The Scots’ usual response to George Osborne is that which he had to endure during his appearance at the Paralympics, yet on Tuesday he still went ahead and voiced his doubt about the viability of all the potential currency options for an independent Scotland. The fact that the ensuing sniping from both the Yes and No camps was entirely predictable spoke volumes about the nature and breadth of the debate about Scotland’s future. How credible are Mr Osborne’s claims, and if Scotland is truly different from the rest of the Union, should they matter at all?
The debate over the currency question has been further ignited by the publication of a Treasury report on the issue suggesting four solutions. One of these was the Euro, the SNP’s original choice, but that now seems unlikely given the currency zone’s fragile state. What is problematic is that an independent Scotland’s membership of the E.U would not be automatic; it would have to apply to join. This now means signing up to be a part of the currency as well as the customs union.
The most obvious and logical option would be to stay with the pound. Yet this would result in monetary union without fiscal union; ironically the very set-up which contributed to the crisis in the eurozone. Though nothing similar would ever be likely to occur, a currency union with the rest of the UK would mean that Scotland would have the interest rate set by the Bank of England imposed upon it. An independent Scotland is likely to diverge economically from the rest of the UK (RUK), and as the Bank of England would be more likely to tailor the interest rate towards RUK it would constrain the path that independence would be able to forge.
Alternatively, Scotland could issue its own currency. This would give the country the independent monetary policy that the other options fail to provide. However, it seems unlikely that it would allow Scotland a great deal of actual autonomy. In the long term, a Scottish Central Bank would take time to create the strong reputation that all of the UK currently enjoys with the Bank of England. It is hard to see how Scotland could credibly push government borrowing costs down in the same way the UK has with massive rounds of asset purchasing.
In the short term there is the obvious other issue of how Scotland would implement this currency change, mainly concerning the threat of capital flight, along with the transition costs. More generally, smaller countries that are closely linked with larger currency zones often end up experiencing reduced autonomy in setting interest rates and influencing the exchange rate; the experience of Switzerland is a case in point. It is also hard to see how Scottish businesses could gain from having uncertainty added to dealings with the potential new nation’s biggest trading partner.
An independent Scotland would still remain strongly tied to RUK, possibly preventing the Scottish government from running a fiscal policy divergent to Westminster’s. Given the high mobility of labour that exists between the 4 countries, any relative increase in taxation would be likely to cause some to migrate south.
The SNP believe that Scotland is entitled to a 90% geographical share of the North Sea’s oil and gas fields, giving it 81% of all the oil and gas produced in 2010. This is one of the main arguments for independence, but there are problems here as well. Scotland would depend on oil for 18% of its GDP, making it vulnerable to price fluctuations. Indeed, initially Scotland’s borrowing capacity would probably be reduced as it would become a small country with volatile sources of growth. The reserves of oil in the North Sea are also currently diminishing by 6% a year. While the Barnett Formula is often criticised, at least it offers a stable form of income.
Without the potential to harness oil revenues in the style of Norway, it would not be sensible to risk so much uncertainty for so little actual autonomy. It therefore seems fair to say that the economic arguments do not stack up in favour of independence. But should it matter at all? Some Scots may feel that as a nation they are sufficiently unique in either a political or cultural sense to outweigh the hard economics.
Culturally it seems as if most Scots are acceptant of the idea of the Scottish identity being contained within the Union. Scotland’s political landscape, though, is certainly very different to the RUK. Labour have gained the most seats in all but 2 post-war elections (and even in one of those they were tied for first). Strangely, this never really seems to be factored into the overall argument for independence, and the SNP have perhaps not quite yet exploited the full unpopularity of the Coalition government north of the border.
The evidence suggests that this is something Scots are not overtly worried about. A Scottish Social attitudes survey showed that, if independence made Scots £500 a year better off (less than 2% of the average Scottish household income), then 65% would vote yes, and if it was £500 a year worse off, then 66% would vote no. The economist John Kay used this result to illustrate the unusual nature of the independence debate, suggesting, ‘There were no similar polls in Ireland in 1920, or India in 1945, or America in 1773, but it is hard to imagine a similar result. “Give me liberty or give me death,” proclaimed Patrick Henry, arousing American colonists to rebellion with a cry reminiscent of the Declaration of Arbroath. “Give me liberty or give me £500” lacks the same resonance.’
Even in that celebrated 1974 nationalist document, the McCrone report, it is stated that ‘Scottish nationalism has been much more concerned with economic prosperity than nationalist movements in other countries. Unlike Wales there is no great cultural movement attaching to the preservation of a language.’ The report stated that Scotland would benefit hugely from independence. Yet the Scotland of 1974 is long gone. McCrone suggested that it had ‘persistent unemployment, a budgetary deficit and probably a serious adverse balance on the balance of payments’. The Scotland of 2013 has the highest GDP per capita of any UK region outside the South-East.
It would be fair to say that even in the event of independence, Scotland’s autonomy would not be very pronounced. Indeed, the country would probably encounter a whole new set of problems. Therefore, it simply does not make sense to vote for independence on the notion of economic gain. This combined with lack of a great cultural movement for independence in the same way that there is in Catalonia or Flanders would suggest that Scotland will vote no next September. If nationalistic feelings can be swung on the cost of a high-end smartphone, then they are probably not worth pursuing at all.
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