BFSCaseforIndy_Nov13
BFSCaseforIndy_Nov13
BFSCaseforIndy_Nov13
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The Case for Independence<br />
Who are Business for Scotland?<br />
Business for Scotland is a co-operatively owned business network<br />
for business people and professionals who believe that Scotland will<br />
prosper as an independent country and is one of the largest business<br />
organisations in Scotland.<br />
We have no party or government affiliation and we are not formally<br />
linked to or funded by the Yes campaign. Our members come from<br />
right across the political spectrum and include members of all political<br />
parties and none.<br />
Data Sources and Veracity<br />
The Government Expenditure and Revenue Scotland (GERS) report is<br />
compiled by the Scottish Government using ONS data and is approved by the<br />
UK Treasury. GERS provides annual data for both revenue and expenditure<br />
for Scottish public spending along with GDP data for the Scottish and UK<br />
economies.<br />
http://www.scotland.gov.uk/<br />
Resource/0041/00415871.pdf<br />
This is the primary data source for most numbers in this document. The data in GERS isn’t disputed by either side. GERS is<br />
published annually around March for the last full financial year. GERS for FY 2011-12 was published in March 2013 and is<br />
the most recent data set available. Figures and percentages given are from GERS 2011-12, although the picture they paint<br />
holds true for all of the last 30 years.<br />
GERS reports Scotland’s economic performance with geographical share of oil (i.e. revenue from what would be<br />
internationally recognised as Scotland’s waters in the event of Independence). It also reports the data without oil revenues<br />
and with Scotland having a pro-rata population share of oil revenues. The data in this document uses the numbers as they<br />
would apply were Scotland Independent. The other two data sets (without oil revenues, and with a pro-rata population<br />
share) are accounting treatments for review of the data within a UK context so aren’t relevant to an independent Scotland.<br />
(See oil section)<br />
The GERS numbers have been used by the Scottish Government to compile Scotland’s<br />
Balance Sheet .<br />
While GERS is the closest that we have to a full set of national accounts, it is likely that they<br />
are pessimistic compared to the national accounts of an independent country.<br />
http://www.scotland.gov.uk/<br />
Resource/0041/00418420.pdf<br />
For many companies, VAT and Corporation tax for the whole of UK operations are paid at<br />
company headquarters which is most often in London or the South East of England. It doesn’t count as Scottish revenue,<br />
despite the fact it’s a tax paid on sales / profit generated in Scotland. Put simply, if you buy a packet of Walkers shortbread<br />
in Tesco in Edinburgh, the VAT you pay is taken to be generated at Tesco’s head office in Hertfordshire.<br />
There are other ways in which Scottish revenues are invisible in GERS. Much of the alcohol duty paid by the whisky industry<br />
is not counted as revenue from Scotland. Alcohol produced in the UK which is exported abroad becomes subject to UK<br />
alcohol duty at the point of export, and a large proportion of Scotland’s multibillion whisky exports gets shipped out from<br />
ports in England. The UK Treasury counts the duty levied on this whisky as income from the tax region in which the port is<br />
situated.
Can Scotland Afford to be Independent?<br />
The key question to be answered in respect of an Independent Scotland’s economy is that of affordability. How can we<br />
manage without Westminster to pay our bills? The perception that Scotland needs external financial support to survive is<br />
simply untrue.<br />
Scotland generates 9.9% of all UK revenue (taxes) and incurs only 9.3% of UK expenditure.<br />
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.<br />
Of course, these are percentages of two different numbers and that in cash terms the expenditure number is higher than<br />
the revenue number. Across the UK as a whole expenditure exceeds revenue. This is called a deficit, and almost every<br />
country in the Western world is currently running a deficit (with the notable exception of Norway).<br />
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<br />
on 2011-12 figures. (£4.4bn being the difference between the 9.9% and the 9.3% in cash terms). Alternatively we could<br />
decide to spend the same as we are today and have a deficit which was £4.4bn lower, or a combination of the two.<br />
So the real question is can Scotland afford not to be<br />
independent?<br />
http://www.businessforscotland.co.uk/breaking-news-9-3-is-a-smallernumber-than-9-9-indyref/<br />
http://www.businessforscotland.co.uk/independence-thebusiness-case-for-scotland/<br />
GERS gives quite a bit of detail on the various elements<br />
of both the revenue and expenditure sides of the<br />
equation.<br />
On the expenditure side there are a couple of things<br />
worth pointing out. The vast bulk of Scotland’s public<br />
expenditure is based on actual numbers (Scottish<br />
Government spending on Health, Education or Police<br />
for example). This clearly identified expenditure<br />
comprises about 86% of the total expenditure.<br />
http://www.scotland.gov.uk/Resource/0041/00418420.pdf<br />
The other expenditure within Scotland’s accounts is<br />
what is called ‘Non-Identifiable’ expenditure. This 14%<br />
equates to about £9bn of spend and the two biggest<br />
items by far are Defence (£3.3bn) and Debt Interest<br />
Payments (£4.1bn). The concept here is that while that<br />
money isn’t necessarily spent ‘in’ Scotland it is judged<br />
as having being spent ‘for’ Scotland (a distinction<br />
explained in more detail within GERS itself).<br />
So just to be clear Scotland’s 9.3% share of UK spending<br />
already includes those non-identifiable items. Both the<br />
Defence and the Debt Interest payment numbers are<br />
simply calculated by using a pro-rata population share<br />
of the total UK numbers. These are considered in more<br />
detail below.
Revenue<br />
The average tax paid per head in Scotland is<br />
£10,700, the average for the UK is £9,000.<br />
Tax revenues per head in Scotland have<br />
been higher than the UK average every year<br />
for the past 30 years.<br />
http://www.scotland.gov.uk/Resource/0041/00418381.pdf<br />
For the first time HMRC also explicitly produced<br />
disaggregated revenue figures for UK countries in 2013<br />
(although this data was already available from historical<br />
GERS reports). The data, as you would expect, confirms<br />
the picture from GERS.<br />
http://www.hmrc.gov.uk/statistics/receipts/disagg-info.pdf<br />
Expenditure<br />
The issue of spending per head is also worth understanding. In summary Scotland represents 8.4% of the UK population,<br />
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’<br />
myth arises). So while our tax take is higher than our spending in % terms, spending per head is higher in Scotland than<br />
the UK average.<br />
There are some reasons for that, historical, to do with calculations in the Barnett formula which defines the Scottish Governments<br />
annual budget, geographical factors and the fact that some services that are privatised in England still fall under<br />
the Public Sector in Scotland.<br />
Under the current system, the majority of revenue is paid directly<br />
to HM treasury and the Scottish Government receives a block<br />
grant from the Westminster Government. The size of this grant<br />
(9.3% of UK total in 2012) is calculated using the Barnett Formula.<br />
The formula is named after Joel Barnett, who devised it in the late<br />
1970s, while Chief Secretary to the Treasury as a way of allocating<br />
additional or reduced finance based on population (and not need)<br />
as a short-term solution to minor Cabinet disputes in the run-up<br />
to the planned devolution in 1979. The Barnett formula is said to<br />
have "no legal standing or democratic justification", and, being<br />
merely a convention, could be changed by the Treasury at will. In<br />
recent years, Barnett has called for a review of its long-term<br />
viability.<br />
http://www.publications.parliament.uk/pa/ld200809/<br />
ldselect/ldbarnett/139/9012802.htm
In July 2013, council leaders in England announced that they would<br />
campaign for Scotland's block Grant to be cut. The Local Government<br />
Association has confirmed it will press the Treasury to create a new<br />
system of sharing funding across the UK which would be likely to reduce<br />
the 30 billion GBP block grant that Scotland receives each year to spend<br />
on schools, hospitals and roads.<br />
http://www.scotsman.com/news/uk/welsh-first-ministerurges-barnett-formula-rethink-1-3170833<br />
http://www.scotsman.com/news/holyrood-facescampaign-to-scrap-barnett-formula-1-3018639<br />
Carwyn Jones, the First Minister of Wales, also revealed he would<br />
be campaigning for an overhaul of the Barnett Formula.<br />
As part of the UK, such cuts would barely dent the UK’s deficit but<br />
equivalent cuts if Scotland were independent would put Scotland in<br />
an extremely healthy financial footing.<br />
The final point to note is that public sector spending in<br />
Scotland represents 42.7% of GDP, lower than the UK<br />
figure of 45.5%. So contrary to popular belief Scots are<br />
actually less reliant on public spending than the UK as<br />
a whole is.<br />
http://www.scotland.gov.uk/Resource/0041/00418420.pdf<br />
GDP<br />
GDP (Gross Domestic product) is a measure of the output of an economy. It isn’t the only measure of an economy’s<br />
strength but it is the one used to compare different countries globally, and GDP growth is keenly monitored at a national<br />
level as a key indicator of the health of the economy.<br />
GERS 2011-12 gives Scottish GDP as £151bn, compared to a UK figure of £1,526bn. Based on the 2011 census statistics<br />
(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<br />
words Scots are 17% richer in GDP terms than the UK average. That GDP per head figure puts Scotland at number 8 in<br />
the OECD league table of wealthiest nations (with the UK at number 17).<br />
Even completely excluding Oil and Gas revenues Scotland’s GDP per head is 99% of the UK average.<br />
The key point to note here is that this data isn’t based on future forecasts of fanciful oil revenue projects, these numbers<br />
are what actually happened in Scotland in 2011-12.
Deficit<br />
Despite higher spending, due to a higher tax take,<br />
Scotland’s deficit as a % of GDP is 5% compared to a UK<br />
average of 7.9%.<br />
Interestingly, of Scotland’s £7.6bn deficit last year £4.1bn of<br />
that was actually the amount we were charged as our share of<br />
the UKs debt interest payments. The more astute amongst you<br />
will already be asking the question why if Scotland runs a lower<br />
http://www.businessforscotland.co.uk/revealed-the-accountingtrick-that-hides-scotlands-wealth/<br />
deficit in % terms than the UK should we be saddled with a pro-rata percentage share of the UK’s Debt Interest payments.<br />
Good question.<br />
The precise debt level that Scotland inherits at Independence will be a matter for negotiation. (When the Soviet Union brokeup<br />
Russia kept 100% of the debt in a deal involving the other 14 new states supporting Russia’s maintenance of its nuclear<br />
deterrent and permanent seat on the UN security council.)<br />
While we are unlikely to get such a good deal from Westminster there is plenty of evidence (based on GERS data) that<br />
Scotland has generated a far lower % debt over the past 30 years than the UK total. In fact analysis by Prof. Brian Ashcroft of<br />
Glasgow University has come to the conclusion that when we take into account the debt interest payments charged to<br />
Scotland in GERS for debt we didn’t generate then Scotland would actually<br />
have been in Surplus over the past 30 years to the tune of about £68bn...<br />
and he’s married to former Scottish Labour leader Wendy Alexander so<br />
nobody can accuse him of pro-independence bias!<br />
“Come and look at what you could have won”<br />
Debt<br />
If we assume, for the sake of argument, that Scotland were to<br />
take on a population share of the UK’s net public sector debt<br />
(around £92 billion), due to a 17% higher GDP/capita in<br />
Scotland, Scotland’s net public debt to GDP ratio would be<br />
17% lower than the UK’s at 62% for Scotland, 72% for the UK.<br />
http://www.businessforscotland.co.uk/westminster-debt-is<br />
-harming-scotlands-economy/<br />
It is amusing to hear the UK’s big debts being used as an argument against independence and the argument that Scotland<br />
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<br />
to service the interest), the debt burden would be significantly less (in GDP terms) in an independent Scotland and we<br />
would have a £1.5trillion gross value asset as collateral.
Could an Independent Scotland afford to defend itself?<br />
Scotland’s share of UK defence expenditure included in the GERS numbers is £3.3bn The total value of the UK defence budget<br />
actually spent in Scotland is £1.9bn.<br />
The cost of defending an independent Scotland has<br />
been put at £1.8bn/year by the Royal United<br />
Services Institute in a Whitehall report although the<br />
current Scottish Government actually plan to spend<br />
£2.5bn/year. This is equivalent to that spent by<br />
similar sized countries with similar geographical<br />
characteristics and defence requirements (e.g.<br />
Denmark) and considerably more than others (e.g.<br />
Ireland at approx. £1.5bn).<br />
http://www.rusi.org/news/ref:N507BDE949F81D/#.Unp1pRBUb-s<br />
So in summary an Independent Scotland could adequately provide for its own defence, save £800m annually from what we<br />
are currently charged by the UK government for defence within GERS, AND be able to spend some £600m more on<br />
defence than is currently spent in Scotland by the UK MOD (with the job generation potential that goes with that).<br />
A Scottish defence force would also, for obvious geographical and<br />
economic reasons – oil and fisheries protection, have far more of a<br />
maritime focus than the current UK MOD. Hence the scope for<br />
shipbuilding spend in Scotland is actually larger with Independence.<br />
Oil<br />
The key point to note regarding oil revenues is that even<br />
without any Oil Scottish GDP is 99% of the UK average. Arguing<br />
about how much oil is left is like arguing about whether your<br />
lottery win is mega or merely life changing. Our neighbours<br />
have done just fine without oil (in many cases also without<br />
Scotland’s other great economic strengths in tourism, whisky or<br />
http://www.businessforscotland.co.uk/12-defence-factsthat-the-no-campaign-dont-want-you-to-know/<br />
http://www.businessforscotland.co.uk/10-facts-about-scotlandsoil-and-independence/<br />
fisheries either). Sweden, Finland and Denmark all are richer per head than the UK. (As are post-recovery Ireland and Iceland<br />
now as well). Scotland has a fairly well balanced economy with strengths in a number of sectors. Oil accounts for about 15%<br />
of the Scottish economy, far less than the share it represents of Norway’s economy.<br />
It’s also important to remember that the biggest cash generator for the UK as a whole is the financial services sector mainly<br />
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<br />
we pump it out. The ‘services’ provided by the City of London are highly transportable and are being actively targeted by<br />
financial centres in Asia (Singapore, Shanghai etc) and Europe. It’s a brave person who would predict that the City of London<br />
will still be a mainstay of the UK economy longer than oil is contributing to the Scottish economy.<br />
According to research by Professor Alex Kemp of Aberdeen University, in 2010 the Scottish share of total oil production in the<br />
UKCS was more than 95% while for gas it was 58%. The Scottish share of total hydrocarbon production (including NGLs) was<br />
80%. The Scottish tax share exceeded 90%.
He also suggests that Scottish and UK waters would be divided on a 'Median Line' principle<br />
which was the approach which was also used to determine the boundary between<br />
Scotland and the rest of the UK for fisheries after devolution in 1999. It is the same<br />
principle as the United Nations Convention on the Law of the Sea (UNCLOS) and the<br />
principle on which the rest of the North sea is divided. This would actually be more<br />
favourable to rUK than the line dividing Scottish and English legal jurisdiction.<br />
Although the exact positioning of the line could be subject to negotiation, there is very<br />
little oil close to any dividing line with the vast majority of the oil north of Aberdeen and<br />
potentially lucrative new fields opening west of Shetland.<br />
There is no real debate around whether the oil revenues from Scottish waters would<br />
accrue to Scotland or not - they would.<br />
Scotland’s Maritime Boundaries<br />
- Median Line Principal<br />
According to the UK’s Department of Energy and Climate change<br />
and Oil and Gas UK and the Scottish Government (basically<br />
anyone who isn’t Alistair Darling), there are an estimated 16-24<br />
billion barrels of oil in known reserves which, at $100 per barrel,<br />
means at least £1.5 trillion worth of oil and gas still to be<br />
extracted.<br />
Put simply, less than half the value of known North Sea oil<br />
reserves have been extracted.<br />
The key question is how best to manage the remaining oil reserves to most benefit the Scottish economy now and in the<br />
future – continue to allow it to be spent by Westminster as previously, or invest it in the Scottish economy for the future.<br />
http://www.scotland.gov.uk/Resource/0043/00435303.pdf<br />
The Fiscal Commission Working Group is an independent panel<br />
containing senior economists from around the world who regularly<br />
advise the UN, OECD, IMF and European Commission. Two were<br />
awarded Nobel prizes in Economics. They concluded that there<br />
should be both a short-term stabilisation fund and a long-term<br />
savings fund.<br />
Norway established its oil fund in 1990, although it did not start transferring money into the fund until 1996. The fund is now<br />
worth £450 billion, equivalent to £90,000 per person in Norway, and is the largest sovereign wealth fund in the world.<br />
According to Neil Kinnock, former leader of the<br />
Labour party:<br />
“In the end, Thatcher's governments prodigiously<br />
wasted those revenues, they did damn all; they<br />
didn't even have a couple of miles of motorway or a<br />
new hospital to show for it.”<br />
http://www.businessforscotland.co.uk/prominentbusinessman-challenges-darling-on-the-economy/<br />
http://www.holyrood.com/2013/11/kinnocks-regret-over-squanderedpotential-of-oil-fund/<br />
http://www.businessforscotland.co.uk/why-the-nocampaign-really-dont-want-a-scottish-oil-fund/<br />
Gavin McCrone, former chief economic adviser to the Scottish Office<br />
(and author of the infamous McCrone Report) said if the UK had<br />
established such a fund 40 years ago, the country's "whole economic<br />
situation would have been different" and described the UK<br />
Government's failure to establish an oil fund as "one of the great missed<br />
opportunities of the last 30 years or so".
Much is made of the volatility of oil. The key thing about oil<br />
price volatility is that it is volatile in an upward direction (which<br />
is easy to understand when you consider that it is a finite<br />
resource with an increasing demand).<br />
The second thing to know is that even during the crash in oil<br />
prices in 2008-2010, Scotland’s accounts were still healthier<br />
than the UK’s. In 2009/10, the UK’s deficit peaked at 11.2% and<br />
Scotland’s peaked at 10.7%.<br />
In May 2013 when economists at the Paris based Organisation<br />
for Economic Co-operation and Development (OECD) forecast<br />
that the price of a barrel of oil will rise to between $150 and<br />
$270 throughout the coming decade. The OECD envisaged a<br />
baseline value for a barrel of oil of $190.<br />
http://www.financialsense.com/contributors/joseph-dancy/<br />
oecd-study-forecasts-sharply-higher-global-crude-oil-demand<br />
The David Hume Institute calculated that, using OECD oil price<br />
predictions, the remaining value of known reserves in Scottish<br />
waters would be £4 trillion.<br />
All organisations except the OBR (which, although operationally<br />
independent of the Treasury is located in the Treasury offices<br />
using Treasury staff on secondment) predict level or increasing<br />
oil prices over the coming years.<br />
The Fiscal Commission working group has described this as ‘inexplicable’ but we think clues can be found in interviews from<br />
former Chancellor Dennis Healey in Holyrood magazine and from Alistair Darling in a 2010 interview with the Financial Times:<br />
“I think we did underplay the value of the oil to the country<br />
because of the threat of nationalism but that was mainly down<br />
to Thatcher.” - Lord Healey<br />
http://www.businessforscotland.co.uk/uk-governmentmisplaces-six-billion-barrels-of-oil/<br />
“Right from the start the Tories used the OBR not just as part of<br />
the government but as part of the Conservative Party. They have<br />
succeeded in strangling what could have been a good idea at its<br />
birth.” - Alistair Darling<br />
Capital spending this year is forecast to race to its highest level in 30 years,<br />
with companies planning to spend at least £13bn, according to data<br />
collected by Oil & Gas UK, the industry trade body.<br />
Overall, offshore operators are working on plans involving longer-term<br />
investment of almost £100bn that would create thousands of new jobs and<br />
extend Britain's role as an oil producer to 2040-2050, the survey finds.<br />
http://www.telegraph.co.uk/finance/<br />
newsbysector/energy/oilandgas/9891447/North-<br />
Sea-oil-to-give-George-Osborne-25bn-boost.html<br />
Chief Executive of Oil and Gas UK, Malcolm Webb said that tax revenues can<br />
now be confidently expected to rise over the coming years. Speaking to<br />
energy magazine 'Enterprising Energy' earlier this year, he said:"...the projects approved in 2011 and 2012 alone will over<br />
time produce more than two billion barrels of oil and gas, generate 100 billion GBP value for the economy and an additional<br />
25 billion GBP in production taxes for the Exchequer."<br />
Challenging claims that the sector is running down, Mr Webb added: "The North Sea oil and gas sector, contrary to what<br />
some sources say, still has a long productive life ahead of it; we estimate 50 years or more."
Pensions<br />
Pensions come in a variety of shapes and sizes:<br />
1. The Basic State Pension. This is funded by the government of<br />
the day from current revenues. (There isn’t a big biscuit tin with<br />
‘Pension Pot’ written on it somewhere in the Treasury). The<br />
ability of the government to fund the state pension at any point<br />
in time depends on the strength of the national finances at that<br />
point in time. Although we’re not saying that Scotland, like all<br />
western countries, doesn’t face challenges, the fact that<br />
Scotland has stronger public finances than the UK as a whole shows<br />
that far from being less likely to be able to afford pensions Scotland<br />
is actually better placed to be able to fund state pensions going<br />
forward.<br />
The current Scottish Government has pledged to protect pension http://www.scotland.gov.uk/Resource/0043/00434502.pdf<br />
values with a ‘triple lock’ guarantee meaning that state pension<br />
payments would increase with the higher of inflation, earnings or 2.5%<br />
They have also suggested that they may be able to delay the UK’s planned increases to retirement age due to a lower life<br />
expectancy in Scotland than in the rest of the UK and the implicit subsidy that creates.<br />
2. Public Sector Pensions. In many cases these are already paid for by the Scottish Government (employees working in<br />
devolved services). In others cases public sector employees currently employed by the UK government in Scotland would<br />
move over to the Scottish government. In the same way as the basic State pension is more affordable under Independence<br />
due to stronger Public Sector finances then the same is true of Public Sector pensions.<br />
3. Private provider pensions. These pensions are a contract between the individual and the private sector pension provider.<br />
This arrangement wouldn’t change under Independence.<br />
4. Company Pensions: Again these are an arrangement between an individual employee (or ex-employee) and a private<br />
sector company. This arrangement won’t change under Independence .<br />
The recent scare story on Pensions was in relation to an EU rule relating<br />
to full funding requirements of cross-border company pension schemes.<br />
In summary, many company pension schemes are currently in deficit<br />
(due to recent stockmarket downturns etc and in some cases earlier<br />
pension ‘holidays’ by the companies themselves during the good times).<br />
http://www.businessforscotland.co.uk/scotland-betterplaced-than-the-uk-to-support-pensions-claims-expert/<br />
http://www.businessforscotland.co.uk/pensionsinvestment-and-the-building-of-a-new-scotland/<br />
There is a requirement that these schemes should be brought back onto<br />
an even keel within a specified timeframe. Which makes sense if you<br />
want people’s pensions to be protected.<br />
The EU has implemented rules that where a company scheme is in deficit and the company operates across international<br />
borders then the timescale to bring the scheme back into surplus is shorter.<br />
So what that means is that companies would, in theory, have to find the cash to fund these schemes quicker than they<br />
otherwise would have had to. (We’re not sure that most people would think it was a bad thing that companies need to fund<br />
pension schemes so they can pay people’s pensions when they are due – but that’s what the scare story was based on so<br />
let’s assume it is).<br />
The problem with the scare story was that the EU had already given an exception to cross-border schemes in existence<br />
between the UK and the Republic of Ireland, and it’s hard to see why the same wouldn’t apply to Scotland.
Europe<br />
The Scottish Government proposes to agree the terms of Scotland's continued membership of the European Union between<br />
the date of the referendum (18th September 2014), and the proposed date of independence in March 2016, arguing that<br />
continued membership would be negotiated 'from within'. This is broadly in agreement with the UK Government's (current)<br />
position.<br />
In February 2013, Professors James Crawford and Alan Boyle produced a report on Scotland's EU membership<br />
commissioned by the UK Government<br />
Professor James Crawford of Cambridge University said in a BBC radio interview that the negotiations for Scotland to<br />
continue its membership of the European Union, which would take place during that 18 month period were not "necessarily<br />
going to be difficult" and that the 18-month period set out by the Scottish Government for the negotiation of Scotland's<br />
independence in the wake of a 'Yes' vote is realistic.<br />
Graham Avery , Senior Adviser at the European<br />
Policy Centre, Brussels, and Honorary Director-<br />
General of the European Commission who took<br />
part in successive negotiations for EU<br />
enlargement gave evidence to the House of<br />
Commons Foreign Affairs Committee in which<br />
he stated:<br />
In July 2013 Rasmus Helveg Petersen MP, a<br />
spokesman on foreign affairs for the Denmark's<br />
Social Liberals said: "The criteria is very<br />
objective Scotland would qualify. If Scotland<br />
wants it, yes. It would be a mere formality."<br />
http://www.royalsoced.org.uk/cms/files/events/programmes/2012-13/<br />
speaker_notes/Avery_ScotlandEU.pdf<br />
According to Lord Malloch-Brown, who served in the Foreign<br />
Office under Gordon Brown for two years: "I don't think they<br />
would have any particular reason to want to make things tricky<br />
for Scotland." He also claimed "If they were going to make the<br />
issue embarrassing for anybody it is more likely they would make<br />
it embarrassing for London, with whom they have bigger<br />
problems"<br />
Despite all the politicking about Scotland’s EU membership, it<br />
seems a consensus has now been reached. Of course, all this<br />
could have been avoided had the UK Government simply asked<br />
the European Commission for a ruling - something they flatly<br />
refused to do... but, of course, it’s not in their interests to<br />
provide clarity.<br />
In October 2013, Former Scottish Secretary<br />
Michael Moore said that he saw “no reason to<br />
believe that any country around Europe would<br />
have an in-principal objection to any new Member<br />
State coming forward” during an interview with a<br />
http://www.businessforscotland.co.uk/no-campaign-eu-membership-mythfalls-apart/<br />
Catalan News Agency.<br />
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<br />
as Scotland, as part of the UK, currently elects the same number of MEPs as Malta or Luxembourg which have less than 10%<br />
of Scotland's population and less than half the number of Denmark (which has a similar population to Scotland).<br />
In January 2013, Prime Minister David Cameron promised an in/out referendum on EU membership if the Conservative<br />
Party wins the next General Election.<br />
According to Gavin McCrone, former chief<br />
economic adviser to the Scottish Office (and<br />
author of the infamous McCrone Report) :<br />
"Membership of the EU is very important for<br />
Scotland because so many inward investment<br />
companies have chosen it as a base from which<br />
to serve the European market. If Scotland was<br />
outside the EU, it would be more difficult to<br />
attract inward investment and, depending on<br />
what agreement was reached on access to the<br />
single market, some of those already in Scotland<br />
may leave."<br />
http://www.businessforscotland.co.uk/westminster-working-against-scotlandsinterests-on-europe/<br />
He added: "If, therefore, it seems increasingly likely that the UK will leave the EU, the logical consequence could be an<br />
increase in support for independence."<br />
Currency<br />
The issue of the currency of an independent Scotland has<br />
been a hotly debated topic. Ultimately, Scotland's<br />
currency is an issue for successive Scottish Governments<br />
to decide but it would be up to the current Scottish<br />
Government to set out the arrangements on day 1.<br />
http://www.businessforscotland.co.uk/euro-pound-or-scottish-pound/<br />
The options are:<br />
Retain the Pound with a Formal Currency Union with the UK<br />
Unilaterally retain the Pound (No Formal Agreement is required)<br />
Set up a new Scottish Currency pegged to the Pound (i.e. Fixed Exchange Rate)<br />
Set up a new flexible Scottish Currency (i.e. Variable Exchange Rate)<br />
Join the Euro<br />
In February 2013, an independent Fiscal Commission working group was asked by the Scottish Government to investigate<br />
options for the currency and macro-economic framework of an independent Scotland. The working group contained senior<br />
economists from around the world who regularly advise the UN, OECD,<br />
IMF and European Commission. Two were awarded Nobel prizes in<br />
Economics. Their report is over 220 pages long so it’s funny to hear<br />
politicians claim that the Scottish Government haven’t provided enough<br />
information on this topic.<br />
http://www.scotland.gov.uk/<br />
Resource/0041/00414291.pdf
Retaining Pound Sterling<br />
The Scottish Government's favoured option is to retain the pound within a formal currency union and would require the<br />
Bank of England (which, despite the name, is a UK not English body) to remain the Central Bank of both the UK and<br />
Scotland.<br />
According to the Fiscal Commission Working Group report:<br />
"Analysis shows that it would be in Scotland's interests to retain Sterling immediately post-independence. It is also the case<br />
that post-independence this would benefit the rest of the UK given the scale of integrated markets, including in areas such as<br />
financial services “<br />
A successful currency union will provide some constraints on deficit levels and debt levels. However, as indicated by the<br />
Fiscal Commission Working Group:<br />
"Limitations on borrowing and deficits are typically at the composite level, and still allow for flexibilities in the design of the<br />
underlying tax system and a range of specific policies suitable for each Member State."<br />
Under the Scottish Governments' plan these economic<br />
'levers' would lie with the Scottish Government.<br />
The group also looks in detail at the Belgium-<br />
Luxembourg currency union and concluded:<br />
“The BLEU framework demonstrates therefore that<br />
relative differences in country size and economic<br />
structure do not prevent successful monetary union.”<br />
http://www.businessforscotland.co.uk/economic-policy-in-anindependent-scotland/<br />
They also note that Belgium and Luxembourg have different rates of VAT and Corporation tax and share one central bank in<br />
Belgium.<br />
In April 2013, however, Chancellor George Osbourne cast doubt on the possibility of a formal currency union when he<br />
revealed Treasury analysis which concluded that the economic case for the rest of the UK agreeing to the union was "not<br />
clear" but, when pressed, did not rule it out.<br />
The chairman of the Fiscal Commision Working group has accused the chancellor of "bluffing"<br />
The group points out that:<br />
"Scotland's natural wealth would make a positive contribution to the Sterling Area economy. For example, Oil & Gas UK<br />
estimate that North Sea output, the large majority of which takes place within Scotland's marine boundaries, boosted the<br />
UK's balance of payments by 40 billion GBP in 2011."<br />
In essence, leaving the pound would double the balance of payments deficit in the ‘sterling zone’ and lead to a severe<br />
devaluation of the pound. Alistair Darling has already stated that in the event of Independence a formal Sterling zone is the<br />
best option for Scotland. For all the politics between and referendum day , economic good sense will prevail immediately<br />
thereafter.<br />
New Scottish Currency<br />
One of the biggest drawback of a Scottish currency ironically would be its strength. This would be as a consequence of<br />
both Scotland’s superior public finances and deficit position compared to the UK, Scotland’s strong balance of payments<br />
position and the fact that the Scottish economy is underwritten by significant Oil and Gas reserves.<br />
The NOK and SEK (Norway and Sweden) both float freely and have strong currencies (hence the high costs in those countries<br />
for visitors). This is great for Norwegian tourists going shopping in Edinburgh, but makes it difficult for local manufacturing<br />
to compete on the world stage. The DKK (Denmark) is tied to the Euro by the Danish Government to prevent it becoming<br />
too strong, and for ease of trade to their main market. So while a separate Scottish currency would help when we<br />
go on holiday it could be a drawback to our manufacturing competitiveness.
The Euro<br />
According to the Fiscal Commission Working Group:<br />
"It is also not the case that a newly independent Scotland could be obliged to join the Euro."<br />
"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<br />
for at least two years. The decision to join the ERM II is voluntary."<br />
Poland has been in the EU since 2005 and still uses the Zloty. If<br />
Poland decided to join the Euro it would first have to amend its<br />
constitution (requiring a 2/3 majority in their parliament and a<br />
referendum) and then go through the process of applying to join<br />
the Euro. Even if they started the process tomorrow the earliest<br />
they could join the Euro would be in 2017, a full 12 years after they<br />
joined the EU.<br />
The Czech Republic is in a similar situation. Hungary, Romania and<br />
Bulgaria likewise. Croatia joined the EU in July of 2103, and still uses<br />
the Kuna.<br />
There is another problem you might have spotted: Scotland doesn’t have a currency to commit to the ERM, and as Scotland<br />
plans to keep the pound, we therefore cannot adopt the euro, even if we wanted to!<br />
Put simply, one of the requirements of joining the Euro is actually to have your own currency and to then voluntarily join the<br />
ERM2 for a minimum of 2 years.<br />
Banks<br />
According to Scottish Secretary Michael Moore "the scale of the financial disaster that befell both Royal Bank of Scotland and<br />
Halifax Bank of Scotland would have placed a crippling burden upon<br />
Scotland. By being part of the United Kingdom we shared the risks".<br />
However, Andrew Hughes Hallett, Professor of Economics at St Andrew's<br />
University described Moore's answer as "a nonsense".<br />
According to Andrew Hughes-Hallet: "By international convention, when<br />
banks which operate in more than one country get into these sorts of<br />
conditions, the bailout is shared in proportion to the area of activities of<br />
those banks. In the case of the RBS. Roughly speaking 90% of its<br />
operations are in England and 10% are in Scotland."<br />
George Walker, Professor of International Finance Law at Queen Mary University, London and also Glasgow University,<br />
supported this position. So did Andrew Campbell, Professor of international and finance law at Leeds University.<br />
Professor Walker said it was inconceivable that the Treasury would not have stepped in to save RBS's English operations,<br />
even if Scotland was independent. "Many of those (RBS) subsidiaries operate out of London and only out of London. I don't<br />
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."<br />
In fact, the biggest bailouts of ‘UK’ banks were carried out in the USA to shore<br />
up their US operations. Barclays was bailed out to the tune of £552.32bn (at<br />
backdated exchange rates) by the US Federal Reserve and £6bn by the Qatari<br />
Government, more than twelve times more money than the UK Government’s<br />
capital support for RBS (£45bn).<br />
http://www.businessforscotland.co.uk/<br />
bizforscotland-destroys-the-no-campaigns-bankbail-out-lies/<br />
This point is illustrated very aptly by Rory Bremner after an interview with Ian<br />
Davidson MP in the documentary film ‘Rory goes to Holyrood’ - which we love!:<br />
http://www.youtube.com/watch?v=-p9rXRzF3QQ&feature=youtu.be&t=49m49s<br />
http://www.newstatesman.com/2010/12/<br />
financial-british-money-fed
Barriers to Trade<br />
The issue of Barriers to Trade between Scotland and<br />
the rest of the UK post-independence is often raised as<br />
a reason not to vote Yes. This can always be dispelled<br />
with two words: ‘Name them’. We have yet to hear<br />
anyone answer this. This article considers this issue<br />
and debunks many of the myths surrounding it.<br />
http://www.businessforscotland.co.uk/no-barriers-to-trade-with-ayes-vote/<br />
Targeted Economic Policies<br />
In June 2013, former Government economist Margret Cuthbert,<br />
whose work is cited by all parties, produced a paper for the<br />
Jimmy Reid Foundation's Common Weal Project heavily<br />
criticising the effect of UK government economic policies on<br />
Scotland.<br />
http://scottishcommonweal.org/wp-content/<br />
According to Margret the UK economy has become so<br />
uploads/2013/07/Dysfunction1.pdf<br />
"dysfunctional" through mismanagement, free market excess<br />
and policies skewed towards London that Scotland needs independence to avoid being harmed any more by it.<br />
Instead of actively protecting Scotland, she says the UK economy has become overwhelmingly geared to helping London,<br />
meaning Scotland and other UK regions suffer from being denied the specific, local policies they need.<br />
Opportunity<br />
We have covered the main ‘fear’ stories here, debunking the myths and providing you with facts and data sources to support<br />
the strong economic and business case for Independence. However it’s also worth recognising that an Independent Scotland<br />
would open many doors and present many opportunities for business.<br />
Part of the work of Business for Scotland is to identify these opportunities on a sector by sector basis, allowing business<br />
people to focus on the tremendous business opportunities that Independence would bring. Here are just a few of our<br />
articles.<br />
http://www.businessforscotland.co.uk/<br />
the-benefits-of-independence-forretailing/<br />
http://www.businessforscotland.co.uk/yes-votein-2014-will-put-scotlands-cuisine-on-the-map/<br />
http://www.businessforscotland.co.uk/<br />
the-independence-dividendopportunities-for-the-property-sector/<br />
Our intention is, with the help of our sector teams, to develop sector specific papers presenting the opportunities<br />
Independence offers across a wide range of Scottish Business and to publicise these within each sector.<br />
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<br />
have about how best to wisely utilise the Independence Dividend that comes from a strong set of Public finance accounts<br />
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?<br />
It’s always worth remembering that while Independence offers much in the way of opportunity for many in our society there<br />
is one group who are guaranteed to be looking for alternative employment come 2016. I refer of course to the current crop<br />
of Scottish Westminster MPs who have make a tidy income out of what at best is half a job (with so many key services<br />
already having been devolved to Scotland). For that ‘half a job’ the Westminster MP receives a salary of £66k (with increases<br />
of up to £10k currently being debated at Westminster), plus of course considerable expenses as we all know.<br />
As business people efficiency savings are of course close to our hearts, as are reductions in layers of unnecessary<br />
bureaucracy. It’s difficult to think of a more unnecessary, and more unpopular, layer of bureaucracy that Scottish<br />
Westminster MPs, now is the time to call them out.<br />
What Next?<br />
If the information in this document has been useful to you or even just made you think, please consider doing one of these<br />
things:<br />
<br />
<br />
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Keep up to date with our articles: http://www.businessforscotland.co.uk/articles/<br />
Attend one of our (free) public events: http://www.businessforscotland.co.uk/events/<br />
Note: Events are open to all, especially if you haven’t made up your mind!<br />
Sign the Business for Scotland Declaration: http://www.businessforscotland.co.uk/join-us-now/<br />
Become a Business for Scotland Ambassador by attending a free training session<br />
Most importantly though, spread the word. A recent poll found that 49% of people wanted more information about the<br />
referendum. With the most important decision we have had to make in 300 years just around the corner, people deserve to<br />
know the facts.<br />
Please share this document and our articles with friends, colleagues and relatives.