Scotland, for richer or poorer?

 
 Scottish Saltire flag caries a "Yes" for Independence at the Bannockburn Live event

Is there a clear economic case for Scotland either to constitute itself as an independent nation or remain part of the UK?

That is what I have been trying find out, for a documentary you can see on Monday, 7 July on BBC2 at 9pm ("Scotland: for Richer or Poorer)

It has been a bit of an adventure, during which I was turned upside down underwater in a dummy helicopter as part of an offshore safety training course, I communed with Desperate Dan in Dundee and I opened the Shetland Folk Festival (one of the great thrills of my life).

My affection for Scotland was significantly reinforced, not that it was nugatory before. I may not be Scottish, but important parts of my late wife's family are; and, to make no bones about it, it is always a joy to be there.

As it happens, Scotland has been pretty important to me in a professional sense, especially after I broadcast and published a series of scoops in 2008 and 2009 about the unholy mess brought upon themselves by two very big Scottish banks, RBS and HBOS.

Which is why it has been a matter of some importance to me to find out whether there may be a decisive money-based argument for Scotland going it alone or for the status quo.

Is it unambiguously clear that Scotland would be more or less prosperous as an independent nation?

Scotland in numbers

Scotland population graphic

How do the UK and Scotland compare?

North sea oil

Now I hope I don't stop you reading, or watching the film, by conceding at the outset that this question cannot be answered with certainty.

There are many reasons for this, but two stand out for me.

First is that North Sea oil and gas will remain a substantial part of the Scottish economy for decades, and it is impossible to forecast with a high degree of confidence either the rate at which exploitable hydrocarbon reserves will be depleted - because technology has a habit of finding better ways of extracting the stuff - or the future price of energy.

For what it is worth, the Westminster government's official forecasting body, the Office for Budget Responsibility, believes North Sea oil revenues - including the tax take - will fall significantly faster than Alex Salmond and the pro-independence campaign believe.

Second - and some may see this as incongruous - much of what will determine the near-term wealth and income of Scotland will not be negotiated or decided until after the Scottish people vote not to be governed by Westminster.

These imponderables would include:

a) Scotland's future share of the UK's national debt,

b) what interest rate a Scottish government would pay on that debt and any other debt it accumulates;

c) Scotland's share of UK assets, including oil and gas reserves and the Bank of England's gold;

d) Scotland's currency and monetary arrangements.

Ronnie Anderson from Edinburgh waves a Saltire flag The referendum takes place on 18 September

Or to put it another way, residents of Scotland are being asked to make arguably the most momentous constitutional decision in their history in the absence of some material financial information - which would ultimately be decided in talks between Westminster and Edinburgh, and by markets.

Scotland is on the market, as it were, without a comprehensive and reliable prospectus about its expected future income and what it's worth: which makes it challenging for those living in Scotland to decide whether to be a buyer or a seller of Scottish independence.

That said, my peregrinations north of the border have not been utterly fruitless.

I came to four broad conclusions.

First, Scotland may be a bit poorer in the early years after independence, although not devastatingly so.

There are, for example, the one-off expenses of taking administrative responsibility for activities that currently fall to Westminster and London (as ever, the magnitude of these is disputed).

Also, Scotland will in the coming few years suffer a bigger gap between what it spends and what it receives in tax revenues than the UK as a whole - according to the respected Institute for Fiscal Studies (all other things being equal, to use the weasel words so loved by economists).

Interest rates

This gap or deficit would either be more than three percentage points bigger by 2018-19 or about 1.3 percentage points bigger, depending on whether taxation of North Sea oil was in line either with the less optimistic forecasts of the OBR or the more optimistic scenarios of the Scottish government.

Then there are the related questions of what currency Scotland would adopt and what interest rate it would pay to borrow.

There are various permutations here - the pound on a formally agreed basis with Westminster, the pound with no influence over interest rates or the Bank of England, a new currency or the euro - each with their own direct costs, advantages and risks.

However it turned out, on almost all scenarios the Scottish government would pay a modestly higher rate of interest on its debts than the Westminster government - because it is a relatively small economy, it might not have its own central bank able to create money out of thin air to repay debts, and it would not have a track record as a borrower.

That said, the interest-rate increment would not be massive.

This is what Mike Amey of Pimco - the world's biggest investor in government bonds and therefore the world's biggest lender to governments - told me:

"Our best estimate, assuming a reasonably even split of assets and liabilities, would be the interest rate [paid by the Scottish government] would be between ½% and 1% more than the UK government currently pays."

Better Together leader Alistair Darling launches the organisation"s 100 Days to Go campaign Alistair Darling is leading the Better Together campaign

Mr Amey says this higher borrowing cost would reduce Scotland's national income by up to 1%. Which would be meaningful, but by no means prohibitive.

So perhaps the biggest questions are whether the entrepreneurial and wealth-creating skills of the Scots would be unleashed by self-determination - and whether the government of a smaller country would respond more nimbly and effectively to the needs of business.

Jim Ratcliffe, the immensely wealthy owner of oil refineries and chemical plants all over the world - whose Ineos business owns the vast Grangemouth plant on the Firth of Forth - said: "I'm not a believer necessarily in big is beautiful. I think small can work; it can be very, very focused, it can be very energetic, it can be nimble and it can be extremely effective.

"And you can take Switzerland as a, as a very good example of that, it's an extremely successful economy, it's one of the highest GDPs per capita."

I then asked Mr Ratcliffe if it was easier to get hold of George Osborne and David Cameron or Alex Salmond.

This is what he replied: "It's much easier to talk to Alex Salmond, than it is to George Osborne or David Cameron."

Union

So although Mr Ratcliffe did not say how he would vote, he was very clear that it would not materially harm his business.

Even a passionate supporter of the union between Scotland and the rest of the UK, the Scottish chairman of the UK's biggest bank HSBC, Douglas Flint - who told me separation of Scotland would be "a tragedy" - is not arguing that Scotland would be a basket case as a separate nation.

First Minister Alex Salmond First Minister Alex Salmond says an independent Scotland would be one of the world's richest countries.

Mr Flint's point is this: "Scotland's a rich country, there's no doubt of that but I think it's richer as part of the United Kingdom. And I think to some extent, you are swapping the certainty of 300-odd years of history where the two economies have grown together and become integrated for a vision of the future which is well articulated, but is only a vision of the future and is uncertain."

And of course there are plenty of business people who are very excited at the wealth-creating energy they believe will be created by independence.

This is what Tony Banks, a care homes entrepreneur said: "To me as an entrepreneur, independence makes total sense: to have control and be in charge of our own destinies and to be able to shape the future, shape the policies and shape the way the nation's going to turn out. I see independence as a business opportunity of a lifetime."

The fundamental point is that Scottish people have to weigh up the probable short-term costs of independence against the possible long-term rewards.

Or do they?

Because my main conclusion from my investigations is that if I had a vote, I would not be casting it purely on the basis of the economics - because it does not seem to me that the amounts of income and wealth at stake are life-changingly huge: Scotland, certainly in the longer term, is likely to be a relatively rich and successful economy on either road.

What matters far more, arguably, is how Scots see themselves in a much broader sense, either as a confident nation that is proud of being part of a bigger country, the United Kingdom, or as a people stifled and limited by the historic union.

So have I wasted my time by looking at whether an independent Scotland would be richer or poorer?

Actually I don't think so - because the economic arguments certainly matter, and in a way it is reassuring that a question about self-determination and identity can be decided by Scots largely pondering who they are, rather than how rich they may or may not become.

 
Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • Comment number 112.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -1

    Comment number 111.

    Pointless speculation. Independence won't happen because Scots won't vote for it. What will happen, and Westminster parties have promised it, is significantly more powers for the Scottish government. Which is what Salmond & co. have wanted all along - the independence campaign has just been a negotiating ploy. Cameron & co. are just being strung along by cleverer people in Scotland (and in the EU)

  • rate this
    +1

    Comment number 110.

    If Scotland gets independence, perhaps they should consider moving the border south. Somewhere near Crewe would do.

  • rate this
    +3

    Comment number 109.

    Wish the north could be separated from London and their gang of bankster and corrupt politicians and hangers on, out to further their own interests. It's a bed of seedy corruption, only way they know how to run a country is by buying favours

  • rate this
    +9

    Comment number 108.

    I am sick to death of the incompetance and corruption of London based govenment's and I undertand why many in Scotland want independance. I only wish that I too could be independant from London. Go for it Scotland!

  • Comment number 107.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    -1

    Comment number 106.

    Inequality in the UK

    If we increased the minimum wage by 50p an hour , it would redress the balance , but what difference would it make to a billionaire ?

    Do they take from the "rich" and give to the "poor " (earn less than 25k a year )

    All this poverty does not stopp the immigrants coming to Scotland and finding work and wealth , Dont see many "poor " fighting for a chance to work

  • rate this
    +7

    Comment number 105.

    95.
    Montys Flying Circus
    16 Minutes ago

    I hope the SNP can explain to all the businesses in Scotland whose products are boycotted if they leave the Union, why they are facing job-losses and bankcruptcy.
    _____________________
    Why would anyone wish to boycott Scottish products?
    Well done, bitter together, bitter apart!

  • rate this
    +3

    Comment number 104.

    102. Suskin

    I suggest you check out, nationalcollective, commonweel, radical independence but to name a few.

    Clearly we have the will and creative thinking to make Scotland a better country for all, not just the few

  • rate this
    +2

    Comment number 103.

    The BBC has a Scottish agenda.

    Chris Patten has organised a massive swing to the right (as he was ordered to do by the party.) It will absolutely appalling if they give the job to Seb Coe - it must not happen! Patten has a little integrity!...

    All this is about is retaining power for the Tories banking friends.

    Bankers - you always do better under Labour NOT Tory. (Check the history!)

  • rate this
    -1

    Comment number 102.

    As a Scot living in the south of England, I visited Edinburgh a few weeks ago and was struck by the tendency of the 'Yes' lobby to be talking more about what they would be getting away from rather than what kind of a country they wanted to build. My worry is that if the 'Yes' win the vote, will there be enough creativity to create anything special enough to be worth the cost of the break?

  • rate this
    +12

    Comment number 101.

    Come on BBC, when are you going to report on Professor Mackay's forecast for Scottish oil revenues. You are quite happy to print the misrepresentations of Danny Alexander so why not give coverage to a man that was economic adviser to the Secretary of State for Scotland for 25 years, in the interests of unbiased reporting you know it's only right that people get all the information they can.

  • rate this
    -4

    Comment number 100.

    The SNP shills are out in force today!

  • rate this
    -3

    Comment number 99.

    Robert is quite right , there is only a few quid in it either way , even if it was £20 a week for each and every Scot , what difference would that make ?
    Good if you have a Take away business or a payday loan firm , they will boom in Scotland after Indy .

  • rate this
    +11

    Comment number 98.

    33. David Horton
    4 HOURS AGO
    .......

    "I certainly won't miss the continuous anti-English swill from Salmond/Sturgeon."
    ============================================

    Neither Salmond nor Sturgeon are in the slightest Anti-english. This comment is typical of someone who doesn't understand what is happening in Scotland. This is a vote about self determination.

  • rate this
    +3

    Comment number 97.

    #64. CONNELL

    Interesting. I checked out the Marr interview.

    Cameron seemed more interested in scoring party points than even pretending to act like a statesman.

    I found the link here: https://www.youtube.com/watch?v=hau9-P7MuXs

    He didn't really think the future eventually becomes the present.
    But he obviously had no idea how to act.
    So he has just waffled on and on.

  • rate this
    0

    Comment number 96.

    Forgot figures, OBR estimate for equivalent period for oil revenue is 15.8 billion, DECC, UK (Government Dept)for same period 28.1 billion and industries own estimates are 31.8 billion.
    A mere 12.3 billion difference between DECC and the OBR.
    Its just another example along with the start up estimate fiasco.
    Pity Mr Peston did not investigate deeper the treasury's duplicity in this area.

  • rate this
    -10

    Comment number 95.

    I hope the SNP can explain to all the businesses in Scotland whose products are boycotted if they leave the Union, why they are facing job-losses and bankcruptcy.

    The hidden cost of separation, like a divorce, will be very expensive...

  • rate this
    +13

    Comment number 94.

    Professor Sir Donald Mackay rubbished Danny Alexander's UK Government oil revenue predictions for an Independent Scotland in today's Sunday Times.
    He says that independent Scotland’s revenues in 2017-19 would be almost £32bn, double the £15.8bn forecast by the Office for Budget. Responsibility. How do you like them apples Danny?

  • rate this
    0

    Comment number 93.

    I guess as a Brit, I'm worried. I don't really want the UK to fragment, and I worry that Holyrood, will just become a mini Westminster complete with corruption, inefficiency and self importance.

    Until we can change the way that politicians work for their electorate, I don't see that anybody other than politicians will be better off.

    This problem exists for everybody on this island.

 

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