The Economic Case for an Independent Scotland

[Tryfield]

I quite fancy using US dollars. I'm no really that fussed. Perhaps we can cuddle in with the Hong Kong currency. Ach, time will tell.

[Todders]

A good piece on the economics of independence in the FT.

http://archive.is/vcQ78

[ayrmad]

From the Financial Times

Independence debate: Yes, Scotland?

Even pro-unionists accept that the country has all the ingredients to be a viable nation state

After 307 years as part of Great Britain, Scotland will soon decide whether it is time to once again go it alone. Opinion polls suggest that nationalists still fall short of the numbers needed to unpick the 1707 parliamentary union with England that lies at the heart of the UK. But nationalist and pro-union campaigners alike agree that with eight months of febrile campaigning to go, the result of September’s historic referendum is far from assured.

So what would an independent Scotland look like? And what would be the impact on the remaining UK, or “rump UK” as some observers call it, of the departure of 8.3 per cent of its population and about 9.2 per cent of its gross domestic product?
Among the blizzard of contention and spin that surrounds the independence debate, some points of broad consensus are clear. Nationalists argue that being part of the UK has held Scotland back, while their opponents contend that the union has been central to its economic success. But the leading players on both sides accept that Scotland has all the ingredients to be a viable nation state.
If its geographic share of UK oil and gas output is taken into account, Scotland’s GDP per head is bigger than that of France. Even excluding the North Sea’s hydrocarbon bounty, per capita GDP is higher than that of Italy. Oil, whisky and a broad range of manufactured goods mean an independent Scotland would be one of the world’s top 35 exporters.
An independent Scotland could also expect to start with healthier state finances than the rest of the UK. Although Scotland enjoys public spending well above the UK average – a source of resentment among some in England, Wales and Northern Ireland – the cost to the Treasury is more than outweighed by oil and gas revenues from Scottish waters.
One of the favourite citations touted by the nationalist Yes Scotland campaign is a quote from a 2007 Daily Telegraph article by David Cameron, now UK prime minister, that argued there was no point in trying to keep Scotland inside the union “through fear of the economic consequences” of leaving.
“Supporters of independence will always be able to cite examples of small, independent and thriving economies across Europe such as Finland, Switzerland and Norway,” Mr Cameron wrote. “It would be wrong to suggest that Scotland could not be another such successful, independent country.”
Yet as Mr Cameron these days takes pains to point out, an acknowledgment that Scotland could succeed alone does not mean it would be better off than within the UK. Over the past year, Mr Cameron’s government has published a series of papers arguing that Scotland benefits from free access to the UK’s market of more than 60m people and from the security of being part of a large and powerful state.
Scotland’s fiscal health will also be challenged by the relatively rapid ageing of its population and the long-term decline of oil output from depleted North Sea reserves.
In a research paper this week, James Knightley, senior economist at ING, said the high transition costs of separation and uncertainties over currency and the terms of EU membership meant that the material benefits of independence were “far from clear”.
Yet Mr Knightley also noted that greater sway over its own economy could be a real advantage for Scotland. Nationalist leaders argue that local control of such “economic levers” as tax reform, immigration policy and welfare will open the way to a fairer and wealthier society. September’s referendum will hinge in large part on whether Scotland’s voters agree.

[Fotbawmad]

If independent studies show we'd be £500 better off under independence, then what are we pondering over?

[BigRubberFist]

http://www.huffingtonpost.co.uk/2014/02/04/scottish-independence-finance_n_4721819.html?utm_hp_ref=uk

[renton]

http://www.huffingtonpost.co.uk/2014/02/04/scottish-independence-finance_n_4721819.html?utm_hp_ref=uk

How many millions? Without the actual figures, it's hard to tell how significant a cost it is. Ten million? the Financial services and/or the Scottish government could come up with that. 100 million, a wee bit more difficult.

Fascinating comments under the line: The usual Scots are 'a whining milstone' to border posts......

[Baxter Parp]

Labour MP agrees that No vote could mean the end of the Barnett Formula.

http://wingsoverscotland.com/an-unexpected-alliance/

[git-intae-thum]

http://www.huffingtonpost.co.uk/2014/02/04/scottish-independence-finance_n_4721819.html?utm_hp_ref=uk

Whats happened to the Huffpost. It seems to have taken a very pro union line of late. Anyway the above article is codswallop. If the industry turnover is 11 billion per year, the cost of a multi million new set of regulations is not going to inpact on fund wealth.

Is it not more likely the case that these city types are just more worried about tighter regulation.

[ayrmad]

We’ve already mentioned this in passing, but it’s worth pulling out in its own right, because people hardly ever bother to click links in features and it’s kind of important.

Late last year we had a bit of an epiphany in terms of realising the implications of Scottish Labour’s draft proposals for giving more powers to the Scottish Parliament in the event of a No vote in the independence referendum. We suggested that the plans were in fact a trap, which would be a disaster for Scotland and see billions of pounds of cuts in the Scottish budget.

iandavidsonfacepalm

What we weren’t expecting was for Labour MP Ian Davidson to confirm it for us.

Here’s what Davidson said in today’s Daily Record.

“Scottish public spending would suffer a cash squeeze under Johann Lamont’s plans to devolve all tax-raising powers to Holyrood, a leading Labour MP has warned.

Glasgow MP Ian Davidson said the Barnett formula that gives Scotland a bigger share of UK government spending would be lost if the party go for full tax powers for the Scottish Parliament.

The Labour chairman of the influential Commons Scottish affairs committee said it ‘would undoubtedly be to Scotland’s detriment’.

Most Holyrood MSPs, led by Lamont, think the policy is needed to offer undecided voters an alternative to independence in the September referendum. But many Labour MPs think the Barnett formula would be lost and that Scotland’s role at Westminster would shrink.“

And here’s what we said in November was the reality of Lamont’s plan:

“1. End the [barnett] Formula, by which Scottish spending is higher than the UK average. At a stroke, that strips something like £7bn (or around 28%) out of the Scottish block grant, making English voters happy.

2. At the same time, grant Holyrood ‘more powers’ by allowing it to set Scotland’s income tax rates in their entirety, which can be portrayed as a gesture of major devolution (and indeed, technically is).

3. Now, to fill the huge £7bn hole that’s just opened up in Holyrood’s coffers (because Barnett’s gone, but all the North Sea cash is still going to Westminster), the Scottish Government – not the UK government – is the one that has to make swingeing cuts to services or whopping tax increases.

4. The Tories, meanwhile, can use the devolution of taxation to further reduce the number of Scottish MPs at Westminster – because Scottish MPs will have fewer responsibilities – and also to reduce their influence by finally excluding them from votes on matters that don’t affect Scotland.”

Can you identify any meaningful differences between those two analyses, readers? Because we can’t. (Perhaps the only minor one is that we suggested the Tories would be the ones to reduce Scottish representation at Westminster. But realistically Labour would also have to in the event of devolving all taxation – it was, we should remember, Labour who slashed the number of Scottish MPs from 72 to 59 in 2005, expressly as a consequence of the establishment of the Scottish Parliament.)

So to recap: we said that Scottish Labour’s “more devo” proposals would mean the end of the Barnett Formula, a massive squeeze on Scottish spending as a result, and fewer Scottish MPs at Westminster.

Ian Davidson, putting the counter-argument for the No camp, says they’ll mean the end of the Barnett Formula, a massive squeeze on Scottish spending as a result, and fewer Scottish MPs at Westminster.

We’re not accustomed to finding ourselves in total agreement with the Labour member for Glasgow South West. But on this occasion, we can’t dispute a word he says, because we said all of it ourselves two months ago. It should be fun watching “Better Together Labour” types calling their own man a liar between now and September.

Reynard is in agreement with this happening,he just doesn't realise how he agrees with it.

[Burma]

http://m.youtube.com/watch?v=GA4Xt2wug6U&desktop_uri=%2Fwatch%3Fv%3DGA4Xt2wug6U

BBC caught out here. Otherwise I doubt they would have allowed this one.

[Tubbs]

http://www.heraldscotland.com/politics/referendum-news/fresh-blow-to-salmond-plans-for-pound-and-pensions.23379568

Interesting.

[H_B]

In the interests of fairness, it should be pointed out that makes no mention of any offset which New Scotland would be entitled to concerning assets gained as part of the secession.

The most important point is that any currency union New Scotland entered into would, even if agreeable to rUK, see it significantly constrained. this has been made clear by subsequent experts, and indeed Carney himself.

[ayrmad]

In the interests of fairness, it should be pointed out that makes no mention of any offset which New Scotland would be entitled to concerning assets gained as part of the secession.

The most important point is that any currency union New Scotland entered into would, even if agreeable to rUK, see it significantly constrained. this has been made clear by subsequent experts, and indeed Carney himself.

I remember when banks worked under constraints, mortgages at 21/2 x income etc, prudence will hamper rUK more than us as they don't want to curb avarice, in fact they thrive on it.

[H_B]

I remember when banks worked under constraints, mortgages at 21/2 x income etc, prudence will hamper rUK more than us as they don't want to curb avarice, in fact they thrive on it.

Eh, rUK wouldn't be constrained. It would retain the same fiscal levers it currently has. It would be New Scotland who would face constraints.

[Baxter Parp]

Eh, rUK wouldn't be constrained. It would retain the same fiscal levers it currently has. It would be New Scotland who would face constraints.

One country dictating what the other should do is not a union. There will be constraints on both sides, to the benefit of both.

[H_B]

One country dictating what the other should do is not a union. There will be constraints on both sides, to the benefit of both.

Really? What constraints would be placed on rUK?

[H_B]

One country dictating what the other should do is not a union. There will be constraints on both sides, to the benefit of both.

Are you aware of how the Eurozone works? Do the Irish Parliament review the German budget?

[Tibbermoresaint]

If I was going to comment on currency unions I'd take the time to understand them first.

[H_B]

If I was going to comment on currency unions I'd take the time to understand them first.

Probably a good idea. Just in case you do.

[Tibbermoresaint]

Glad you agree. You won't be posting for a while then.