Category Archives: Devolution

The wages of Scottish independence – The monarchy

The Scottish Numpty Party (SNP) has committed itself to the Queen being Scotland’s head of state should independence occur.  http://www.guardian.co.uk/politics/wintour-and-watt/2011/may/25/alexsalmond-queen). As with so much of the SNP policy towards independence this presumes something which is far from self-evident, namely, that
this would be acceptable to the Queen, practical or agreeable to the remainder of  the UK.

It  might seem a simple thing for the Queen to be Scotland’s  head of state for many of Britain’s ex-colonies and dominions, including substantial states such as Australia and
Canada, retain such a link with the old colonial power.   If she can act as head of state for them why not for an independent Scotland, a much smaller and more insignificant entity?   The answer is simple; all the Commonwealth  countries of which she is queen  are not intimately connected with Britain  geographically, administratively or economically.   Scotland is. In addition, if Scotland retained the pound she would have something no other Commonwealth country has, her fiscal policy substantially decided by Westminster.

To understand the potential dangers of the Queen as head of state of an independent Scotland a familiarity with the nature of the monarchy as it is today.  Britain’s monarchy
evolved from an executive to a constitutional one largely through convention rather than law.  For example, the  monarch stopped vetoing Acts of Parliament after the advent of the Hanoverians in 1714 not because the power was removed by Parliament,  but because the monarch did not use the power. In time this became a convention.  The consequence is that there are few constitutional bars placed on the Crown’s powers and the Royal prerogative is essentially what it was after the Bill of Rights was passed in 1690 in the aftermath of the overthrow of James II. (An up to date description of the Royal Prerogative can be found at (http://www.parliament.uk/documents/commons/lib/research/briefings/snpc-03861.pdf).  However, all of the important  powers  which remain bar two  are exercised today by the Prime Minister.  The important exceptions  are (1) where the appointment of a prime minister  is to be made when there is no party with a clear majority in the Commons and the monarch has to decide whether a government can be formed and if so who is best able to do so and (2) the monarch’s decision whether to grant  a dissolution of  Parliament is not straightforward.  For example, suppose a coalition government breaks up and there is the possibility of forming a different coalition with a working majority, the monarch might  decide that the denial of a dissolution and the acceptance of a different coalition might be preferable to another General Election. That could be the case where there have been two General Elections in a short period which have failed to return a House of Commons with a workable  majority for a single party.  If the present Coalition pushes through the promised Bill to make future Parliaments go the full five years unless a strong majority in the Commons votes for a dissolution, this objection would  be much weakened. If the present arrangements for   general elections  in Scotland continue, namely that they be called only every four years , (http://www.legislation.gov.uk/ukpga/1998/46/part/I/crossheading/general-elections)
the difficulty will not arise.  However, in the case of an independent Scotland there would be more opportunity  for the monarch to be called upon to appoint a new government during the course of a parliament because  the electoral system is likely to produce coalitions and often coalitions of more than two parties.   At present the formation of the Scottish devolved Parliament and government does not involve the monarch. If Scotland became independent she would have to do one of three things: have a Governor-General as the Queen’s representative ;  have a  relationship in which the Queen performs  the same duties in Scotland as she does in the UK as it is presently constituted or some entirely new relationship which reduces the monarch to nothing more than a figurehead with no prerogative power or influence, for example, no Royal warrants, no part in hung parliaments and so on.  This strikes me as unlikely because it would offer  an example to  other Commonwealth states which persuade them to  lobby top change their relationship
with the Crown.

In the case of the appointment of a Governor-General,  that in itself would be a difficult political decision because the Scots would doubtless call for a Scot. The appointment of a Scot could produce a person  with divided loyalties or even worse one wholeheartedly biased towards Scotland’s interests.  Conversely, the failure to appoint a Scot could result in a continuous running political sore. But appointing a Scot as  Governor-General  would be no guarantee of compliance to Edinburgh’s wishes.  The Governor-General of Australia who dismissed Gough Whitlam as Australian Prime Minister in 1975, Sir John Robert Kerr, was Australian.

Any relationship other than one which was new  would produce constitutional difficulty, because the major element of the prerogative which the monarch still exercises which would be applicable to Scotland –  the decision of who should form a government where there is no clear cut electoral decision –  would force the monarch into politics, either
directly or through a High Commissioner.  This might not matter if coalitions were a
rarity in an independent  Scotland. But they would probably be the norm rather than a rarity.  If Scotland retains the  electoral system used for her devolved parliament, the monarch (or Governor-General)  would have to make such a decision  after most  Scottish general elections . Coalitions being fragile, there would also be multiple opportunities for more than one such decision to be made in any parliament.   If that were the case, the monarch (or Governor-General)  would constantly be brought into active politics. Should the monarch (or Governor-General ) make a decision which  was questionable, for example, accepting a coalition which excluded the party with the most seats, the monarch could be subject to personal political attacks. That could undermine the position of the
monarchy in the rest of the UK as well as Scotland.

Scotland could adopt a first-past-the-post electoral system, but that is most unlikely because of the vested interest all parties in  Scotland have in retaining the present system,
that is, all know they will have a chance of at least some seats, something which would not be the case under first-past-the-post.  But  even if a first-past-the-post system was adopted there would still be occasions when a   coalition was needed. This would be much
more likely in a small assembly such as the devolved parliament than in the House of Commons , which has more than  five times the members of the  Scottish parliament.

A small number of elected representatives means that any overall majority is going to be small whatever the electoral system.  That is simply a matter of arithmetic.  In a House with 646 members such as the House of Commons, a party winning 55% of the seats  has 355 members  which gives a majority of  64.  60% of the seats in the Scottish parliament (129 members)  is 71 seats and a majority of 13.  Managing a parliament for four or five years on a majority that small would be difficult. Every death or retirement of a member would take on considerable importance.  The opposition would be constantly on the alert to embarrass the government with “ambush” voting and refusals to pair.  This would make coalitions even where an overall majority likely within their potential for politically embarrassing the monarch.

That is not the only chance of political embarrassment or worse for the monarch. The Queen acts a conduit for  the UK Government’s legislative programme through the Queen’s speech. She does not do the same for the devolved government in Edinburgh.   If  an independent Scotland wished the Queen to give a Queen’s speech in an independent Scottish parliament , she could easily find herself proclaiming contradictory policies in Westminster and Edinburgh, for example,  Westminster might decide to raise duty on Scotch whiskey while Edinburgh opposed such a move. More dramatically, if Scotland continued to use the pound the Scottish government might, for example,  argue for lower
interest rates and Westminster to raise them.

The monarch might also find herself having to speak words written for her by either government which would insult or enrage either Westminster or Edinburgh. It is easy to imagine Alex Salmond putting anti-English rhetoric into a Scottish Queen’s speech.

Embarrassment could also arise if those who were persona non grata to either  Westminster and Edinburgh were entertained by the other and monarch had to meet them. Or the monarch might be called upon to undertake a public duty which was unpalatable to one of the governments, for example opening a nuclear power station in England and praising it as the best way of ensuring future energy supplies while Scotland continued with a no nuclear policy.    The same problems would arise with any lesser royal, in whom they me, the speeches they might give and the places they might visit.

If an independent Scotland decided to use the Royal Prerogative powers which the Westminster Government  uses,  they would be much more potent in Scotland than they are at Westminster. The small size of the  Scottish Parliament would lend itself much more easily to corruption and intimidation because there would be few people who would need to be corrupted or intimidated. That would, for example,  make the use of existing prerogative powers which allow ministers to produce law without having to put legislation through Parliament a potentially dangerous weapon  in the hands of a Scottish Prime Minister inclined  to govern autocratically. In the latter days of the last Labour Government  The Constitutional Reform and Governance Bill 2008-0 (http://www.legislation.gov.uk/ukpga/1998/46/part/I/crossheading/general-elections)
was passed. This did put some restrictions on the Royal Prerogative such as giving Parliament  a say in the  waging of war and the agreement to Treaties . But that Act only applies to the Westminster Parliament and UK Government. An independent Scottish Parliament could use the Prerogative in its form prior to that Act.  They could, amongst other things,  make treaties or declare war without  Parliamentary approval.  The Queen could end up supporting a treaty  or war in one country and opposing it in another.

A particularly fraught  problem  is the position of the armed forces. The UK armed forces owe their loyalty to the monarch not Parliament or Government.  Imagine the situation after Scottish independence if both Scotland and the UK had their separate armed forces who were yet all subject to the authority of the monarch.   The opportunities for disagreement would be immense, as indeed they were before the Union when the English and Scottish crowns were united.  In the 1690s Scotland  developed a madcap scheme to establish a colony on the Isthmus of Panama  http://www.rogermoorhouse.com/article2.html).  Its promoters knew nothing about the reality of the site, which was inhospitable. It also fell within the Spanish  ambit.  The promoters of the scheme  called on William III  as King of Scotland to use English colonial power,  English troops and the Royal Navy to support the colony and to generally aid them to the disadvantage of English interests.   William refused because he did not wish to give Spain grounds for war  or create opposition in England.  It is conceivable that similar clashed of interest could arise again, for example, if an independent Scotland could not defend  its territorial waters and called on  the Royal Navy to do so.

That would be an awkward enough marriage of dissonant interests, but the SNP leader is hoping for an independent Scotland and the remainder of the UK to share a common defence force (http://www.telegraph.co.uk/news/uknews/scotland/8515034/Sir-Mike-Jackson-tells-Alex-Salmond-British-soldiers-have-only-one-master.html).
That would create an impossible situation whereby Scotland might wish to  withhold  troops and equipment  from Westminster  if there was disagreement about how they might
be deployed.  Servicemen cannot  have two political masters.

Those are some of the problems which would come with an independent Scotland with the Queen as head of state. There are others, for example, the funding of the monarchy. What would Scotland pay?  Or the diplomatic service; how would UK and Scottish ambassadors in the same country, both appointed by the monarch, reconcile different views on the
same diplomatic matters?   What is clear is that a return to the 1707 situation of one crown but two countries would be immensely messy and not in England’s interest.  If Scotland becomes independent it should be without  the Queen as head of state.   The Queen (or her successor) could not veto this,  because the Parliamentary settlement of 1689 with William III puts the ascension of a monarch to the throne of England  in the gift of Parliament.

The wages of Scottish independence – immigration

The Scots Numpty Party (SNP) fondly  imagines that  an independent Scotland would continue to have free access to England. They recklessly  assume Scotland’s position would be akin to that of the Republic of Ireland. However, that assumption rests on   a number of dubious presumptions: (1) that an independent Scotland would be in the EU; (2) that  the remainder  of the UK (henceforth the UK) will remain in the EU; (3) that the EU will survive in its present form ;  (4) that the  UK will continue to have such generous welfare provision and (5) that the UK will  play by the formal EU rules.

If either Scotland or the remainder of the UK  was outside the  EU,   the rules relating to free movement of peoples across EU borders would not apply and the UK could restrict movement from Scotland to England at will.    If Scotland was not in the EU (and the EU
might not welcome  the idea of another potential  Greece or Republic of Ireland or the Westminster government might veto their application to join ) but the  UK remained in the EU, the Scots would be at a disadvantage in comparison with the  continental EU states,  because the remainder of the UK would be required to accept labour from other EU countries but not from Scotland.   But what if both Scotland and the UK remained within the EU? That would mean there would be free movement between the countries. However, that presumes the EU will remain as it is. This is very uncertain.  Should the Euro collapse that might cause such financial distress that the EU ceased to exist as each of  the member states looked in desperation for their own salvation.  That could leave an independent Scotland out on a limb, bankrupt and unable to export its unemployed.

Even if the EU did not break up, a  the collapse of the Euro would could  produce a  lasting depression along the lines of that of the 1930s. This would reduce both the opportunities for employment within the EU and the ability of member states to meet their welfare obligations, which would dissuade people from moving  to countries where the welfare benefits are highest.

As all EU law requires is that the same benefits that are offered to the citizens of an EU member are offered to any other EU members’ citizens, this produces widely varying provision in the various  EU states with corresponding differences in their attraction to immigrants.

Welfare is particularly significant in the UK’s case because when everything is taken into account – unemployment pay, sick pay, working tax credits,  housing benefit, council tax
benefit, free school education and (still) subsidised  university education and the NHS (which is by far the most generous healthcare system in the EU –  the UK has arguably the most attractive welfare package in the EU and one moreover which is   very readily accessed.

If UK benefits were considerably reduced there would be far less incentive for foreigners to come. That would apply to an independent Scotland. In fact,  Scotland could find itself in a situation where the welfare benefits they offered were more substantial  than those of the UK and produced migration from the UK to Scotland to  claim the higher benefits.  As things stand with EU law, they would have to pay the higher benefits to all EU citizens who claimed them. The only way the Scots could prevent paying higher benefits would be to
reduce the provision s to their own people.

There is also the possibility that the UK could reduce their level of welfare provision even without a further great economic disaster. This is certainly the intent of the Tory Party and if they achieve a strong majority at the next general election this may well happen.

Another possibility is that the EU could re-invent itself in a number of ways. It could reduce its members to a core of stable, productive members. That would not include Scotland. A multiple layered EU with members having a different status is another with differing rules relating to free movement, the right to work and access to welfare. In reality this already exists with countries in the European Economic Area (EEA) such as Norway  and Switzerland having free trade and free movement of peoples but not obligations such as welfare provision for EU state citizens (http://livinginamadhouse.wordpress.com/2011/05/01/if-we-leave-the-eu-we-mustnt-be-another-norway/).   It is improbable that an independent Scotland and the UK would be in the same layer because of the great difference in size and wealth between the two.

As for free movement within the EU itself, it is noticeable how readily the Schengen Agreement  was overthrown in May 2011  by subscribing  states declaring they were suspending free movement because of the pressure of refugees from North Africa caused by the so-called “Arab Spring”. (http://www.guardian.co.uk/world/2011/may/12/europe-to-end-passport-free-travel).  The Schengen Agreement provides for the twenty five signatories (all EU members except for the UK and the Republic of Ireland) to operate a  no borders regime for the subscribing members. This covers approximately 400 million people.  Not  only is free movement within the EU one of the four EU “freedoms”, but the Schengen Treaty conditions and the  law evolving from them are now  part of the EU’s  acquis communautaire (literally that which has been acquired by the community) . This means that jurisdiction over the Schengen Area  and any amendment to the Treaty provisions is now subject  to the legislative process of the EU (the Council of Ministers and the European Parliament) rather than a negotiating free-for-all by the political heads of
each member state.  Yet the decision of EU countries large and small –  Italy, France, Denmark – to act unilaterally passed without any real opposition or action. The lesson here is that when shove comes to push national interests will predominate.  Other  examples are the flouting of EU rules on such things as competition and state subsidies. Often no action is taken and even where it is, the larger countries such as France simply ignore any fines or judgements from the European Court of Justice  with impunity.  Even if Scotland and the UK remained within the EU,  the UK as one of the larger EU states could impose border controls against Scotland without anything dramatic happening. The same would apply  with greater force if an independent Scotland became a member of the EEA or the UK left the EU and signed up to the EEA.

Scotland could in principle join the Schengen Area, although its fragility has been clearly demonstrated this year.  But that would do them little good because neither the UK nor the Republic of Ireland are members. Thus Scotland would have no shared border with the treaty members.

If the UK left the EU, an independent Scotland would be utterly in the hands of the UK,  which could not only stop human traffic over the border but legally prevent any goods traffic between the UK and Scotland.  The same would apply if Scotland was not in the EU and the UK was.

Why would  the UK not want to have an open border with Scotland? The Westminster government might wish to prevent  free Scottish immigration for a number of reasons. The most obvious would be if Scotland was used as a conduit for  immigrants from outside the British Isles to enter England in large numbers. (I say England not the UK because experience shows that immigrants to the UK overwhelming head for England).

Then there would be the risk that the resident population of Scotland would  want to come to England in large numbers if the Scottish economy turned turtle.  That could have considerable costs for England both in terms of competition for jobs, housing, public services  and benefits paid to the unemployed.

There is also the strong  risk for Scotland that a future Westminster government could be faced by an electorate, especially of those in England,  which was hostile to Scotland because of their decision to leave the union and wished them to be denied any suggestion of special treatment such as continued  free movement across borders.

If Scotland  became independent that  England’s already great predominance within  the UK would become even greater with over 90% of the UK’s population and much more of its wealth.  That would make the  UK government  give more attention to English interests.  This natural tendency would be enhanced by the loss of the 59 House of Commons seats which are returned by Scotland. That would make a future Labour or even a Labour/LibDem government  improbable because  Labour and the LibDems hold all but one of the 59 seats. The  likelihood would be  a Tory Government at Westminster for the quite some time after Scottish independence.

There would also be the question of nationality at the time of Scottish independence.  Alex
Salmond  has the quaint idea that the Scots would have both Scots and British nationality. This is a very rash assumption.  British nationality might not continue once Scotland was gone. The UK might opt for a confederal system  with different nationalities for England,
Wales and Northern Ireland.  England might decide to go for independence herself. More broadly, a Westminster Parliament dominated by English MPs and concentrated on English interests might refuse to share a nationality with an independent Scotland. An independent  Scotland which did not have free movement between herself and the UK would be in a very perilous position,  because she would be a small country on the very
periphery of Europe with no border with any country other than England.  Scots should reflect on that inescapable fact.

The wages of Scottish independence – Public Debt

One thing is certain about an independent Scotland: it would begin life with a massive national debt. Exactly how much is problematic because  the Scottish referendum on
independence will probably not be held until 201. If there is a YES vote, it will probably be another couple of years before agreement is reached between Scotland and Westminster on the terms of independence because the Scots Numpty Party (SNP) has not proposed
that the terms on which independence is to be granted  are reached before the referendum.  In addition, some revenue streams, such as those from the oil and gas in English waters have never been formally agreed and calculated and public sector debts are not always clear-cut, for example, the cost of building a high-speed rail link to Scotland.  All this means that that the best that can be done for the official UK National debt  at the time of  likely independence are official  projections with unofficial estimates used for  items such as oil and gas in English waters .

The official UK national debt as it stands now is:

“Public sector net debt (excluding financial interventions) was £910.1 billion (equivalent to 60.1 per cent of GDP) at the end of April 2011. This compares to £765.5 billion (53.0 per cent of GDP) as at the end of April 2010.

“The unadjusted measure of public sector net debt expressed as a percentage of gross domestic product (GDP), was 148.9 per cent at the end of April 2011 compared with 150.9 per cent at end of April 2010. Net debt was £2252.9 billion at the end of April compared with £2180.0 billion a year earlier.”  (http://www.statistics.gov.uk/cci/nugget.asp?id=206)

The unadjusted measure includes the financial subventions such as those to RBS and Lloyds.  Those wishing for a fuller description of the treatment of public sector debt should
go to http://www.bankofengland.co.uk/mfsd/iadb/notesIADB/debt.htm

The simplest and fairest way of apportioning the UK national debt is by allocating a share to Scotland proportionate to their share of the UK population. The estimated population of Scotland was 5,222,100 in mid-2010 http://www.scotland.gov.uk/News/Releases/2011/04/27095112).
The estimated population of the UK in mid 2009 was  61,792,000 http://www.statistics.gov.uk/cci/nugget.asp?id=6 . Hence, Scotland has approximately 8% of the UK population. Eight per cent of £910 billion is £73 billion;  eight per cent of £2253 billion is  £180 billion.
By 2015/16 the net debt figure will have increased substantially.  Here is Bill Jamieson of the Scotsman  spelling out what the net debt share would mean for Scotland :

“What of deficit and debt apportionment? Both in the immediate term and in the final settlement, the SNP has called for more borrowing powers. But how much more borrowing will be sought on top of Scotland’s share of UK debt? To give a proximate idea of what we face, let’s assume Scotland’s debt share is similar to that of her share of UK GDP – circa  10 per cent. By 2015-16, when a referendum vote may be held, UK net debt is projected at £1,359 billion (69 per cent of GDP) and the annual interest charge would have risen to £67bn. Scotland’s share would be £136bn, and £6.8bn respectively.”  (http://thescotsman.scotsman.com/holyroodelections/Bill-Jamieson-The-burning-independence.6766635.jp?articlepage=2).

Of course, Scotland might have another year or two before independence,  which even on the Coalition’s planned spending deficit reduction plans would add a few billions more – the projected spending deficit in 2015/16 is one per cent which would mean £15 billion plus added to the national debt  each year past 2015/16
(http://www.soas.ac.uk/cdpr/publications/dv/file67880.pdf).  However, the signs for a strong  economic recovery are poor – stagflation looks increasingly on the cards with rising prices and falling projections of growth – and the deficit in 2015 and the years immediately following  may well  be considerably higher than the projections.  It also assumes that no other non-financial  disaster strikes. This could well happen with the Coalition’s plans to privatise more and more of public provision. The major  problem with this, apart from introducing the profit motive,  is that private businesses can fail.
If they are providing essential public services they cannot be allowed to fail which means the taxpayer will have to step in. At the moment there is a potential disaster just round the corner with the care home provider Southern Cross in deep financial trouble. (http://www.guardian.co.uk/society/2011/may/25/southern-cross-care-homes-in-balance). The company caters for 31,000 of the old and vulnerable.  There is no way other private providers could take up the slack. That would mean the taxpayer stepping in either with preferential loans to the company, which would almost certainly be challenged under EU competition law, or taking over the business wholesale.

That is just the net public  debt.  What the unadjusted national debt would be in 2015 can be no better than a guestimate.   If the publicly owned shares in  the banks are sold that would reduce the unadjusted figure,  but  there is no guarantee that the money put in
when the banks were on the verge of failing will be recovered in full.   Even if they are sold for enough to cover the money put in directly by the taxpayer this would only be a small part of the overall costs of the banks’ rescue: .

“The Government has pumped around £45 billion into RBS and £20 billion into Lloyds – holding stakes of 84% and 41% respectively – although the taxpayer is currently sitting on almost £20 billion in paper losses on the holdings.”  (http://money.uk.msn.com/news/articles.aspx?cp-documentid=152384309)

If the shares are not sold, assuming no other financial disaster then the unadjusted debt  will  probably be in real terms  similar to that between adjusted and unadjusted debt in 2011).  However, that is a very big assumption because the UK may not be out of this financial crisis by a long chalk.  UK financial institutions, especially those providing mortgages, still have a good deal of potentially toxic debt.  Those struggling with
mortgages have been switched to easier terms, especially interest only repayments http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8548745/Banks-accused-of-using-mortgage-debt-leniency-to-flatter-numbers.html) . In addition, in the past six months UK banks have been going much more heavily in UK Government gilts  (http://www.telegraph.co.uk/finance/economics/gilts/8550716/Banks-buy-bulk-of-39.8bn-of-new-gilts.html). This has the effect of another spate of quantitative easing. That will feed through into ever greater inflation (inflation is already high) which will eventually  lead to much higher interest rates.  That will drive many mortgage holders over the edge. If the UK property market collapses, that will seriously undermine the UK banking system and could well lead to other taxpayer bail-outs.

Even if things go well (well in the context of what the coalition is aiming for) the unadjusted debt would  probably be in £,2500- 3,000 billion in 2016/17. That would leave Scotland with a starting national debt of £200 – 240 billion.  An independent Scotland would find borrowing money would be rather expensive  because of the weakness and small of the economy  would make it a far riskier  bet than lending to the UK,  but suppose
five per cent interest  was paid, that would be £10-14 billion a year to service the Scottish debt.

That would not be the full debt  Scotland would have to take on. There would
also be a proportionate  Scottish share of (1)  UK’s PPP and PFI  obligations at the time of independence, (2) the funding of UK public sector and EU pensions  earned up to the advent of independence and (3)  other UK  debt taken on up to the time of independence.
There would also be the need to fund council debt which is not related to PPP/PFI/or local authority pensions, although that  could be a mix of  national Scottish funding and local authority taxation.

PPP and PFI present a problem because  the cost is spread over 20-30 years and  there are renegotiation clauses at various points in the contract; contracts are sold on so the reliability of the contractor can change and when shove comes to push the taxpayer is a faced with a choice between  paying the contractor more or seeing the project collapse. (see http://livinginamadhouse.wordpress.com/2011/01/27/ppp-and-pfi-buy-now-pay-later/). Because of this it is impossible to give an accurate figure for the cost of a contract and the payments being spread over a long period have persuaded government statisticians not to include the full cost in the UK national debt.  The complications can be seen here. (http://webarchive.nationalarchives.gov.uk/+/http://www.hm-treasury.gov.uk/d/psfnewsrelease_aug06.pdf).  To give an idea of scale of allowances made by the statisticians,  in 2006 they  added £4.95 billion  to the net debt.

Estimates of  the amount to be repaid  under PPP and PFI are around the £200-230 billion mark. For example, “Figures obtained by this newspaper [Daily Telegraph] through Freedom of Information requests reveal the full, mind-boggling cost of the Private Finance Initiative (PFI) upon which the last government relied to fund its public sector infrastructure projects. More than 900 schemes have been completed with a total capital value of £56 billion – yet the amount the taxpayer will have to repay currently stands at £229 billion.” (http://www.telegraph.co.uk/comment/telegraph-view/8279753/Gordon-Browns-poisoned-PFI-legacy.html24 Jan 2011). Eight per cent of £229 billion  would be £18 billion.

Public sector pensions  for those working for the UK also do not have to paid for immediately. Here are the National Audit figures for 2009:

“•Total payments to more than 2 million pensioners in the UK’s four largest pay-as-you-go pension schemes (also known as unfunded schemes – where current employee and employer contributions are used to pay current pensions) were £19.3 billion in 2008-09,
a real terms increase of 38 per cent since 1999-2000. This is driven by more employees retiring each year, which is a substantially more significant factor than longer lifespans.

“ •Employee contributions of £4.4 billion reduced the taxpayer’s share of costs to £14.9 billion in 2008-09. The employee element grew by 56 per cent in real terms since 1999-2000 because staff numbers and contribution rates have increased.”  (http://www.nao.org.uk/publications/0910/public_service_pensions.aspx).  Eight per cent of (15 billion is £1.2 billion.

The individual costs of Eurocrats’ pensions are high but not massive in in the context of national budgets:  “Contributions by UK taxpayers to the pension pots of EU  civil servants will jump to £350m a year by 2040, the report showed. “European taxpayers will have to stump up a total of £85bn in the next 50 years to pay for the comfortable retirements for officials.

“The total contribution from Britain in that time could be an astonishing £8.5bn. “http://www.thisismoney.co.uk/pensions/article.html?in_article_id=515300&in_page_id=6#ixzz1O27PaX00). Scotland would have a liability of around £1 billion spread over 30 years.

There is also the question of past transfers of English money to Scotland.  The SNP’s claim that the oil and gas tax revenue has exceeded the money received from the UK treasury is wildly wrong.  In 2009  a  Scotland Office paper  “Scotland and Oil” dealing with the tax
income from oil  and gas  fields around the UK painted a rather different picture. It concluded that:

“• If all North Sea oil revenues had been allocated to Scotland there would only have been 9 years out of  the last 27 when Scotland’s finances would have  been in surplus.

• Including all North Sea oil revenues the last year  of surplus was in 1988-89 and since then there has been 18 years of annual deficits with Scotland’s spending being greater than the tax raised in Scotland.

• Even if all oil revenues had been allocated to Scotland the total deficit would have outweighed the total surplus by £20bn since 1980-81. “ (http://www.scotlandoffice.gov.uk/scotlandoffice/files/Scotland%20and%20Oil%20-%20Background%20paper.pdf)

So there you have it, the official view is that even if all the oil and gas revenues were   allocated to Scotland they still would not pay their way. Of course, a substantial part
of the oil and gas  tax revenue would not go to Scotland because of the fields in  English waters.  Exactly how much is debatable, but  most of the remaining gas  is in English waters, viz:

“The SNP claims that Scotland would receive 95 per cent of oil revenue, but its calculation is based on the total revenue from oil and gas. Its opponents say that they do not take into account the large number of gas fields in English waters.

“THE EXPERT SAYS: Prof Haszeldine says: “The vast majority of the oil is in Scottish waters. With practically all of the gas in  the UK in the southern North Sea, that is in ‘English’ territory.” He says it is hard to separate the revenue from oil and gas. “(http://thescotsman.scotsman.com/politics/Can-oil-and-gas-fuel.2834598.jp)

It would not be unreasonable to add £30-40 billion to the Scottish national debt to cover the discrepancy between what Scotland has paid in to the UK Treasury and what they have taken out since 1980.

There is also the question of a disproportionate  public sector employment being deliberately created in Scotland to boost the economy at the expense of England. This includes such things as the Faslane nuclear submarine base and the administration of much of England’s benefits system.  Around 60% of current Scottish  GDP is derived
from  public expenditure and this is projected to rise to nearly 70% by 2012 (http://www.telegraph.co.uk/news/knews/scotland/4217793/Scotlands-dependence-on-state-increasing.html).   I would not care to put a figure on what this has been worth to Scotland but  it must be billions.

Finally, in  the 273 years prior to 1980 when there was no major oil and gas tax revenue. During much of that time Scotland had favourable treatment both in terms of taxes raised in Scotland and money sent there from the UK  Treasury. This imbalance was built into the Act  of Union:

“Clause IX. THAT whenever the sum of One million nine hundred ninety seven thousand seven hundred and sixty three pounds eight shillings and four pence half penny, shall be enacted by the Parliament of Great Britain to be raised in that part of the United Kingdom now called England, on Land and other Things usually charged in Acts of Parliament there, for granting an Aid to the Crown by a Land Tax; that part of the United Kingdom now called Scotland, shall be charged by the same Act, with a further Sum of forty-eight  thousand Pounds, free of all Charges, as the Quota of Scotland, to such Tax, and to proportionably for any greater or lesser Sum raised in England by any Tax on Land, and other Things usually charged together with the Land; and that such Quota for Scotland, in the Cases aforesaid, be raised and collected in the same Manner as the Cess now is in Scotland, but subject to such Regulations in the manner of collecting, as shall be made by
the Parliament of Great Britain.” Act of Union (http://englandcalling.wordpress.com/the-act-of-union-1707/)

The population of England was five times that of Scotland in 1707. Had Scotland  paid the  tax listed in Clause IX at the same rate as England  they would have paid £400,000. Instead they were required to pay only  £48,000, roughly a ninth of the pro rata sum.
For much of the time between 1707 and 1980 Scotland was poor (which meant less tax being collected) and from the time of welfare payments   being instituted  for the UK as a whole in the early years of the last century , Scotland  has had a higher take up than England.

The accumulated sum (including compound interest) resulting from this favourable treatment would be colossal, far beyond what Scotland could afford,. However, it  is a useful  political mallet with which  to thump the SNP if they start claiming all the oil and tax revenue and demanding compensation for defence equipment and installations,  embassies and such forth.

All those obligations and difficulties  have to be set against the small size of the Scottish economy. No official GDP measure is produced but the ONS 2009  figure for Scottish Gross  Value Added  (GAV),  which is GDP  without  taxes (less subsides) on products,
was  £102,552 billion  (http://www.statistics.gov.uk/pdfdir/gva1210.pdf).  The GDP today is in the region of £130-140 billion, with around  60% being from public spending.  In 2010 total public spending in Scotland was £52 billion (that is devolved  -health, education and so forth-  and non-devolved expenditure such as benefits)http://www.ukpublicspending.co.uk/Scotland_country_spending.html.

It is rather difficult to see how an independent Scotland could service a national debt which could be £300 billion or more. At five per cent that would be £15 billion a year. There is also the risk that  an independent Scotland might have to pay more than five per cent because they are a small economy with little private enterprise.  If they join the Euro or retain the pound they will be subject to the decisions of Westminster or Brussels which may not be in Scotland’s interest.  It is a less than encouraging picture.

The wages of Scottish independence – the currency problem

The most problematic  decision for an independent Scotland is the currency.  There are three choices: to keep using the pound, join the Euro or create their own currency.   If they choose the pound or Euro they will not be truly independent because they will have to relinquish control over   a large slice of Scotland’s fiscal policy.  True independence
would require the creation of a new currency.

If Scotland chooses to stay with the pound, as things stand  they would l be subject to the
decisions  about interest rates made by the Bank of England  (BoE). It is improbable that the Westminster  Government  would change the present regime to suit an independent Scotland, and any change, for example, returning control  of monetary policy to the Government from the BoE’s Monetary Policy Committee (MPC) or the alteration of the MPC’s remit,  would be made to suit the UK Government not Scotland.

The MPC’s  present remit is to keep inflation under control around a 2% target:

“ The Bank’s monetary policy objective is to deliver price stability – low inflation – and, subject to that, to support the Government’s economic objectives including those for growth and employment. Price stability is defined by the Government’s inflation target of 2%. The remit recognises the role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The Government’s inflation target is announced each year by the Chancellor of the Exchequer in the annual Budget statement.”

(http://www.bankofengland.co.uk/monetarypolicy/framework.htm)

The  MPC  has ignored that remit since the recession began in earnest in  2008, leaving
inflation to look after itself by first reducing Bank Rate  to an all-time low of half a per cent and then keeping it there.   Ostensibly this has been done because of fears of a severe shrinkage in the UK  money supply. In addition, to boost the money supply the BoE has engaged in what is politely known as Quantitative Easing (QE)  and impolitely known as printing (virtual) money.   A cynic might say that the reason the MPC and the BoE have behaved in this fashion is to covertly do the Government’s bidding, namely,  (1) preventing
a  wholesale collapse of house prices through massive defaults caused by keeping  Bank
Rate at a sensible, much higher, level and (2) reducing  public and private debt by inflating it away.  Whatever the truth, the management of the economy since 2008 illustrates an important truth: whoever controls the currency to a very great extent controls the politics of a country.

If  an independent  Scotland opted to keep the pound, when shove comes to push they would have to accept whatever Westminster decided, not only  from the direct
management of the economy through MPC  decisions and strategies such as QE, but also
the effects of the general fiscal regime decided by Westminster which would affect the value of the currency.   This would include the tax regime in the UK and Westminster’s  attitude towards debt, especially private debt. It is not inconceivable that credit controls such as those which existed before Thatcher removed them in the 1980s could be re-imposed,  for example restrictions on bank loans and mortgages.

There are also dangers  for the rest of the UK if an independent Scotland is  tied to the pound. One of two arrangements would exist:  either no Scots  say in how the Westminster Government acts  (probable)  or  some arrangement by which  Scotland would have
a formal say in the setting  of interest rates (improbable). Whichever it was you can bet the  Scots Numpty Party (SNP) would complain  that interest rates are set to benefit England.
That would create a danger  that  politicians in Westminster would give some
ground to them even if there was no reason to do so.  If you doubt this reflect on the fact that David Cameron has  not laid down any conditions for Scottish independence merely said that he would campaign against it. (http://englandcalling.wordpress.com/2011/05/06/scottish-independence-yes-but-only-on-these-terms/).  If the Scots do  vote for independence , it is not probable  that negotiations  between the SNP and Westminster would  result in the Coalition Government giving a great deal away to the SNP in the vain hope they can cobble together a deal which  allows them to pretend the UK as presently territorially  constituted still exists in some form. This is an issue which needs to be aired in public as often as posssible.

More fundamentally,  the division of a currency between two supposedly sovereign states would create uncertainty in the  money markets  because it would not be clear who was pulling the strings or  what would happen if  Scotland got into the sort of economic trouble
Greece is currently experiencing.  The danger for the UK would be that Scotland would get into such a financial mess that the rest of the UK (in reality England as both Wales and Northern Ireland are economic basket-cases)  would come under immense pressure to bail Scotland out, exactly the predicament the richer  EU countries have found themselves in over the Euro turmoil. Even if  Scotland did not suffer a Greek-style economic collapse;
if it turned out to be church-mouse poor http://englandcalling.wordpress.com/2011/05/06/scottish-independence-yes-but-only-on-these-terms/)  rather than the  oil-tax El Dorado  which fills the dreams of SNP members,  that would have a serious  effect on the behaviour of the currency,  because the money markets would  look at the combined economic performance of the UK and Scotland.  That would mean UK Government borrowing would cost more.  It would also probably mean higher Bank Rate than would otherwise be the case or higher inflation in the BoE kept rates low despite what the economic indicators were saying.

The Euro poses the same problems as the retention of the pound writ large.  Whether  the Euro will survive in its present form or even at all is uncertain. But even if it does manage to overcome the present difficulties which besiege the currency, it is dubious whether the richer Euro members, especially Germany, would welcome into the Euro fold another small country with a dangerously high dependence on public spending, much of which
would vanish at independence.  However,  if  Scotland did gain membership of the
Euro,  its government would have absolutely no effect on  how the currency was managed  and would be much more likely, because of the number and diversity of the Euro members,   to find itself trapped by interest rates and the value of a currency which was not suited to Scotland’s  needs than they would have been  if they kept the pound ,
a stable, important currency which has been shared between  Scotland and the rest of the UK for 300 years.  The present mess that Ireland, Portugal and Greece find themselves in should be warning enough of these dangers.

The other problem with being in the Euro is the likelihood of ever more invasive powers over  economic decisions such as oversight of banks being  given to the  Eurozone members .  Even as things stand, in theory at least there are severe restrictions on the amount of public debt a Eurozone member may run up.  The current Euro crisis is bringing ever louder calls for much more stringent controls over what Euro members can
do and meaningful enforcement of Euro regulations.  Scotland would have far less fiscal freedom if they joined the Euro than if they retained the pound.

That leaves the creation of an entirely new currency.  This would give Scotland fiscal freedom, but would come with its own  vast problems.  Getting international credibility for a currency is difficult for a large country with vast  natural resources (think of Russia after the dismemberment of the Soviet Union); it is much more difficult for a small country (Scotland has a population of around 5 million) even one with still substantial oil reserves.

An Independent Scotland  would not seem an attractive economic proposition to foreigners.  Around 60% of current Scottish  GDP is derived from  public expenditure and this is projected to rise to nearly 70% by 2012 (http://www.telegraph.co.uk/news/uknews/scotland/4217793/Scotlands-dependence-on-state-increasing.html).  Much of the public expenditure is dependent on a subsidy from England (the difference in per capita Treasury funding alone means  Scotland takes  around £8,000 billion from England  each year – (http://englandcalling.wordpress.com/2011/05/06/scottish-independence-yes-but-only-on-these-terms/) and the likely tax revenues from oil and gas  in Scottish waters  (some of the oil and most of the gas is in English waters)  are likely over a the medium term to be considerably less than the subsidy  received from England.  (http://englandcalling.wordpress.com/2011/05/14/the-truth-about-uk-oil-and-gas/).
Moreover,  the amount of oil extracted  in the future will depend on the price and likely tax regime and the amount of oil will decline steadily even if the price remains high.

Foreigners would also be concerned at the very  narrow economic base of Scotland’s economy.  Of the forty odd percent of  the economy which is not publicly funded, a substantial  part  derives from  the oil and whisky industries (http://www.corporatewatch.org.uk/?lid=1827).   Moreover, much of  Scotland’s private enterprise, especially the oil firms and  rather humiliatingly the whiskey producers, is foreign owned so that the profits  emigrate .

There is also a lack of  entrepreneurism in Scotland so the private sector is unlikely to swell:

“Scotland has the lowest ratio of businesses per head of population in the UK, according to figures published by the Department for Business Innovation and Skills (BIS). At the  outset of 2010, Scotland had 672 private sector enterprises per 10,000 adults, while England had 922, Northern Ireland 860 and Wales 783.” (http://thescotsman.scotsman.com/6983/Scotland39s-private-sector-lags-UK.6773823.jp)

An independent Scotland would also start with a massive national debt.  Here is Bill Jamieson of the Scotsman dealing with the UK national debt:

“What of deficit and debt apportionment? Both in the immediate term and in the final settlement, the SNP has called for more borrowing powers. But how much more borrowing will be sought on top of Scotland’s share of UK debt? To give a proximate idea of what we face, let’s assume Scotland’s debt share is similar to that of her share of UK GDP – circa
10 per cent. By 2015-16, when a referendum vote may be held, UK net debt is projected at £1,359 billion (69 per cent of GDP) and the annual interest charge would have risen to £67bn. Scotland’s share would be £136bn, and £6.8bn respectively.” (http://thescotsman.scotsman.com/holyroodelections/Bill-Jamieson-The-burning-independence.6766635.jp?articlepage=2)

That would not be the full debt  Scotland would have to take on. There would also be a proportionate  Scottish share of the funding of UK public sector pensions up to the advent of  independence;  either a proportionate share of the UK’s PPP and PFI  obligations at the time of independence or full responsibility for all PPP and PFI contracts in Scotland plus any other debt accrued for  Scottish projects,  both at local and national level,  and other UK  debt  up to the time of independence.  It is dubious whether foreign investors or the money markets would see an independent Scottish currency as a safe bet with those massive starting obligations.

More generally,  companies operating in Scotland now have the assurance that they are operating within a country  which is controlled by   a much larger and richer national entity namely England.  That is particularly important for the oil industry who need safe  seas to operate in. They would have no such assurance if Scotland was independent.

Finally, there is the thorny question of the Scottish banking system.   It is not merely that the British taxpayer (in reality the English tax payer because the Celtic Fringe take vastly  more out of the UK tax pot than they put in) has put  directly “The Government has pumped around £45 billion into RBS and £20 billion into Lloyds – holding stakes of 84% and 41% respectively – although the taxpayer is currently sitting on almost £20 billion in paper losses on the holdings.” (http://money.uk.msn.com/news/articles.aspx?cp-documentid=152384309).  Those are horrific figures for an economy the size of Scotland (£140  billion approx – see below) . However, that is only the tip of the taxpayer cost iceberg.   Part at least of the ongoing costs of  the recession and the burgeoning UK national debt  is down to the reckless behaviour of  financial institutions and the two Scottish banks RBS and HBOS were by far the greatest contributors to the  need  for taxpayer support and the ravaging of value by  feeding inflation through QE.

The size of the damage done can be seen from the Jamieson quote above: if the UK national debt reaches £1.4 trillion by 2015 that will mean the national debt will have nearly trebled (excluding inflation) since 2008 when it was around £500 billion (http://www.ukpublicspending.co.uk/uk_national_debt_chart_10_G.html).  Even worse, the official national debt figure does not include the costs of bailing out the banks or  the full cost of PPP and PFI expenditure, debt which  was kept off the official national
debt by Gordon Brown’s off-the-books Enron style accounting.  The official national debt figure with all identifiable  costs included (the unadjusted measure of public sector net debt ) was £2252.9 billion  or 148.9 per cent as at May 2011. (http://www.economicshelp.org/blog/uk-economy/uk-national-debt/).

Exactly how Scotland would be able to sustain an independent currency  against the background of  the loss of English subsidy, the narrowness of the Scottish economy, the over-dependence on the  public sector, the huge national debt  Scotland would start with and the  awful mess of their banking system is to put it mildly difficult to see.  That economic  background also  makes the idea of Scotland using either the pound or Euro  very unattractive, because not only would it drag down the credibility of the currency (especially in the pound’s case),  but the likelihood of a either England or the Eurozone having to bail-out Scotland with vast amounts of money looms very large.

All those obligations and difficulties  have to be set against the small size of the
Scottish economy. No official GDP measure is produced but the ONS 2009  figure for Scottish Gross  Value Added  (GAV),  which is GDP  without  taxes (less subsides) on products,  was  £102,552 billion  (http://www.statistics.gov.uk/pdfdir/gva1210.pdf).
The GDP today is in the region of £130-140 billion.

Whatever currency choice Scotland made one thing is certain:  borrowing  by Scotland’s government, both central and local,  and any other  public body in Scotland would become much more expensive.   The UK can borrow at a  rate which is moderate: an independent Scotland would, because of its precarious economic situation, have to borrow at considerably  more than the UK rate, if things go really wrong  at the extortionate  rates the Greek Government is having to pay despite being part of the Euro.

The wages of Scottish independence – the loss of the military

One of the most complex aspects  of disentangling Scotland from the rest of the UK should  Scotland become independent is defence.   It is complex because of  (1) the siting of the Trident submarines and other major ships at Faslane; (2) the  awarding of MOD research contracts to Scotland  and (3) the fact that the armed forces which  now exist in Scotland would not be suited to Scotland’s defence needs, they being designed to fit into a UK defence strategy not a Scottish one.

Back in 2002 the Scotch Numpty Party (SNP)  had these rather grandiose plans:

“Colin Campbell, the party’s defence spokesman, gave details of a Scottish Defence Service (SDS) which would operate in a nuclear-free Scotland following the removal of Trident.

“Mr Campbell said current estimates showed that a defence programme would cost £600 million a year with an extra £300 million for works.

“The total defence budget of £1.8 billion would be about the same figure as the Ministry of Defence currently spends in Scotland.

“He told the delegates: “We are looking at a maximum establishment of 20,000 regular personnel in Scotland … that is 5,000 extra people being paid in Scotland and spending their money in Scotland. That’s worth about £150 million a year.”

“He reckoned there would be 7,000 more indirect jobs as a result of the SNP’s defence policy.

Apart from 20,000 full-time regular troops, Scotland would also have 20,000 regular reservists and 8,000 part-time  reservists.  (http://news.scotsman.com/snpconference2002/SNP-proposes-nuclearfree-Scottish-Defence.2364594.jp)

A more realistic  idea of the armed forces and independent  Scotland could afford  can be gained from those of the Republic of Ireland RoI) which has an estimated  population of  around 4.5 million http://www.cso.ie/releasespublications/documents/population/current/popmig.pdf)  to Scotland’s estimated five million.

The RoI  has an army of approximately 8,500, a navy of 1,100 and an airforce of 1,000. (http://www.military.ie/home).  Total defence expenditure for 2011/12 is EUR725 million (£632 million – (http://articles.janes.com/articles/Janes-Sentinel-Security-Assessment-Western-Europe/Armed-forces-Ireland.html).  To put that in context the UK’s defence
expenditure for the same year is £ £33.8bn, or around 53 times that of the RoI. (http://www.mod.uk/DefenceInternet/DefenceNews/DefencePolicyAndBusiness/DefenceBudgetCutByEightPerCent.htm).
The RoI  armed forces could offer little meaningful opposition to an invasion by any serious invader. Their armed forces can  perform a domestic  quasi-police function at best .

An independent Scotland would have  substantial  revenues from oil which the RoI
does not have, although these are very susceptible to violent  fluctuations in the oil price,  something  which  would make planning for the future especially difficult as the oil tax receipts  would form a substantial part of the anticipated revenue an independent Scotland would need.  The oil is also a diminishing resource. (http://englandcalling.wordpress.com/2011/05/14/the-truth-about-uk-oil-and-gas/).
In addition an  independent Scotland would lose the subsidy they receive from England each year (around £8 billion at present –  http://englandcalling.wordpress.com/2010/11/12/celtic-hands-deep-in-english-taxpayers%e2%80%99-pockets/)
and begin their independent life with a large national debt as their share of
the UK national debt. That share would be at least £100 billion  with the UK National Debt as it is now  at around  £1.1 trillion (http://www.statistics.gov.uk/cci/nugget.asp?id=277)
, but by  the time a referendum is held on the proposed SNP timetable in 2015 it will probably have grown to £1.5 trillion. This would make Scotland’s proportionate share (based on her proportion of the UK  population)  around £140 billion. In addition there would be large sums of   additional  debt for Scotland arising from the rescue of the Scottish banks RBS and HBOS, PFI projects and the funding of public service pensions.  Scotland would also have to fund a great deal of initial extra expenditure resulting from the setting up their separate public administration.

Taking these financial constraints into account, it is most unlikely that an independent Scotland would be able to support armed forces  substantially  greater than those of the RoI.  If that were  the case,  Scotland would lose out in terms of  the numbers of  servicemen in Scotland,  the number of MOD civilian workers and  the lucrative contracts  (with the jobs attached) for defence which they now receive from the UK Treasury. The MOD website gives a snapshot of  the material benefits which belonging to the UK currently brings  to Scotland via the defence budget:

“Scotland makes a very important contribution to UK Defence. Scottish military links and heritage remain strong and all three Armed Forces continue to have a significant presence at 381 sites across the country.

“There are 5,000 Armed Forces Volunteer Reservists and 10,000 Cadets throughout Scotland, plus ten University Squadrons and Corps. The Army alone has 58 Territorial Army centres, 17 Combined Cadet Force units, four University Officer Training Corps, and 228 Cadet detachments, which are supported by 1,000 adult volunteers.

“The MOD and the Armed Forces employ 20,000 people throughout the country. Each year the MOD spends an average of £600 million in Scotland, and awards over 500 direct contracts, sustaining additional jobs in Defence manufacturing. Scottish industry produces cutting-edge, hi-tech ships and equipment to enable our forces to carry out their operations.

“About 130 Royal Navy and NATO ships visit ports in Scotland every year, bringing money to the local economy.”

“An estimated 11,000 Scottish jobs are directly dependent on Defence contracts, with thousands more jobs supported in Scotland through the presence of the MOD and its spend in local areas. Defence industry varies greatly, from specialists in chemical protective clothing to shipyards that have produced Type 45 destroyers. The new royal Navy Aircraft Carriers will be built at Clyde shipyards in Glasgow and assembled as Rosyth Dockyard in Fife.”

(http://www.mod.uk/DefenceInternet/FactSheets/DefenceInScotland.htm)

Much of that would go because of the financial constraints described above.    In the case of research and manufacturing , all of it would be removed as soon as alternative arrangements could be made and existing contracts expired.  Without the patronage of the UK Treasury there would be  greatly reduced  opportunities for Scottish defence manufacturers and Scotland would, like most  countries of her size,  buy the bulk of her military equipment from foreign suppliers.

The heaviest  loss would be the submarine base at Faslane which is scheduled to get even  more work than it presently has because during Gordon Brown’s premiership (in 2009) the decision was taken to base all the UK’s  new submarines – including those on which the UK’s nuclear deterrent Trident  is now entirely based – at  Faslane by 2016. It is a substantial facility to say the least viz:

“In May 2009 the then Minister for the Armed Forces announced that three Trafalgar Class submarines will transfer to Clyde by 2017, joining the Vanguard Class submarines and the Royal Navy’s new Astute Class vessels.

The announcement confirmed HM Naval Base Clyde’s future as the home of the UK Submarine Service and paved the way for Faslane to become the country’s submarine centre of specialisation.” (Once the transfer of work to Faslane has happened it will contain: “Four nuclear powered Vanguard Class SSBN submarines – HMS Vanguard, HMS Victorious, HMS Vigilant and HMS Vengeance – which between them maintain a continuous at sea presence of the UK’s Independent Strategic Nuclear Deterrent.

“Eight Sandown Class Single Role Mine Hunters (SRMH)….

“HM Naval Base Clyde can be thought of as a garage for all these vessels – keeping them ready to go to sea – and the hotel for the ship’s crews.  Indeed, with over 2,000 beds, the base is one of the largest hotels in Scotland!…

“In March 2010, the MOD signed a long-term partnering agreement with Babcock, consolidating the company’s relationship with the base until 2025, guaranteeing cash savings for the MOD of at least £1.5 Billion.  The agreement also helped to protect the long-term future of the maritime industry, hlping to preserve capabilities and vital skills neded to carry out future work.

“The Naval Base is the largest single site employer in Scotland, currently employing around 2,500 service and civilian personnel, of whom around 1,500 work for Babcock.  When Fleet staff and other Lodger Units are taken into account, the total number of
people based at HM Naval Base Clyde rises to around 6,500.” http://www.royalnavy.mod.uk/operations-and-support/establishments/naval-bases-and-air-stations/hmnb-clyde/what-is-hmnbc/

That  gives some idea of the potential  scale of the losses of jobs and expertise  and the complications caused by contracts already completed.

Since the 2011 elections in Scotland which unexpectedly delivered  the SNP a majority in the Scottish parliament, the SNP leader Alec Salmond  has attempted to push an “independence lite” agenda  (http://www.telegraph.co.uk/comment/columnists/alancochrane/8516142/Dont-believe-SNP-on-Diet-nationalism.html)
which includes  the suggestion that Scotland would “share” defence facilities with the UK. This would be impractical because of (1) the gross imbalance in the size of the defence resources of  an independent Scotland and the UK and (2) the potential for conflicting foreign policies meaning the UK would want one thing and Scotland another. (http://www.telegraph.co.uk/news/uknews/scotland/8515034/Sir-Mike-Jackson-tells-Alex-Salmond-British-soldiers-have-only-one-master.html).
In addition, in the case of the nuclear submarines and deterrent,  the SNP has as a policy of  the removal of these from Scotland. (http://thescotsman.scotsman.com/politics/SNP-call-to-scrap-nuclear.4666024.jp).   The submarines and the deterrent could be  transferred to the facility at Devonport, Plymouth.

A taste of what the re-shaping of the military in Scotland would mean can be gained from the response to the cuts proposed by the Coalition Government in Westminster:

“There are specific parts of Scotland where defence-related employment makes up a  significant proportion of local employment, including Moray which is home to two RAF
bases  (Kinloss and Lossiemouth) and Fife, which is home to RAF Leuchars. Cuts in the defence  budget (made in Westminster) will profoundly affect localities such as these. The UK  Government has confirmed that RAF Kinloss will cease to operate after 31 July 2011 and the  futures of RAF Lossiemouth and RAF Leuchars are still uncertain (an announcement will be  made after the Scottish elections). In response, Moray Council and local businesses and  communities have launched an action plan to stimulate the local economy in response to  fears about the impact of the RAF job cuts and subsequent reductions in local economy  activity and spending (BBC News 18th March 2011)”. (http://www.sac.ac.uk/mainrep/pdfs/publicsectorbudgets.pdf).

But even if an independent Scotland was wealthy,   it would not simply be a question of  taking over the Scottish military facilities which presently exist. These exist within the context of  a UK defence strategy.   It is improbable  that an independent Scotland
would wish to get involved in overseas escapades such as Iraq and Afghanistan.
Her  military  needs would  be to defend Scottish territory and patrol her
territorial waters.  That alone would mean that much of the military establishment in Scotland would be scrapped and new equipment and training provided., another considerable expense.

The idea that Scotland could  defend its  land and territorial seas  against a determined and  large enemy is in truth nonsensical. Scotland is a relatively  large country  (30,000 sq miles) with a small population (5 million) , most of which is crammed into the lowland stretch from Glasgow to Edinburgh.   Compare that with England, 50,000 sq miles and
a population of 54 million.  Scotland has neither the bodies on the ground or the wealth to present a serious threat to an invader.

Because of  Scotland’s inevitable military weakness,  the rest of the UK (in reality England)  would have to come to her aid if she was invaded by an enemy who was using Scotland as a backdoor to invading England.  Scotland would also shelter under the UK
nuclear deterrent and her general military and diplomatic strength.   Those two things cannot be avoided. However, it would be reasonable to make it a condition of independence that Scotland paid the remainder of the UK for that protection.

The wages of Scottish independence – public sector employment

One of the many major issues which an independent Scotland would have to address is the extent to which the Scottish economy is  dependent on public spending and in particular the number of public sector jobs which would be  moved from Scotland to England  for strategic reasons (for example,  nuclear submarines),  because Scotland could not afford to fund them (for example, troops) or  the repatriation of public sector jobs which service England but which were moved to Scotland to provide employment there (for example, the administration of much of English social security).

In the first quarter of  2010 Scottish Government employment figures were:

2,427,000 Total employment  in Scotland

1,816,800 in Private sector employment   comprising 74.9% of employment

610,200 Public sector employment  comprising  25.1% of employment

http://www.scotland.gov.uk/Publications/2010/06/15171937/8
This compares with 20.1% of English GDP being public sector.

http://www.parliament.uk/briefingpapers/commons/lib/research/briefings/snep-05625.pdf

A quarter of employment in the public sector is  daunting enough,  but  the distinction between public and private is increasingly blurred.  If the directly employed public employees and private employers largely or wholly dependent on public funding are included the numbers  rise substantially, viz:

“Research by Manchester University shows the total figure climbed from 603,773 in 1998 to 772,048 in 2007.

The sharp growth can be explained by the researchers combining the number of people directly employed in the public sector with the number indirectly employed in the “para state” sector where private employers depend on state support.

The “para state” includes everything from consultants working for private companies to people involved in rubbish collection, healthcare and nursery education and other jobs
where the funding is dependent on the Government.

The report claims the UK has an “undisclosed business model of using publicly supported employment to cover the continuing failure of the private sector to generate welfare through job creation”. http://www.heraldscotland.com/news/home-news/one-third-of-scots-work-in-public-sector-1.1003448

However the 2007 figure does not include the banking jobs which became public after the bail-out of RBS and HBOS another 36,000 can be added taking the total to over 800,000 the Scottish dependent on public funding . That constitutes 30% of total Scottish employment.

The independent  Scottish Item Club (http://www.ey.com/UK/en/Issues/Business-environment/Financial-markets-and-economy/Economic-Outlook—What-is-ITEM-Club)
2010 report highlighted the dangerous reliance of the Scottish economy on
public funding:  “

‘ Scotland‘s second major hurdle is its dependency on the public sector. The public sector has contributed to over 30% of Scotland’s GDP growth over the last 10 years, compared to just 20% in the rest of the UK.
Scottish ITEM Club says that the impending squeeze on public sector spending
will have a disproportionate impact on Scotland’s economic recovery.

Dougie Adams[ senior economic advisor to the Ernst & Young Scottish ITEM Club] comments: “Although there is scope for productivity and efficiency improvements to be made to Scotland’s public sector, which may help to mitigate some of the impact of future spending cuts, a decline or slow down in public sector output will significantly hamper Scotland’s economic performance over the next few years.”

While the extent of any budgetary cuts remains unclear, recent forecasts suggest that Scotland won’t see a return to 2009 levels of public sector spending before 2020, such is the scale of the retrenchment. This will inevitably have a knock on impact on jobs; Scottish ITEM Club predicts that public sector employment in Scotland will decline by around 30,000 over the next four years.’ (http://www.ey.com/UK/en/Newsroom/News-releases/Item—10-06-06—Scottish-ITEM-Club-summer-2010-forecast).

Scottish public sector employment is divided between the devolved (that which is  the responsibility of Scotland) and the reserved (that which arises from the powers
which have not been devolved).  The breakdown of the two is as follows:

Chart 4: Breakdown of devolved public sector employment by sector, Headcount, Q1 2010 http://www.scotland.gov.uk/Publications/2010/06/15171937/5

Chart 4: Breakdown of devolved public sector employment by sector, Headcount, Q1 2010

Chart 5: Breakdown of reserved public sector employment by sector, Headcount, Q1 2010 http://www.scotland.gov.uk/Publications/2010/06/15171937/6

Chart 5: Breakdown of reserved public sector employment by sector, Headcount, Q1 2010
Chart 6: Breakdown of devolved civil service employment, Scotland, Headcount, Q1 2010 http://www.scotland.gov.uk/Publications/2010/06/15171937/7

Chart 6: Breakdown of devolved civil service employment, Scotland, Headcount, Q1 2010
Chart 7: Breakdown of reserved civil service employment, Scotland, Headcount, Q1 2010

Chart 7: Breakdown of reserved civil service employment, Scotland, Headcount, Q1 2010
How much of Scotland’s public sector employment would  vanish if independence occurred?  This is impossible to exactly quantify because the unknown factor is what Scotland would be willing and able to fund.  Nonetheless,  Scotland would definitely lose the jobs which serviced England and items such as the nuclear submarine facility at Faslane and would have to substantially reduce the number of jobs serving
Scotland.

The truth about UK oil and gas

The Scots Numpty Party (SNP) bases its case for the viability of Scotland’s independence  on the idea that wicked England has been “stealin’ ouir oil” and that  if only they had control of the tax revenues from UK oil and gas Scotland would become a Caledonian El Doraldo.  Sadly for such people a 2009  a  Scotland Office paper  “Scotland and Oil” dealing with the tax income from oil  and gas  fields around the UK painted a rather different picture. It concluded that:

“• If all North Sea oil revenues had been allocated to Scotland there would only have been 9 years out of  the last 27 when Scotland’s finances would have  been in surplus.

• Including all North Sea oil revenues the last year  of surplus was in 1988-89 and since then there has been 18 years of annual deficits with Scotland’s spending being greater than the tax raised in Scotland.

• Even if all oil revenues had been allocated to Scotland the total deficit would have outweighed the total surplus by £20bn since 1980-81. “ (see page 1 – all references below to pages without a url  refer to this url – http://www.scotlandoffice.gov.uk/scotlandoffice/files/Scotland%20and%20Oil%20-%20Background%20paper.pdf)

So there you have it, the official view is that even if all the oil and gas revenues were   allocated to Scotland they still would not pay their way. Of course, a substantial part
of the oil and gas  tax revenue would not go to Scotland because of the fields  in
English waters.  Exactly how much is debatable, but  most of the remaining gas
is in English waters, viz:

“The SNP claims that Scotland would receive 95 per cent of oil revenue, but its calculation is based on the total revenue from oil and gas. Its opponents say that they do not take into account the large number of gas fields in English waters.

“THE EXPERT SAYS: Prof Haszeldine says: “The vast majority of the oil is in Scottish waters. With practically all of the gas in  the UK in the southern North Sea, that is in ‘English’ territory.” He says it is hard to separate the revenue from oil and gas. “(http://thescotsman.scotsman.com/politics/Can-oil-and-gas-fuel.2834598.jp)

There is also the intriguing prospect of  the outer Islands, the Orkneys and Shetlands,  not wanting to leave the UK or seeking independence.  That would take more oil and gas
revenue out of Scottish hands.

The fact that even  the total  oil and gas tax revenues did not bridge the gap between what Scotland received in money from the Treasury and what she contributed to the Treasury is unsurprising. The price of oil is high now but this is an abnormal. In the period 1980-2003, the price was always below $20 a barrel  apart for two years in the mid 1990s when it was a couple of dollars a barrel  higher.   (see page 3 “Scotland and Oil”) . The price did not rise above $50 dollars a barrel until 2007.

There has also been great volatility in the tax take in recent   years:

“In July last year [2008-9] sitting with the price of oil breaking new highs at $147 a barrel and  projected revenues for the current year [2008-09] at £13.2bn, finances were looking  incredibly good. However, sitting today with oil prices at $70 per barrel and projected  revenues for the current year [2009-10]  of £6.9bn the finances would be looking  substantially different and spending plans would have had to have changed.” (see page 10 “Scotland and Oil”).

At present the Scottish Parliament is in a very fortunate situation. It knows, more or less,  what revenue it will have to spend  for the coming financial year because its funding comes from the UK Treasury. Thus it is spared the  responsibility of raising money from its electors . It is in the same position as, for example, the BBC.

If Scotland were independent it would have to raise the money to be spent by central government.  That would bring a very different relationship between the politicians
and the Scottish electorate.   If  a very large slice of  Scottish government revenue was dependent on oil  and gas revenues , massively swings in the tax collected from year to year, as happened in the years 2008/9 and 2009/10 , it  would  make  forward planning very difficult indeed.  To understand just how volatile tax revenue from oil and gas  has been since production began see http://www.hmrc.gov.uk/stats/corporate_tax/table11-11.pdf.
No electorate is going to be cheering if politicians are constantly having to change spending plans.  The worse case scenario  would be that the oil and gas revenues would be so low that  a Scottish government would simply not be able to fund  the ordinary business of government.  That is not so far-fetched because of the great difference between revenue and expenditure when oil and gas revenue is ignored.   For  2007/8 the Scotland Office estimated that  without including any revenue from oil and tax,  Scotland paid £45,191 billion  into the UK exchequer and received £56,285 billion back, a deficit of £11, 094 billion. (http://www.scotlandoffice.gov.uk/scotlandoffice/files/Time%20Series%20Analysis%20of%20Government%20Expenditures%20and%20Revenues%20in%20Scotland.pdf).

Apart from the volatility of the oil and gas price, there is also the rapidly depleting reserves of oil and gas around  the UK.   Production has already fallen from just under  3 million barrels a day in 1999 to  about 1,25 million barrels in 2014. ( see page 5 “Scotland and Oil”).  The amount of oil and gas will continue to fall over the medium term and the quantuity  oil and gas extracted will be strongly influenced by the oil and gas price. The
lower it is, the less exploitation of the smaller marginal fields.  In the medium term Scotland can look forward to diminishing tax returns whatever happens.

There is a further fly in the Caledonian water.  As the price of oil and gas has risen and the
political volatility of  many of the major oil and gas producers has increased, increased interest has been shown in extracting gas and oil from shales. Most of the likely sites in the UK are in England or English waters.  http://www.bgs.ac.uk/research/energy/shalegas.html.
If this source of hydrocarbons proves to be as abundant  as its advocates claim, the demand for oil and gas from the ever more marginal fields around the UK will diminish.

There are many other economic dragons which an independent Scotland would need to slay, including dealing with their over-reliance on taxpayer funded jobs and how they would fund their share of the UK’s public financial obligations at the point of independence, but the volatility and shrinking of the UK’s oil and gas tax receipts  would be arguably their greatest challenge simply because of the heavy dependence the
advocates of independence have placed upon their continuation at a high rate.

England calling 2011-05-14 22:19:04

The Scots Numpty Party (SNP) bases its case for the viability of Scotland’s independence  on the idea that wicked England has been “stealin’ ouir oil” and that  if only they had control of the tax revenues from UK oil and gas Scotland would become a Caledonian El Doraldo.  Sadly for such people a 2009  a  Scotland Office paper  “Scotland and Oil” dealing with the tax income from oil  and gas  fields around the UK painted a rather different picture. It concluded that:

“• If all North Sea oil revenues had been allocated to Scotland there would only have been 9 years out of  the last 27 when Scotland’s finances would have  been in surplus.

• Including all North Sea oil revenues the last year  of surplus was in 1988-89 and since then there has been 18 years of annual deficits with Scotland’s spending being greater than the tax raised in Scotland.

• Even if all oil revenues had been allocated to Scotland the total deficit would have outweighed the total surplus by £20bn since 1980-81. “ (see page 1 – all references below to pages without a url  refer to this url – http://www.scotlandoffice.gov.uk/scotlandoffice/files/Scotland%20and%20Oil%20-%20Background%20paper.pdf)

So there you have it, the official view is that even if all the oil and gas revenues were   allocated to Scotland they still would not pay their way. Of course, a substantial part
of the oil and gas  tax revenue would not go to Scotland because of the fields  in
English waters.  Exactly how much is debatable, but  most of the remaining gas
is in English waters, viz:

“The SNP claims that Scotland would receive 95 per cent of oil revenue, but its calculation is based on the total revenue from oil and gas. Its opponents say that they do not take into account the large number of gas fields in English waters.

“THE EXPERT SAYS: Prof Haszeldine says: “The vast majority of the oil is in Scottish waters. With practically all of the gas in  the UK in the southern North Sea, that is in ‘English’ territory.” He says it is hard to separate the revenue from oil and gas. “(http://thescotsman.scotsman.com/politics/Can-oil-and-gas-fuel.2834598.jp)

There is also the intriguing prospect of  the outer Islands, the Orkneys and Shetlands,  not wanting to leave the UK or seeking independence.  That would take more oil and gas
revenue out of Scottish hands.

The fact that even  the total  oil and gas tax revenues did not bridge the gap between what Scotland received in money from the Treasury and what she contributed to the Treasury is unsurprising. The price of oil is high now but this is an abnormal. In the period 1980-2003, the price was always below $20 a barrel  apart for two years in the mid 1990s when it was a couple of dollars a barrel  higher.   (see page 3 “Scotland and Oil”) . The price did not rise above $50 dollars a barrel until 2007.

There has also been great volatility in the tax take in recent   years:

“In July last year [2008-9] sitting with the price of oil breaking new highs at $147 a barrel and  projected revenues for the current year [2008-09] at £13.2bn, finances were looking  incredibly good. However, sitting today with oil prices at $70 per barrel and projected  revenues for the current year [2009-10]  of £6.9bn the finances would be looking  substantially different and spending plans would have had to have changed.” (see page 10 “Scotland and Oil”).

At present the Scottish Parliament is in a very fortunate situation. It knows, more or less,  what revenue it will have to spend  for the coming financial year because its funding comes from the UK Treasury. Thus it is spared the  responsibility of raising money from its electors . It is in the same position as, for example, the BBC.

If Scotland were independent it would have to raise the money to be spent by central government.  That would bring a very different relationship between the politicians
and the Scottish electorate.   If  a very large slice of  Scottish government revenue was dependent on oil  and gas revenues , massively swings in the tax collected from year to year, as happened in the years 2008/9 and 2009/10 , it  would  make  forward planning very difficult indeed.  To understand just how volatile tax revenue from oil and gas  has been since production began see http://www.hmrc.gov.uk/stats/corporate_tax/table11-11.pdf.
No electorate is going to be cheering if politicians are constantly having to change spending plans.  The worse case scenario  would be that the oil and gas revenues would be so low that  a Scottish government would simply not be able to fund  the ordinary business of government.  That is not so far-fetched because of the great difference between revenue and expenditure when oil and gas revenue is ignored.   For  2007/8 the Scotland Office estimated that  without including any revenue from oil and tax,  Scotland paid £45,191 billion  into the UK exchequer and received £56,285 billion back, a deficit of £11, 094 billion. (http://www.scotlandoffice.gov.uk/scotlandoffice/files/Time%20Series%20Analysis%20of%20Government%20Expenditures%20and%20Revenues%20in%20Scotland.pdf).

Apart from the volatility of the oil and gas price, there is also the rapidly depleting reserves of oil and gas around  the UK.   Production has already fallen from just under  3 million barrels a day in 1999 to  about 1,25 million barrels in 2014. ( see page 5 “Scotland and Oil”).  The amount of oil and gas will continue to fall over the medium term and the quantuity  oil and gas extracted will be strongly influenced by the oil and gas price. The
lower it is, the less exploitation of the smaller marginal fields.  In the medium term Scotland can look forward to diminishing tax returns whatever happens.

There is a further fly in the Caledonian water.  As the price of oil and gas has risen and the
political volatility of  many of the major oil and gas producers has increased, increased interest has been shown in extracting gas and oil from shales. Most of the likely sites in the UK are in England or English waters.  http://www.bgs.ac.uk/research/energy/shalegas.html.
If this source of hydrocarbons proves to be as abundant  as its advocates claim, the demand for oil and gas from the ever more marginal fields around the UK will diminish.

There are many other economic dragons which an independent Scotland would need to slay, including dealing with their over-reliance on taxpayer funded jobs and how they would fund their share of the UK’s public financial obligations at the point of independence, but the volatility and shrinking of the UK’s oil and gas tax receipts  would be arguably their greatest challenge simply because of the heavy dependence the
advocates of independence have placed upon their continuation at a high rate.

Robin on the BBC

Here is the link to Robin’s interview.

Please listen carefully to Robin’s language as some people haven’t. When he says “. . . application to join will be considered . . ” He means just that since it is the National Council and not Robin that would make the decision.
When he says that the English Democrats might speak to Sinn Fein he is correct but it is the National Council who would make that decision not Robin, or anyone else for that matter.

Make sure the costs of Scottish independence get into the media

The letter  below was published in the Times 10 May 2011. It is extremely important that the debate on independence for Scotland  is conducted on the basis that Scotland will not be allowed to walk away from the financial obligations of the UK.  Left to his own devices Cameron will almost certainly be willing to sell-out English interests, for example, by developing a formula which did not require Scotland to take a share of the UK’s financial obligations based on their proportion of the UK population but on some spurious calculation based on need (think Barnett Formula) or a continuation of the English subsidy to Scotland for years as a “transition” payment.

Cameron was asked at Prime Minister’s Question on 11 May 2011 to confirm that the Scotland would, in the event of independence, be expected to take on a share of the UK National Debt and cease to receive any subsidy from England.  He confirmed that this was the case – you could hear the reluctance in his voice – but then said that he did not want to campaign against independence by threatening the Scots, but by persuading them that staying in the Union was the best thing for all concerned.   It was very telling that Cameron thought that the mention of Scotland taking on part of the National Debt and the ending of the English subsidy  constituted threats.  This matter needs close watching.

Sir – I have no visceral objection to Scotland leaving the Union  provided the Scots meet their UK financial obligations. This means taking on a share proportionate to Scotland’s percentage of the UK  population of the UK’s  financial obligations existing at the point
of  independence. These obligations would include the National Debt; all public  sector pensions; all PFI/PPP  contracts  and any other public debt not covered by the previous categories.

The English subsidy to Scotland – currently around £8 billion a  year – should cease and the division of the UK oil and gas fields would be  decided on the UN Law of the Sea which defines territorial waters as those  within a line drawn at the angle of the border of two countries. That would  place a significant amount of oil and gas in English waters. In
addition, the  many English public sector jobs which have been moved to Scotland should be  repatriated.

Yours sincerely,

Robert Henderson

NB  On the day my letter was published, there were several other letters in the Times which also dwelt on the question of Scotland taking on a proportionate share of the UK’s financial obligations.  This may be a signal that the Murdoch papers have decided to push this issue.