SELECT COMMITTEE ON ECONOMIC AFFAIRS - Parliament

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Mr John Cridland, Mr Graeme Leach and Mr Simon Walker—Oral evidence (QQ 279–330) economic, business or entrepreneurial policy than I would from the London council of the CBI. The experience of devolution is that businesses adapt to changing political circumstances. They clearly work with the Government of the day. They continue to make their arguments about what is good for the Scottish economy or the Welsh economy, and they make those arguments to whoever is in power. I made the point earlier that you would find CBI member companies that would say that being able to work with a Government closer to the locality has certainly benefits. I have emphasised what I think might be the disbenefits, but it is clear that devolution in Scotland has been a mixed record in economic terms. There are examples where CBI Scotland would congratulate the Scottish Administration over the full period for some of the things they have achieved; there would be areas where it thinks that fragmentation of the single market has been detrimental rather than necessary. But I would not see a distinctively different entrepreneurial viewpoint. Simon Walker: I think the same is true of our membership. There are not marked differences between attitudes north and south of the border. Our membership is deeply sceptical about the size of the state and government spending, and I would not want to imply that I can see how maintaining very heavy levels of public spending in an independent Scotland and still promising tax cuts can be done. I am not saying that I can see how that circle can be squared. I would not want your Lordships to think that I was taking that view. What I am saying is that our members have noted that there is an offer of competition in these areas and inevitably they find that attractive. My suspicion is that the disciplines that that situation would impose on a Scottish state, if it was actually accountable for how money was raised as well as how it was spent, would involve considerable changes in behaviour. At the moment, all the incentives seem to be about how it is spent without having any accountability for how it is raised Q298 Lord Forsyth of Drumlean: Just on that point, Mr Cridland, in your excellent answer, you gave us a number of numbers. You suggested that whether it was remaining in sterling or joining the euro or having a Scottish groat or whatever it was, there would be difficulties with those numbers. To distil this down to one sentence, were you saying that there will either have to be cuts in public expenditure or increases in taxes in order to run the currency, whether it is the euro, groat or pound? John Cridland: Perhaps I might come back to the divorce analogy. Divorces are painful and expensive. All the experience we have is that there is an immediate short-term cost. That we do know; it is inevitable. I was looking at the experience of the Czechoslovakian state in 1994 where, if my memory serves me right, there was a 1% reduction in GDP for the Czech Republic and a 4% reduction in GDP for Slovakia—in that single year; it subsequently recovered—and that the ambition to maintain a single currency for a six-month transitional period failed, they had to scrub it after six weeks, because of the capital flows from Slovakia to the Czech Republic. So that immediate short-term impact is one thing we can be certain about but, as I have emphasised, it is a short-term impact, not necessarily a permanent one. In terms of the longer-term impact, I am particularly troubled by these currency decisions that need to be made, because they set a framework for fiscal and monetary policy that has major implications for both a potential future Scottish Government and a potential future remainder of the United Kingdom Government. Those decisions, certainly as taken in Scotland, on any of the scenarios I outlined, would undoubtedly be challenges and would bring implications for the Scottish Government that would involve either borrowing, taxation or reductions in spending, which I think it is important the Scottish voter is aware of before 2014. 44
Mr John Cridland, Mr Graeme Leach and Mr Simon Walker—Oral evidence (QQ 279–330) Q299 Lord Forsyth of Drumlean: Just to press you on that, we are talking about either increasing taxes, cutting spending or increasing borrowing, but because of the circumstances of the balance sheet, that borrowing is likely to be more expensive? John Cridland: As Lord Lawson said, we do not know the elements of the package that will be negotiated subsequently. Therefore, I cannot give you an absolute answer to that, but that scenario seems likely to the CBI. Q300 Lord Lawson of Blaby: On the currency question, Mr Cridland, the current policy of Mr Salmond is that Scotland should continue to use the pound sterling. Earlier he was in favour of the euro. For reasons that will not escape any of us in this room, that is not so popular nowadays. Is it not curious, as indeed my successor but five, Alistair Darling, pointed out over the weekend, that since we know from the sad experience of the eurozone—and most people should have known before—that a single currency cannot work without a political union, to say that you will break up a political union but then adopt a currency arrangement that can only work if there is a political union? Do you think some of your members may be puzzled by that? John Cridland: Yes, we are puzzled by that. Q301 Lord Forsyth of Drumlean: Just to go back to the point about the broad numbers, where you set out the overall agenda, I have spent most of my life arguing against independence on the basis that it would result in Scotland not having a balanced budget. Recently that has become a more difficult argument to put because the oil price was up at $120 when all this started; I think it is now down to about $90. One of the points you made is that Scotland produces so few small businesses, which remains a puzzle. If I was a nationalist I would be saying that there would be so much enthusiasm that this would release energy and we would have more small businesses and would catch up with the rest of the UK. Do you think that independence would make it easier for people to start up and generate new businesses? Particularly, could you deal with the volatility that will result from being so dependent on the price of oil? That would be a new factor, given the proportion of the oil revenues that are relevant to Scotland as opposed to the whole of the United Kingdom. John Cridland: On the first question, it is not obvious to me that independence in itself would make a change to the cultural and entrepreneurial zeal of Scotland. I have many small companies in Scotland that are worldwide exemplars of entrepreneurial zeal, but the facts speak for themselves about the seedbed in Scotland. Whether Scotland remains in the United Kingdom or secedes, I think it is a major national objective for Scotland to strengthen its seedbed of small business growth. There are other parts of the United Kingdom where the same is true and you can see some consistency in the pattern, that if you have a bigger public sector dependency, you have a potentially weaker seedbed of small companies. You could say the same in Northern Ireland or the north-east of England; it is something that as a UK we need to tackle the further north and west we go. Your second question relates to probably the biggest area of imponderables. First, you would weigh up how to divvy up the national debt and then think about how you would look at oil and gas assets. Do you address that on a per capita basis, as I have suggested you would on the national debt? Clearly that would be very disadvantageous to Scotland. Do you look at it according to the laws of the sea? I am no expert on the laws of the sea, but there is considerable room for debate about where you draw national boundaries and where you extend them into the sea. Lord Forsyth of Drumlean: Assume a generous settlement. 45
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