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Malcolm Chalmers RUSI—Written evidence Malcolm Chalmers RUSI—Written evidence The Economic Implications for the UK of Scottish Independence: A Note on Defence Aspects The future of the UK's armed forces, and their associated assets and liabilities, will be one of the more difficult items on the agenda of post-referendum negotiations in the event of a ‘Yes’ vote. In contrast to most other government-provided services, today’s UK armed forces are structured almost entirely around Union-wide objectives. As a consequence, the geographical location of UK defence assets (including personnel) would provide little guidance to the two parties as they sought to agree on how to divide them between the two successor states. The division of defence assets would have to make some assumptions as to the likely foreign and security policy objectives of the two successor states. In this paper, it is assumed that Scotland would be likely to draw on the experience of neighbouring states of similar size (such as Denmark or Ireland) in shaping its post-independence military. The rUK, by contrast, is assumed to want to maintain the existing military capabilities of the UK, not least in order to minimise the reputational damage that would follow the loss of Scotland. These differences in strategic objectives would be the key to understanding the initial negotiating objectives of the two parties in the defence field. They could also provide opportunities for trade-offs between issue areas, with (for example) an asymmetrical division of defence assets in the rUK’s favour offset by concessions in (for example) the division of the national debt. But a settlement along these lines would depend on an agreement being reached on the continuing basing of rUK naval and air forces in Scotland after separation. How much do Scotland and rUK currently spend on defence? Estimates of spending and revenue produced by the Government of Scotland notionally allocate non-geographically-identifiable spending between Scotland and the rest of the UK. Around 60% of spending in this category is in defence. On this basis, £3.3 billion is Scotland's 2010/11 contribution to the funding of total UK defence spending, allocated in proportion to population share.2 The rUK share is £35 billion. Spending Levels after Separation Likely differences in wider security policy mean that the disparity in defence spending levels between the two successor states would probably be greater than this disparity in notional contributions. As has been argued by the author in more detail elsewhere, the politically acceptable level of defence spending in an independent Scotland is more likely to resemble that of comparably-sized NATO member states (such as Denmark and Norway) than that of the UK (now the only NATO-European country, with the temporary exception of Greece, spending more than 2% of its GDP on defence).3 An independent Scotland’s annual defence budget, as a result, seems unlikely to exceed 1.4% of GDP, or around £2 billion (at 2011/12 2 Government Expenditure and Revenue Scotland 2010-2011, Scottish Government, March 2012. http://www.scotland.gov.uk/Publications/2012/03/9525/0 . 3 Malcolm Chalmers, ‘The End of an Auld Sang’, RUSI Briefing, March 2012. 30
Malcolm Chalmers RUSI—Written evidence prices).4 It may even be significantly less, were Scotland to follow the low-spending route followed by Ireland, which is similarly protected by geography from external military threats, or newly-created states (such as Lithuania and Latvia) which have sought to create armed forces from scratch. These three countries spend, respectively, 0.6%, 0.8% and 1.0% of their GDP on defence. An independent Scotland could therefore expect to ‘save’ at least £1 billion in its annual defence outlay, compared to its current contribution to the UK defence budget. It might be more vulnerable to external threats than it is at present, especially if these develop in ways that are currently unforeseen. As with other small West European states, however, the new state’s security from external threat would depend more on its ability to draw on the capabilities of more powerful allies than on its own capabilities. The rUK, by contrast, would not be starting with a blank sheet of paper. Faced with the damage to the UK's international reputation as a result of Scotland's departure, its leaders would be likely to place a high premium on being able to demonstrate that it remains a major military power. The UK may already be struggling to maintain a broad spectrum of high-end capabilities. But Scottish independence could (at least initially) make it more politically sensitive to launch a new round of capability reductions. Scottish independence, however, would not substantially reduce the tasks that the UK armed forces are asked to fulfil. Because their capabilities are now largely optimised for expeditionary operations, a reduction in territorial defence requirements will make little difference to defence requirements. Nor could the rUK assume that Scotland's forces would always be available for use alongside its own. In order for the rUK to maintain military capabilities for power projection comparable to those that the UK would have had, therefore, it will have to maintain a defence budget at a comparable level. Total postbreakup defence spending by the two successor states, therefore, would be likely to be greater than that previously being spent on Union armed forces. Whether the rUK could afford to maintain the UK defence budget would depend on the wider economic context created by separation. The proportion of GDP devoted to defence would rise somewhat compared to the pre-independence situation. But the rise would be relatively small, perhaps amounting to around 0.2% of rUK GDP. Other elements in the balance of fiscal advantage – such as the end of Scotland's spending bonus as a result of the Barnett formula, and/or decisions on the allocation of hydrocarbons revenue - would be proportionately more significant. Division of Assets A transition period would be needed to carry out the separation process, dividing assets and liabilities, amending procurement and personnel contracts, and relocating equipment and stores. As of 31 March 2011, total UK MoD net assets (assets less liabilities) totalled £106.6 billion. Divided strictly on the basis of population share, an independent Scotland would be entitled to 8.37% of these assets, valued at £8.9 billion. 4 The defence policy statement issued by the SNP in 2012 proposes an annual ‘defence and security budget’ of £2.6 billion. Adjusted for the exclusion of ‘security spending’ of around £200 million per annum (Scotland's notional share of £2.4 billion UK annual spending on the Single Intelligence Account) and inflation, this amounts to around £2.1 billion at 2011/12 prices. 31
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