Friday 21 October 2016

Scotland and Brexit

This week, Nicola Sturgeon published a draft bill to authorise a second Scottish independence referendum. That's a long way from committing to holding the referendum itself, but it's a big step along the way.

In the face of Brexit, Sturgeon and the SNP see an opportunity. It is more than fair for them to revisit independence under these circumstances. Scotland voted 62% to 38% in favour of staying in the EU. It didn't want the costly upheaval of Brexit.

This is not just a matter of money, but of identity. At the core of the Brexit argument lies the notion that our fellow Europeans are just too alien to work with constructively. I don't believe that, and neither does Scotland. It sees itself as a European nation, in a way that England clearly does not.

Image source: Wikimedia Commons

What is more, Brexit is likely to exacerbate the political divisions between Tory England and SNP Scotland. Theresa May's government is venomously hostile to immigration; whereas with its aging population, Scotland needs more immigrants, not fewer. It remains to be seen what form Brexit will take and what the government's economic strategy will be; but the appointment of hardcore Brexiteers to key ministerial positions indicates a hard-right, free-market agenda which will not be popular in Scotland.

A hard Brexit likely means tariff barriers between the EU and UK, a continued fall in the value of the pound, and businesses relocating to the EU. It would have knock-on effects for jobs, savings, pensions, and public services, all of them likely to be negative. New trade deals negotiated by Liam Fox and Boris Johnson will be a poor compensation. Scotland did not sign on for any of this.

Meanwhile, the Labour party is missing in action. Jeremy Corbyn's brand of London-based protest politics leaves Scotland unmoved. His polling north of the border is utterly dismal, with a net approval of minus 42%. It's telling that even as Corbyn won a crushing victory in his re-election as Labour leader, Scotland voted for his challenger, Owen Smith. In all respects, the political cultures of England and Scotland are drifting further apart. (Unfortunately for Wales and Northern Ireland, they have even less influence at Westminster than Scotland does.)

So in principle, there is a very strong case for Scotland to declare independence and remain within the EU. The practicalities are a lot more murky.

In the 2014 referendum, if you made some optimistic assumptions about oil revenue, you could just about argue Scotland would be no worse off financially if it left the UK. It is no longer possible to do this honestly. North Sea revenues have collapsed and are not returning in the foreseeable future.

The Scottish government's own figures, as published in the GERS report, indicate a fiscal gap of £1700 per person between annual revenue and spending. This would give an independent Scotland a total deficit of 9.7% of GDP, compared to 4.9% for the UK as a whole. Scotland would have to make up the gap through some combination of tax rises and spending cuts.

This can't be done by getting rid of Trident, trimming the defence budget, and soaking the ultra-rich. Doing all of those things would not come close to making up the shortfall. There would be serious tax rises for ordinary working people, and severe cuts to important services. Ordinary voters would notice the difference, and it would hurt.

On top of this, the currency issue which dominated the 2014 campaign has not gone away. On the contrary, it has become more severe. In 2014, the SNP insisted it could secure a currency union with rUK, in the face of solemn declarations from the main UK political parties that they wanted no such thing. Today, would Scotland even want a currency union? Does it want to be shackled to a rapidly falling pound sterling, and an economic policy set by a hard-right government in London? So far, the SNP is silent on this subject.

If it does not retain the pound sterling, Scotland would need to set up its own currency. The only other serious option is joining the euro; this would have its own disadvantages, and anyway would require an independent Scottish currency for a transitional period.

Scotland would be exposed to the uncertainty and risk of the international currency markets. As the UK found out on Black Wednesday in 1992, the judgment of the markets can be brutal. Exchange rate fluctuations would impact business between England and Scotland. Savers and investors might rush to buy assets in euros as a safe haven. Interest rates could rise significantly, with obvious consequences for mortgage payments.

Newly fledged nations have survived far worse. From Estonia to East Timor, most of them would have envied Scotland's problems. But this is the point; Scotland has a lot to lose.

As I argued before the EU referendum, despite all its faults, the UK is a rich and successful country. It is alarmingly plausible that post-Brexit mismanagement will wreck the British economy, but we don't know how bad it will be. At the moment, Scottish independence would ask voters to accept definite economic pain now, in hope of averting the expected pain of Brexit. No matter how you spin it, that's a difficult idea to sell.

Is the price of independence worth paying? If we're going to be honest, that's how the debate has to be framed. Claiming that Scottish independence has nothing but upside would be a mendacity, on a par with the Brexit campaign and its fictional slogans about £350 million a week.

I don't live in Scotland, so it's not for me to say what cost is too high. I would be very worried about what independence meant for my friends and family in Scotland; but then again, I'm also worried about what Brexit means for the UK. There are no good options at this point.

There are disadvantages to Scotland staying, and other disadvantages to it leaving. The Scots have to choose which set is worse, based on incomplete information, because none of us know the future. Unfortunately the debate is going to be distorted further by political bias and spin coming from both sides. I just hope that can be kept to a minimum, because Scotland deserves a clear-eyed discussion of the alternatives.

  • Note 1: This post grew out of a discussion on Facebook. My thanks to the other participants, who know who they are.
  • Note 2: Blogger Kevin Hague provides an extremely clear and lucid breakdown of the finances of Scottish independence, for which I am grateful.

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