January 27th, 2007

Vote for Scottish independence and accountability

Scottish independence is in the air. It’s the 300th anniversary of the Act of Union and people both sides of the border are restless with the settlement. In Scotland, partial devolution has intensified the hunger rather than quench the thirst for complete autonomy and the governing Liberal-Labour coalition is losing out to the opposition separatist Scottish National Party. Proud Scotland with its traditions and distinct identity would be more than at home as a distinct state in the European Union. Eight members of the current EU have smaller populations than Scotland’s 5.1 million, which lies between Finland and Ireland – two of the EU’s success stories.

So what are the costs and consequences of independence…?

In England, perhaps we are irritated by the West Lothian question – why do Scots MPs get to vote on English matters for those subjects that are devolved to the Scottish Parliament, such as health, education, environment and most social policy [see devolved and reserved matters]? We also suspect that English taxes are propping up a bloated unreformed Scottish public sector, which is quick to brag about the perks that it offers to Scots – like abolishing tuition fees for Scottish universities [see Scottish Labour spending brags] – without bothering to use its tax-raising powers to pay for them. Perhaps we English gripe that public spending in Scotland is £7,597 per head compared to £6,361 – 20% higher (See Table 3.1 in the accounts) through the Barnett Formula. And we are probably tiring of embittered Scots blaming us for their woes and refusing to support our football team at events like the World Cup, which they didn’t qualify for [see The Scotsman theme on World Cup allegiance].

And opinion really is moving… polling for the Telegraph (here) now shows majority support for Scottish independence in both England and Scotland – and slightly more in England. I have to say, I’m for it. In fact, I’m so for it that I think England should declare its own independence from the United Kingdom, and force the issue, though I doubt that will ever happen. Scottish independence would give Scots an unambiguous identity and control over their own affairs. Most importantly, it would introduce accountability and a better democratic relationship between taxation and representation.

As FT columnist Martin Wolf puts it, “Scotland spends like Finland, but taxes like Canada” [view column]. And this is right: Scottish Executive accounts show that expenditure is about 51% of GDP whilst income is about 39% of GDP – making a huge 12% budget deficit. Ah, but what about North Sea Oil? Well revenue was 5.2 billion in 2004-5 (see chart & data) – so even if all the government revenue and all the contribution of N. Sea oil to GDP were added to Scotland’s accounts, the deficit would still be a hefty 4.8% of GDP (see Scottish Executive discussion of oil revenues). Note that this would exceed the constraints of the EU’s fiscal rules which limit member state budget deficits to 3% of GDP (the excessive deficit procedure – Art 104 of the Treaty) and independent Scotland may not be allowed to join without first being an ‘accession state’. The fiscal position should improve, at least briefly, because N. Sea oil revenue is rising. But the point is this – the independent Scotland has extremely weak public finances. Independence would mean fixing that as well as incurring very large ‘setup’ costs as British institutions are separated into national components like a divorcing couple dividing up the home and possessions (who will get the Inland Revenue computer?).

The effect on Scotland of having to correct a long-term structural deficit would be profound – there would be an imperative to raise taxes and tackle public spending – the exact opposite of the comfortable Scottish political consensus. A cushion of some N. Sea money would help, but long term, it would have to take on greater austerity and reform – and live within its means within the European Union. I’d love to see Alex Salmond of the SNP taking that particular medicine to his people!

An interesting and mischievous alliance is developing between Scottish Nationalists and English Conservatives. The latter would like to see the Westminster Parliament constituted as an English parliament for devolved issues, with Scots and (sometimes) Welsh not voting – which would deprive Labour of its majority and possibly give them an English majority after a further election. It also keeps the heat on the very Scottish Gordon Brown. The Nationalists have been awakened to the cause of the under-represented Englishman. From opposite ends of the political spectrum, both are edging the centre of political gravity towards independence. I’ll be looking forward to the Scottish elections on 3rd May 2007 – they could be very pleasingly disruptive.

2 comments to Vote for Scottish independence and accountability

  • Clive Bates

    Dear anon – thanks for your stunningly good comment! So much to say…

    Let’s start with the major issue: I don’t think the Man United / Man City analogy works… I’m a Man United fan myself, and I don’t see Scotland like Man City – more like Everton. I do think that Scots see Man United as Man City supporters would – but it’s that the asymmetry that looks so feeble from down here. (But your point is a good one).

    Glad you are on the case about public spending – the misunderstandings of public spending are absurd… government spending does two main things: it produces outputs (health services, education, law enforcement) that are just as important as any other part of GDP (often more) – they are just purchased collectively through the tax system. It also organises welfare transfers such as social security, housing benefit… the two should never really be conflated or misunderstood…

    There are regional public spending stats – see HM Treasury pages – and they do support the general idea of flows to the English Northern regions being in an almost similar ball park – see this one for example (XLS) UK regional public spending. But then these regions they aren’t considering independence. You can find this income disparity at virtually any scale – even within the richest borough in the country, Kensington and Chelsea, there are some very poor areas. It isn’t surprising that we spend more in these poor areas because much of our public spending system has redistribution hard-wired in… for example the local government spending grant, NHS budget, policing – all have formulae that spend more on the poor areas. The problem is that these formulae are not applied consistently across Britain, so larger flows go to Scotland than would go to a English region with the same level of poverty or overall need.

    On the W. Lothian question… it does need to be solved simply by constituting the Westminster parliament as an English parliament when it considers issues devolved to Scotland (and/or Wales) – the Scottish MPs just need to stand aside on these issues. The problem can only get worse and be brought into sharper relief by what will inevitably be a pasting for Labour on 3 May. Of course, Blair and Brown hate it because their guilty little secret is that they don’t actually have popular majority in England.

    I think the SNP are playing their hand well – and not frightening Scots with a swivel-eyed bagpipe-led march to independence. But the clamour for it will grow. I never understand those that imagine the value created by the UK will somehow be lost… the other day I heard someone from Scottish Labour saying why would we want to turn our biggest partner into our biggest competitor – that just completely fails to understand the mutually advantageous trading relationship that binds the two countries… and that would not change… (why should it?)
    Scotland will continue to contribute to England and vice versa, even if they are independent states within the EU. What exactly does the UK do that the EU can’t?

    Oil upsets everyone… On the timescales of the great sweep of history over which things like devolution or independence will be judged, the oil is basically irrelevant… it might be useful as a transitional lubricant, rather than fuel for a future resource dependent economy.

  • Caspar Henderson

    I am attracted to the idea that independence for both Scotland and England would force greater responsibility and honesty on the politicians of both countries as they confronted. I hope this is not a fantasy, and I hope it would not contribute to a narrowing of sense of indentity where people defined themselves by the deeply impoverishing label of nationality.

    You estimate that “even if all the government revenue and all the contribution of N. Sea oil to GDP were added to Scotland’s accounts, the deficit would still be a hefty 4.8% of GDP”. My guess — and I imagine yours — is that the Scots would have to concede the English and Welsh (and other minorities within the rump state – e.g. approx 1m of Pakistani origin) a proportion of revenues — say a 60:40 split in favour of Scotland (unless justice follows geography in which case more should go to the Norwegians?).

    That aside, how much of an asset would oil and gas revenues really be if we are serious about a carbon constrained world — aiming for, say, maximum atmospheric concentrations of 450ppm CO2e or less followed soon by rapid reduction. Scotland might do better to sell wind and tidal power rather than gas and oil to England. In this form, Alex Salmond could still be a petit Putin vert with nice offices in Washngton, Paris and Beijing.

    I worry the costs of divorce could be very large. What about a new constitutional arrangement that is neither full independence within Europe (whatever that may mean as Europe likely moves towards a new constitution) nor the old United Kingdom: two (confederated?) states (länder?) that require greater fiscal responsibility and accountability but without the price of two entirely separate eternal homelands? Hard to think of models that work. Catalonia’s struggle with [the rest of] Spain is hardly one. Maybe the Germans got there first?

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