Scottish Independence Info

Economy

Scotland's Economic Prospects post-independence are likely to be a key deciding factor in the referendum outcome and have been extensively covered in the media. Polls have shown that a majority of Scots would vote for independence if it could be shown that the people would be better off.

This interview with Prof. Andrew Hughes Hallett from 2010 gives a good introduction to Scotland's fiscal position.

Prof. Hughes-Hallett is a Professor of Economics and Public Policy at George Mason University and visiting Professor of Economics at the University of St Andrews; previously consultant for the World Bank, the International Monetary Fund, the Federal Reserve Board, the United Nations, the OECD, the European Commission and various central banks and member of the Council of Economic Advisors (Scotland).

Gross Domestic Product
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Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period of time. GDP per capita is often considered an indicator of a country's standard of living although GDP per capita/person is not a measure of personal income.

This image compares Scotland's GDP per person in 2012 with other OECD countries. The figures for Scotland's GDP include a geographical share of North Sea Oil (see Oil & Energy). If North Sea Oil were removed, Scotlands GDP/Person would be almost exactly the same as the UKs. Including Oil, Scotland's GDP would have been around 20% higher than the UK's.

It is worth noting that as Scotland's GDP per person is much higher than UK average, public spending is a lower proportion of Scotland's economy (42.7%) than for the UK as a whole (45.5%).

Note: It is also common to quote Scotland's GDP and Deficit excluding Oil. Yes Scotland claims "excluding revenues from the North Sea for Scotland would be like excluding revenues from the City of London from the UK - It just doesn't make sense."

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Expenditure
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Scotland's Public spending per head is one of the largest of all UK regions (only Northern Ireland is Higher). According to HM Treasury Public Sector Statistical Analysis, it stands 15% higher than UK average (around 1200 GBP per person). These figures include an allocation for matters reserved to Westminster (such as defence, foreign aid embassies etc) and for services provided from (or predominantly from) other parts of the UK (Civil Service in Whitehall, DVLA, BBC etc).

In recent years, this has led to some resentment in other UK countries with the right-wing press and UKIP, in particular, calling this a "subsidy".

Note: It has been suggested that a simple comparison made on the basis of spending per head, is not really comparing like-with-like as Scotland has only 8.4% of the UK population but 33% of the land area.

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Revenue
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Revenues follow a similar pattern to GDP. Without the North Sea Oil contribution, Scotland's taxation revenues are almost identical to the UK average. Including these revenues, they would have been around 18% higher.

In April 2013 the Scottish Government produced this report detailing Tax revenues in Scotland since 1980. This showed that Scotland's tax revenues per head were higher than the UK's every year. In 2011/12 they were higher than the UK's by 1700 GBP per head. It also shows that Scotland had contributed 222bn GBP more in tax over those years than if it had been operating at 'UK average'.

It is quite common to hear that Scotland's spending per head is 1200 GBP more than the UK's but less common to hear that revenue is 1700 GBP higher.

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In July 2013, Professor Brian Ashcroft calculated that had Scotland been independent it would have generated a surplus of 68bn GBP over the last 30 years (one of the only countries in the EU to have been in surplus over this period). However, as part of the UK, Scotland has an 8.4% population share in the UK's 1.2 trillion GBP debt. More details can be found here.

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Debt and Deficit
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Much of both Yes and No campaigns rely on comparisons of specific points of Scotland's Economy with the UK.

The No camp will point to Scotland having higher public spending per head and having a deficit (like almost all western countries) once you add in spending on behalf of Scotland in the rest of the UK

The Yes camp will point to higher GDP and revenue. They also highlight the fact that as revenue is higher, the deficit, debt/gdp and public spending/gdp ratios in Scotland is lower than the UK as a whole.

The image on the right, for example, points out that Scotland has a (nominal) deficit but, while doing so, also highlights that Scotland's deficit is lower than the UK's meaning that Scotland, as part of the UK is racking up debt at a faster rate than it would do if independent since debt is shared evenly across all people in the UK.


It is common to hear that Scotland recieves more from the UK treasury than it gives. This is misleading as much of the money is never seen in Scotland and it is money borrowed from international money markets on Scotland's behalf. Even though Scotland borrows a smaller percentage than the UK, debt (and debt interest payments) are shared evenly.

The current situation is quite similar to splitting a bill evenly at the end of a meal when Scotland only had a salad! You may as well have had the lobster for the amount that is going on your credit card (higher spending or lower taxes) or you could just pay for your salad (lower debt). That's quite a flippant example but in reality we are talking about billions of pounds which could be spent on health or education.

The image on the left highlights that in 2011/12, Scotland took on an extra 4.4bn GBP of UK debt (824 GBP per person). When the UK is in surplus, Scotland contributes more to the surplus and when the UK is in deficit (as at the moment), Scotland contributes less to the debt.

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Oil Fund
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In July 2013, the Scottish Government announced that an expert commission will be established to examine how an independent Scotland could maximise the returns from North Sea oil and gas

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 GBP, equivalent to 90,000 GBP per person in Norway, and is the largest sovereign wealth fund in the world.

Speaking on BBC Radio Scotland, Alex Salmond said he would pursue the introduction of an oil fund within the next five to 10 years.

However, Gavin McCrone, former chief economic adviser to the Scottish Office, said that Scotland may not be in a position to invest in an oil fund for "quite some time" but he 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".

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Credit Rating

In February 2013, the UK's credit rating was downgraded from AAA to Aa1 by the ratings agency Moodys. A UK government consultation suggested that Scotland would have a "perceived lower creditworthiness" thanks to its smaller number of taxpayers and lack of track record in borrowing.

However, the SNP suggest that, with a lower budget deficit than the UK and North Sea Oil assets worth $1.5 trillion, Scotland would be more likely to reclaim a AAA rating and that almost two-thirds of countries with an AAA rating are small countries with a population of less than 10 million.

According to David Riley of Fitch's credit rating agency, when put under pressure by a House of Commons Treasury Commitee to say that Scotland would not have a AAA credit rating: "With all due respect, I think you are trying to get me to make a pronouncement about a sovereign that currently does not exist and that I do not have the information to make the judgment."Link

After being asked to compare Scotland's position with those of Montenegro and Croatia he said: " I am not aware whereby a newly independent sovereign emerging in Central and Eastern Europe, emerging from the end of the Cold War, has been assigned a AAA rating. But the transition of Scotland from the United Kingdom, I would suggest, would be fairly fundamentally different from the transition of some Eastern European countries, from essentially the former Soviet Empire." Bizzarely, this spawned headlines of Scots 'risk loss of top credit rating if they quit the UK' in the media!

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Effect of Economic Policies
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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.

According to Margret the UK economy has become so "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.

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Consequences of a 'No' Vote?
Barnett Formula
Link to Comittee Minutes

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 (9.2% 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.

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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.

Their comments led SNP figures to warn that a No vote next year would leave Scotland "politically powerless" against such calls.

Devo Max

All three main unionist parties have launched commissions to look at further devolution (although it has only been a year since limited powers were devolved to the Scottish Parliament). According to Scottish Secretary Michael Moore - "Devo max is really a brand without a product, a concept of more powers for Scotland without any detail about what that entails".

No Westminster bill on further devolution will be passed before the Independence Referendum. In September 2013 Prime Minister David Cameron said he was open to the idea of further devolution but that the discussions should be held after the referendum.

Spending Cuts
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An analysis, by the Centre for Public Policy for Regions (CPPR) in Glasgow, said if spending on the health service continues to be protected, other services could face 25% cuts in real terms between 2009-10 and 2017-18.

The academic analysis says a 'yes' vote in Scotland's independence referendum next year could lead to the spending profile being changed, as Holyrood would move to running its own tax system rather than depending for much of its income on a block grant calculated through the 35-year old Barnett spending formula.

However, the report includes a challenge to the Scottish government to give more clarity on a budgeting strategy if it secures independence, as it plans, from 2016.

Co-author Jo Armstrong added: "The 2.7bn GBP real terms projected cut in resource spending still to come will be increasingly hard to accommodate, especially given the 1.8bn GBP already experienced since 2009-10."

"Unfortunately we are unlikely to know where these cuts will appear until after both the independence referendum and the next UK general election."

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