Scotland – The Case Against Independence Following the elections held on 6th May 2021, Nicola Sturgeon, leader of the Scottish Nationalist Party (SNP), ramped-up her calls for a 2nd Scottish Referendum on whether Scotland should become an independent nation. The SNP’s ultimate goal is to achieve independence for Scotland. If they succeed it will end more than 300 years of political union. The United Kingdom of Great Britain as we know it, will cease to exist. The Acts of the Union1 which combined the Kingdom of England2 and the Kingdom of Scotland, thereby creating a new single sovereign state, will be repealed. But would a “Yes” vote in an independence referendum be a victory for Scottish patriotism and benefit Scotland as a whole, or would it be an economic disaster of enormous proportions for the whole of the United Kingdom? Historical Considerations To consider the answer to that question, it is necessary to look back at Scottish history. Prior to the Union with England in 1707, Scotland was the poorest country in Western Europe. Following the Union, Scottish merchants had access to England’s trade monopolies and overseas markets in America, Caribbean, Africa, India and the Far East whereby the Scots not only flourished but also contributed to the financial and economic success of the newly created United Kingdom. As renowned historian Simon Schama once wrote of the Union, “What began as a hostile merger, would end in a full partnership in the most powerful going concern in the world ... it was one of the most astonishing transformations in European history.” It is clear that the Union created a synergy effect whereby both Scotland and England prospered in a way that was greater than either country could have achieved if they had remained separate nation states. The Jacobite rebellions of 1715 and 1745 tried to break the Union and re-establish Scotland as an independent state, but had they succeeded, Scotland would have reverted to a feudal clan system and would once again have been plunged into economic poverty. But following 1745, Scotland continued to prosper and entered into a period which became known as the “Scottish Enlightenment”. By the latter part of the 18th Century, Scotland had achieved general literacy in its population, the first country in Europe to do so. Prominent Scots emerged to take the lead in many fields, with figures such as David Hume, regarded as modernity’s first great philosopher whose unorthodox views made him a legend in his own lifetime. Another was Adam Smith, the first great modern economist who wrote “The Wealth of Nations”. 1 The two Acts were, The Union with Scotland Act 1706 which was passed by the Parliament of England, while the Union with England Act 1707 was passed by the Parliament of Scotland. 2 In 1707, The Kingdom of England included the modern-day England and Wales.
Together with other outstanding Scottish intellectuals, they were part of a club known at the Select Society which, for a period a ten years, was the principal Edinburgh based forum of the Scottish Enlightenment period. And it should be noted that many members of the Select Society were Edinburgh volunteers who fought against the Highland armies of the Jacobite Rebellion. These prominent Scots, regarded as intellectual giants, put their lives on the line and fought to maintain the Union with England! As we move through the 19th and 20th centuries we can cite numerous examples of how Great Britain prospered, whereby the Scots, in partnership with our neighbours in the rest of the UK, worked together to achieve unprecedented levels of success. It was our combined talents, abilities and resources that created the British Empire; a complex collection of dominions, territories, colonies, military bases and assorted dependences which eventually covered 20% of the world’s land-mass and approximately 25% of the world’s population. When one examines the history of each location within the British Empire, there appears a small coterie of Scottish men and women which took a leading role and which had a major impact, but the Scots were not alone! They worked together with their English counterparts to achieve success! Cleaving the Union Tapestry After three centuries of union, England and Scotland have not only prospered together, but also have developed a rich tapestry of complex, intricate legal, political, financial and military ties. It is a foregone conclusion that those ties would have to be severed if Scotland voted for independence. But it is not as simple at taking a claymore and cutting the tapestry down the middle! It will be necessary to tease out and separate every individual thread of the tapestry, then to abandon each thread and replace it with two lesser and different strands. As many know from personal experience, a divorce between two individuals is generally messy, emotionally stressful and very expensive when lawyers come into the picture. Imagine a “divorce” on a scale which is millions of times greater than two individuals, and where the lawyers have to work out all the legal intricacies to undo 300+ years of a union. Legal costs alone may well cripple the economy of an independent Scotland! Let us consider a specific example. In 2007 a major infrastructure project was underway in Scotland to modify the north-eastern rail links from Newcastle to Edinburgh and to divert them to run under a planned development of Edinburgh Airport. The SNP gained control of the Scottish Parliament and arbitrarily cancelled the project which had been instigated by the previous Labour administration. A lucrative development project which would have provided Scotland with jobs, business opportunities and enhanced Rail and Air Travel infra-
structure, was scrapped! The single action to cancel that project cost the UK tax-payers millions of pounds in settlement costs for breach of contract. Imagine that situation multiplied ten-thousand-fold to include all Scottish related contractual obligations negotiated and in place by the existing UK Government whereby all such contracts may be rendered null and void. What Happens to UK Passports? Another example relates to passports. Once the United Kingdom ceases to exist, then it will be necessary to replace every UK passport, not just passports for Scottish residents. It costs £85 to renew a UK passport. Renewal from overseas costs an additional £115 in courier charges!
The bare figures, excluding North Sea oil and gas revenues, are as follows: ØTotal Revenue3 from Scotland: £65.1 Billion ØTotal Public Expenditure for Scotland: £81.0 Billion In 2019-2020 the total UK Revenue from North Sea oil and gas was assessed as £861 Million. A key question to consider is how to allocate the revenues from North Sea oil and gas to the Scottish Budget. Generally this would be done in one of two ways, either on a per capita basis, i.e. on the distribution of the UK population, or on a geographical distribution of the oil and gas installations off-shore from UK.
North Sea oil and gas revenues are generated from an Exclusive Economic Zone negotiated by the UK government and ratified internationally. Licences are granted by the UK Government which operates a tax and royalty licensing regime. All contractual arrangements are between the operator and the UK Government. There is no agreement in place that allows the total North Sea oil and gas revenues to be applied to Scotland. Also it should be noted that North Sea oil and gas revenues are not constant. The revenues4 are dependent upon levels of production and the price of oil which at times fluctuates dramatically.
Consider the administrative costs relating to the design, printing, recall and reissue of every single UK Passport. As of 31st December 2020, there were 50.2 million UK passport holders1. An exercise to replace those passports would cost UK citizens approximately £10 Billion at a conservative estimate. Also, imagine the logistical issues to decide who was entitled to citizenship of the newly independent states. It will be a self-induced, bureaucratic nightmare within the UK, and do not forget the potential hassle of getting the new passports accepted world-wide. Scotland’s Budget Shortfall But let us not get bogged down with such minor trivia as the cost of replacement passports and the bureaucratic issues. Instead, let us examine the hard cash reality of an independent Scotland based upon data published on 26 August 2020 relating to the Scottish Expenditure and Revenue2 for Year Ending 31st March 2020. 1
HM Passport Office. Ref: FOICR 62278/21 - 11 Feb 2021 https://www.gov.scot/publications/government-expenditure-revenuescotland-gers-2019-20/ 2
The most equitable way to share such Revenues is to allocate the revenues on a per capita basis. Since the population of Scotland is approximately 8.3% of the total UK population, an 8.3% share of North Sea oil and gas revenues would be £71.5 Million. If that amount was added to 2019-2020 fiscal figures, the Revenue for Scotland would have increased to £65.2 Billion. If the UK Government agreed to allocate North Sea oil and gas revenues for 2019-2020 on a geographical basis, then it is assessed that 84% of the total revenue from North Sea oil and gas would be applied to Scotland, generating oil and gas revenues of £723 Million. Adding that amount to the figures would increase the total 2019-2020 Revenue for Scotland to £65.8 Billion. However, regardless of how such oil and gas revenues are applied, there is still a substantial shortfall between Expenditure and the Revenue to meet such expenditure. 3
The Revenue income includes a Block Grant of £8.2 Billion from the Barnett Formula. 4 In March 2014, Fergus Ewing, the SNP Energy Minister, forecast that revenues from North Sea oil would be £48 Billion for the ensuing 5 years. The actual revenues for that period were only £3 Billion.
To summarise the Scottish financial position in 2019-2020 once North Sea oil and gas revenues are included:
operate a monetary union, fiscal policy would always be with Westminster and the Bank of England.
ØWorst case scenario ( 8.3% share of North Sea oil ) - a budget shortfall of £15.8 Billion;
An independent Scotland would not immediately qualify for membership of the EU, so that precludes adopting the Euro. To qualify, Scotland would have establish a Central Bank and float its own currency, which is a risky financial undertaking. Under EU Law, Scotland would be required to keep its annual budget deficit below 3% of GDP. In 2020 the budget deficit was 7.5% of GDP and could be as high as 11.5% of GDP if the income from the Barnett Formula was removed from the Revenue.
ØBest case scenario ( 84% share of North Sea oil ) - a budget shortfall of £15.1 Billion. Consequently, if an independent Scotland seeks to maintain the same level of public services, they will have to either increase taxes, or somehow find other sources of revenue. They may of course cut public service and in so doing will make a large number of public servants redundant. But if a best case scenario shortfall of £15.1 Billion was to be raised from direct or indirect taxation of the Scottish public on a per capita basis, every man, woman and child in Scotland would have to pay an additional £2,772 per year in tax. At present Scotland enjoys public expenditure on services at a higher rate per capita than their counterparts in the rest of the UK. This results from the application of the Barnett Formula, a mechanism used by the Treasury to adjust the amounts of public expenditure allocated to Scotland. But the residents of Scotland don’t actually pay in full for such additional service levels, the shortfall, as detailed above, comes from revenues generated elsewhere in the UK.
Some Scottish MPs have claimed that Scotland was taken out of the EU against the democratic will of the Scottish people. But those claims are not valid as it was the sovereign territory of the UK that held membership of the EU. Scotland has never held membership of the EU and cannot do so unless it is an independent nation state. In regard to international treaties such as EU membership, it is necessary to consider a major issue. If Scotland secedes from the Union, then the United Kingdom as a sovereign state ceases to exist. All existing UK treaties, concessions and legal arrangements would have to be re-negotiated after Scotland gained independence. National Insurance and Pensions
Currency Issues and Monetary Union Still on the subject of finance, there is the question of what currency will be used by an independent Scotland. The political parties in UK have made it very clear that they do not agree to an independent Scotland having monetary union with whatever elements remains of the UK.
There is the tricky question of National Insurance and Pensions. What happens to all the contributions that Scots have paid into the National Insurance system and what guarantees do Scottish pensioners have that their pensions will continue to be paid if Scotland votes “Yes” to independence? The SNP have given bland assurances that pensions will be paid, but are woefully vague on the mechanisms of how that will work. At present the SNP has no provisional agreements in place to separate the pension assets of the National Insurance system in the event that Scotland secedes from the Union and no guarantee that funds will be available to meet pension obligations. Scotland’s Political Landscape That appears to rule out the use of Sterling as a currency option, but might actually be in Scotland’s favour. If denied monetary union and a share of the UK national reserves held by the Bank of England, then Scotland could legitimately claim that it has no liability to the national debt of £1.9 Trillion. But even if the other political parties relented and allowed Scotland to retain Sterling and to
Another factor that has to be addressed is the political landscape. Given the political ideology of most incumbent Members of the Scottish Parliament, an independent Scotland will almost certainly move further to the left, and edging towards a socialist state. We have witnessed first-hand some of the disasters created in countries which have adopted socialism, either voluntarily or by bloody revolution. It is not a pretty picture!
One of the political arguments is that existing Scottish MPs have little say in the running of UK. If we consider the 20th and 21st century UK Prime Ministers, there were 24 individuals who held the office of Prime Minister, of which 8 individuals were Scottish or representing Scottish constituencies. That is massive political influence which is totally disproportionate to population demographics. Indeed we can track the influence of Scottish MPs in Parliament since the Union in 1707 and we can determine their political impact. Their contribution was significant and outstanding in diverse areas of public life. In many instances, Scottish MPs shaped the UK political landscape and also had an impact on international relations worldwide. Defence and Security Issues We might also consider the thorny question of Defence and how to separate and apportion the military hardware, property, personnel, and equipment of the UK armed forces between an independent Scotland and the remainder of the former UK. It is likely to be a logistical nightmare and an expensive exercise which will diminish the existing military capability of the UK.
HMS Illustrious - one of 79 commissioned Royal Navy ships Consider the following statistics. In October 2020, there were 196,140 military personnel in the UK Armed forces, augmented by 44,600 Regular Reserves. There are currently 79 commissioned Royal Navy ships in service; 601 fixed-wing military aircraft in operation, plus 322 helicopters. There is also the nuclear weapons inventory and the management and control of nuclear-strike, or counter nuclear-strike facilities. The Ministry of Defence is one of the largest land/property owners in UK, owning approximately 240,000 hectares of land, 45,000 buildings, 55,000 houses and real estate in many overseas locations. As of 31st March 2020, UK taxpayers had equity of £147 Billion in MoD property. 4th
The UK has the largest Defence budget in the world with expenditure1 of £32.7 Billion in 20190-2020 and there is nothing in place to suggest how to manage that budget or to apportion the extensive military resources, should Scotland gain independence. If our current military establishment is separated into two parts, then it will become less effective and further expenditure would be required to achieve the same level of military capability which the UK has at present.
Negotiations to Separate UK National Assets There are many other arguments against the proposed independence movement, but it is not possible to cite them all in a short article. In any case, much of what is being discussed by UK politicians is pure conjecture. The SNP politicians find themselves in the unenviable position of being unable to address many issues and practical concerns as they cannot enter into negotiations with their counterparts in the rest of the UK until such time as there is a mandate to move towards independence from the Scottish electorate. The SNP cannot provide assurances as to the post-independence situation as they do not know at this stage what will be the outcome of the negotiations to separate national assets and liabilities. Please don’t think for one minute that these negotiations will be amicable and practical. In all probability they will be extremely acrimonious. The SNP has done all it can to undermine the other political parties in UK and has shamelessly used the devolved powers of the Scottish Parliament to block many initiatives approved by Westminster. As such, Scottish MPs are likely to get very short shrift when they come to the negotiating table with no leverage whatsoever to obtain equitable agreements. For example, the SNP are claiming that North Sea oil and gas revenues should be allocated to Scotland based upon a geographical distribution, but there are serious flaws in using geographical location as the criteria to separate and allocate assets. For example, all the UK national gold reserves are held in the Gold Vault of the Bank of England in London. By applying a distribution of assets based solely upon geographical criteria, then all such gold reserves of approx. 310 tonnes of gold bullion belong to England! If geography is the deciding factor, there is nothing to prevent the UK Government from re-deploying all military assets to England and claiming the total UK military establishment by virtue of the fact that they are located in England! The title deeds of all MoD land and property in Scotland will still be held by the MoD HQ in London!! Conclusions Suffice to say that the major reasons against secession and independence are based upon economic realities, but there is also the recognition that the UK as a whole, and Scotland in particular, would be diminished by the dissolution of the Union. If history teaches us anything, then it has shown us that the United Kingdom achieved greatness when we all worked together for a common aim. As one patriotic Scot commented, “My heart says Aye!!! My heid says nae chance!!” This comment really sums up the choice confronting the Scottish electorate in any independence referendum. It is a choice between misguided Emotive Patriotism or Economic Realities. It is a sobering thought to realise that if Scotland secedes from the UK it will not only revert to its constitutional sovereign status prior to 1707, but may also revert to being once again the poorest country in Western Europe. John M. Thomson
1
Ministry of Defence, Annual Reports and Accounts 2019-2020
May 2021