality."
http://www.royalsoced.org.uk/cms/files/events/programmes/2012-13/
speaker_notes/Avery_ScotlandEU.pdf
According to Lord Malloch-Brown, who served in the Foreign
Office under Gordon Brown for two years: "I don't think they
would have any particular reason to want to make things tricky
for Scotland." He also claimed "If they were going to make the
issue embarrassing for anybody it is more likely they would make
it embarrassing for London, with whom they have bigger
problems"
Despite all the politicking about Scotland’s EU membership, it
seems a consensus has now been reached. Of course, all this
could have been avoided had the UK Government simply asked
the European Commission for a ruling - something they flatly
refused to do... but, of course, it’s not in their interests to
provide clarity.
In October 2013, Former Scottish Secretary
Michael Moore said that he saw “no reason to
believe that any country around Europe would
have an in-principal objection to any new Member
State coming forward” during an interview with a
http://www.businessforscotland.co.uk/no-campaign-eu-membership-mythfalls-apart/
Catalan News Agency.
http://www.heraldscotland.com/news/home-news/lordmalloch-brown-independent-scotland-will-be-welcomed-intoeu.1361449365

The number of MEPs sent to the European Parliament would be a matter of negotiation but it would seem likely to increase
as Scotland, as part of the UK, currently elects the same number of MEPs as Malta or Luxembourg which have less than 10%
of Scotland's population and less than half the number of Denmark (which has a similar population to Scotland).
In January 2013, Prime Minister David Cameron promised an in/out referendum on EU membership if the Conservative
Party wins the next General Election.
According to Gavin McCrone, former chief
economic adviser to the Scottish Office (and
author of the infamous McCrone Report) :
"Membership of the EU is very important for
Scotland because so many inward investment
companies have chosen it as a base from which
to serve the European market. If Scotland was
outside the EU, it would be more difficult to
attract inward investment and, depending on
what agreement was reached on access to the
single market, some of those already in Scotland
may leave."
http://www.businessforscotland.co.uk/westminster-working-against-scotlandsinterests-on-europe/
He added: "If, therefore, it seems increasingly likely that the UK will leave the EU, the logical consequence could be an
increase in support for independence."
Currency
The issue of the currency of an independent Scotland has
been a hotly debated topic. Ultimately, Scotland's
currency is an issue for successive Scottish Governments
to decide but it would be up to the current Scottish
Government to set out the arrangements on day 1.
http://www.businessforscotland.co.uk/euro-pound-or-scottish-pound/
The options are:
Retain the Pound with a Formal Currency Union with the UK
Unilaterally retain the Pound (No Formal Agreement is required)
Set up a new Scottish Currency pegged to the Pound (i.e. Fixed Exchange Rate)
Set up a new flexible Scottish Currency (i.e. Variable Exchange Rate)
Join the Euro
In February 2013, an independent Fiscal Commission working group was asked by the Scottish Government to investigate
options for the currency and macro-economic framework of an independent Scotland. The working group contained senior
economists from around the world who regularly advise the UN, OECD,
IMF and European Commission. Two were awarded Nobel prizes in
Economics. Their report is over 220 pages long so it’s funny to hear
politicians claim that the Scottish Government haven’t provided enough
information on this topic.
http://www.scotland.gov.uk/
Resource/0041/00414291.pdf

Retaining Pound Sterling
The Scottish Government's favoured option is to retain the pound within a formal currency union and would require the
Bank of England (which, despite the name, is a UK not English body) to remain the Central Bank of both the UK and
Scotland.
According to the Fiscal Commission Working Group report:
"Analysis shows that it would be in Scotland's interests to retain Sterling immediately post-independence. It is also the case
that post-independence this would benefit the rest of the UK given the scale of integrated markets, including in areas such as
financial services “
A successful currency union will provide some constraints on deficit levels and debt levels. However, as indicated by the
Fiscal Commission Working Group:
"Limitations on borrowing and deficits are typically at the composite level, and still allow for flexibilities in the design of the
underlying tax system and a range of specific policies suitable for each Member State."
Under the Scottish Governments' plan these economic
'levers' would lie with the Scottish Government.
The group also looks in detail at the Belgium-
Luxembourg currency union and concluded:
“The BLEU framework demonstrates therefore that
relative differences in country size and economic
structure do not prevent successful monetary union.”
http://www.businessforscotland.co.uk/economic-policy-in-anindependent-scotland/
They also note that Belgium and Luxembourg have different rates of VAT and Corporation tax and share one central bank in
Belgium.
In April 2013, however, Chancellor George Osbourne cast doubt on the possibility of a formal currency union when he
revealed Treasury analysis which concluded that the economic case for the rest of the UK agreeing to the union was "not
clear" but, when pressed, did not rule it out.
The chairman of the Fiscal Commision Working group has accused the chancellor of "bluffing"
The group points out that:
"Scotland's natural wealth would make a positive contribution to the Sterling Area economy. For example, Oil & Gas UK
estimate that North Sea output, the large majority of which takes place within Scotland's marine boundaries, boosted the
UK's balance of payments by 40 billion GBP in 2011."
In essence, leaving the pound would double the balance of payments deficit in the ‘sterling zone’ and lead to a severe
devaluation of the pound. Alistair Darling has already stated that in the event of Independence a formal Sterling zone is the
best option for Scotland. For all the politics between and referendum day , economic good sense will prevail immediately
thereafter.
New Scottish Currency
One of the biggest drawback of a Scottish currency ironically would be its strength. This would be as a consequence of
both Scotland’s superior public finances and deficit position compared to the UK, Scotland’s strong balance of payments
position and the fact that the Scottish economy is underwritten by significant Oil and Gas reserves.
The NOK and SEK (Norway and Sweden) both float freely and have strong currencies (hence the high costs in those countries
for visitors). This is great for Norwegian tourists going shopping in Edinburgh, but makes it difficult for local manufacturing
to compete on the world stage. The DKK (Denmark) is tied to the Euro by the Danish Government to prevent it becoming
too strong, and for ease of trade to their main market. So while a separate Scottish currency would help when we
go on holiday it could be a drawback to our manufacturing competitiveness.

The Euro
According to the Fiscal Commission Working Group:
"It is also not the case that a newly independent Scotland could be obliged to join the Euro."
"As highlighted in Box 7.01 for example, a requirement to join the Euro is to be a member of the Exchange Rate Mechanism II
for at least two years. The decision to join the ERM II is voluntary."
Poland has been in the EU since 2005 and still uses the Zloty. If
Poland decided to join the Euro it would first have to amend its
constitution (requiring a 2/3 majority in their parliament and a
referendum) and then go through the process of applying to join
the Euro. Even if they started the process tomorrow the earliest
they could join the Euro would be in 2017, a full 12 years after they
joined the EU.
The Czech Republic is in a similar situation. Hungary, Romania and
Bulgaria likewise. Croatia joined the EU in July of 2103, and still uses
the Kuna.
There is another problem you might have spotted: Scotland doesn’t have a currency to commit to the ERM, and as Scotland
plans to keep the pound, we therefore cannot adopt the euro, even if we wanted to!
Put simply, one of the requirements of joining the Euro is actually to have your own currency and to then voluntarily join the
ERM2 for a minimum of 2 years.
Banks
According to Scottish Secretary Michael Moore "the scale of the financial disaster that befell both Royal Bank of Scotland and
Halifax Bank of Scotland would have placed a crippling burden upon
Scotland. By being part of the United Kingdom we shared the risks".
However, Andrew Hughes Hallett, Professor of Economics at St Andrew's
University described Moore's answer as "a nonsense".
According to Andrew Hughes-Hallet: "By international convention, when
banks which operate in more than one country get into these sorts of
conditions, the bailout is shared in proportion to the area of activities of
those banks. In the case of the RBS. Roughly speaking 90% of its
operations are in England and 10% are in Scotland."
George Walker, Professor of International Finance Law at Queen Mary University, London and also Glasgow University,
supported this position. So did Andrew Campbell, Professor of international and finance law at Leeds University.
Professor Walker said it was inconceivable that the Treasury would not have stepped in to save RBS's English operations,
even if Scotland was independent. "Many of those (RBS) subsidiaries operate out of London and only out of London. I don't
think you can, simply, look at it purely on the basis of where, as you point out, the brass plate of the holding company is."
In fact, the biggest bailouts of ‘UK’ banks were carried out in the USA to shore
up their US operations. Barclays was bailed out to the tune of £552.32bn (at
backdated exchange rates) by the US Federal Reserve and £6bn by the Qatari
Government, more than twelve times more money than the UK Government’s
capital support for RBS (£45bn).
http://www.businessforscotland.co.uk/
bizforscotland-destroys-the-no-campaigns-bankbail-out-lies/
This point is illustrated very aptly by Rory Bremner after an interview with Ian
Davidson MP in the documentary film ‘Rory goes to Holyrood’ - which we love!:
http://www.youtube.com/watch?v=-p9rXRzF3QQ&feature=youtu.be&t=49m49s
http://www.newstatesman.com/2010/12/
financial-british-money-fed

Barriers to Trade
The issue of Barriers to Trade between Scotland and
the rest of the UK post-independence is often raised as
a reason not to vote Yes. This can always be dispelled
with two words: ‘Name them’. We have yet to hear
anyone answer this. This article considers this issue
and debunks many of the myths surrounding it.
http://www.businessforscotland.co.uk/no-barriers-to-trade-with-ayes-vote/
Targeted Economic Policies
In June 2013, former Government economist Margret Cuthbert,
whose work is cited by all parties, produced a paper for the
Jimmy Reid Foundation's Common Weal Project heavily
criticising the effect of UK government economic policies on
Scotland.
http://scottishcommonweal.org/wp-content/
According to Margret the UK economy has become so
uploads/2013/07/Dysfunction1.pdf
"dysfunctional" through mismanagement, free market excess
and policies skewed towards London that Scotland needs independence to avoid being harmed any more by it.
Instead of actively protecting Scotland, she says the UK economy has become overwhelmingly geared to helping London,
meaning Scotland and other UK regions suffer from being denied the specific, local policies they need.
Opportunity
We have covered the main ‘fear’ stories here, debunking the myths and providing you with facts and data sources to support
the strong economic and business case for Independence. However it’s also worth recognising that an Independent Scotland
would open many doors and present many opportunities for business.
Part of the work of Business for Scotland is to identify these opportunities on a sector by sector basis, allowing business
people to focus on the tremendous business opportunities that Independence would bring. Here are just a few of our
articles.
http://www.businessforscotland.co.uk/
the-benefits-of-independence-forretailing/
http://www.businessforscotland.co.uk/yes-votein-2014-will-put-scotlands-cuisine-on-the-map/
http://www.businessforscotland.co.uk/
the-independence-dividendopportunities-for-the-property-sector/
Our intention is, with the help of our sector teams, to develop sector specific papers presenting the opportunities
Independence offers across a wide range of Scottish Business and to publicise these within each sector.
The issue with regards to an Independent Scotland’s finances isn’t ‘can we afford it?’ The real issue is the debate we need to
have about how best to wisely utilise the Independence Dividend that comes from a strong set of Public finance accounts
and from being the 8th wealthiest country in the world.

If the economic case for Independence is so strong why are so many Scottish politicians against it?
It’s always worth remembering that while Independence offers much in the way of opportunity for many in our society there
is one group who are guaranteed to be looking for alternative employment come 2016. I refer of course to the current crop
of Scottish Westminster MPs who have make a tidy income out of what at best is half a job (with so many key services
already having been devolved to Scotland). For that ‘half a job’ the Westminster MP receives a salary of £66k (with increases
of up to £10k currently being debated at Westminster), plus of course considerable expenses as we all know.
As business people efficiency savings are of course close to our hearts, as are reductions in layers of unnecessary
bureaucracy. It’s difficult to think of a more unnecessary, and more unpopular, layer of bureaucracy that Scottish
Westminster MPs, now is the time to call them out.
What Next?
If the information in this document has been useful to you or even just made you think, please consider doing one of these
things:
Keep up to date with our articles: http://www.businessforscotland.co.uk/articles/
Attend one of our (free) public events: http://www.businessforscotland.co.uk/events/
Note: Events are open to all, especially if you haven’t made up your mind!
Sign the Business for Scotland Declaration: http://www.businessforscotland.co.uk/join-us-now/
Become a Business for Scotland Ambassador by attending a free training session
Most importantly though, spread the word. A recent poll found that 49% of people wanted more information about the
referendum. With the most important decision we have had to make in 300 years just around the corner, people deserve to
know the facts.
Please share this document and our articles with friends, colleagues and relatives.