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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This column may be a bit quiet for a bit, because I am away from the office.

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  • rate this
    +4

    Comment number 132.

    @123.Phil Dawson

    "Over time an independent Scotland will become increasingly different from the rest of the UK like Ireland has"?

    Given that Ireland has ranked consistently higher than the UK in terms of per capita GDP, general welfare, and 'The nest place to live in'-style surveys over the last 30-40 years, would that such a terrible thing for Scotland to undergo.......?

    Scotland will be fine

  • rate this
    +17

    Comment number 131.

    I see interesting parallels between this and the EU issue.

    I see people saying they don't feel British/European, that we have more influence united, talking about self-determination, about money going to Westminster/Brussels, or about how succession would lead to economic ruin.

    What I find interesting is that many people take opposite views of each issue, and thus contradict their own arguments.

  • rate this
    +10

    Comment number 130.

    126.
    111 Rabbitkiller - Can you list any of these "significant powers" that are promised if we vote "No"? Nobody in government appears to have managed.

    Further comment: The powers given would be as unhelpful as possibe, in particular control of income tax. That is nowadays a poor lever for controlling the economy, unlike VAT or corporation tax. They won't give us those.

  • rate this
    +3

    Comment number 129.

    The question of more powers for Scotland wasn't allowed on the ballot paper so why should we trust the Westminster parties when they promise it now?


    VOTE YES.

  • rate this
    +7

    Comment number 128.

    As an Englishman I can't see the problem here. If the Scots are financially able to go it alone and the desire is there then why not? Good luck to them. After all the UK is not what it once was. I love England, they love Scotland. Each to their own. Totally indifferent as to whether they vote yes or no.

  • rate this
    +3

    Comment number 127.

    @117.lockblairup

    Your claim that "The idea that by becoming independent means they will be free of external interference is ridiculous..." is simply a ridiculous, straw man argument.

    No-one arguing for independence has ever made that argument, mainly because it is patently stupid.

    However, being independent would allow Scotland to make policy suited to its needs, and constraints.

    Better..

  • rate this
    +6

    Comment number 126.

    111 Rabbitkiller - Can you list any of these "significant powers" that are promised if we vote "No"? Nobody in government appears to have managed.

  • rate this
    +3

    Comment number 125.

    I can see the UK becoming the AUK (almost a united kingdom), and we all know what happened to the auk.

  • rate this
    -6

    Comment number 124.

    Peston 'bigging up' Peston, as usual.

  • rate this
    +2

    Comment number 123.

    So the lesson is to forget about any economic implications of going independent, since it won't be the end of the world if Scotland is a little poorer to start with. The biggest shock will be coming to terms with a divided island, where we can no longer regard the Scots as being British. Over time an independent Scotland will become increasingly different from the rest of the UK like Ireland has.

  • Comment number 122.

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

  • rate this
    +2

    Comment number 121.

    If you have seen Elysium, I predict a similar scenario, where London is the a place limited for the wealthy and healthy. Outside London, you will have declining standards of living and people trying, but failing, to get to the promised land. For Scotland, we need to consider whether we want to be part of that scenario or not.

  • Comment number 120.

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

  • rate this
    +8

    Comment number 119.

    Scotland has a great future. Scots are creative and hard working people who have contributed far more than their fair share to the science & technology that underpins the modern world. Why would anyone outside London want to be ruled by an English Government which is in the pocket of the City & thinks only of the interests of bankers? It is the English who should be worried about the future.

  • rate this
    +1

    Comment number 118.

    Very interesting that Alistair Darling, this lunchtime, was saying how the No campaign was gaining ground precisely because of the economic arguments. This means either that Darling doesn't want people to look at the wider cultural and identity issues because he's weaker on those, or he's so confident of the economic argument he doesn't need to speak about anything else.

  • rate this
    -3

    Comment number 117.

    The idea that by becoming independent means they will be free of external interference is ridiculous, especially given that they wish to keep the currency and join the EU. I'd have more respect for the 'yes' campaign if they just feesed up to the real reason; the fact that they haven't got over a centuries-old grudge and wish to free themselves from the rest of the UK.

  • rate this
    -2

    Comment number 116.

    It never ceases to amaze me that "expert" economic pundits are incapable of providing a comprehensive, evidence-supported, appraisal of the case. While I appreciate the future-opportunity appraisal may be difficult, the direct effects on the current economy should be more easily represented.
    Oil appears to be a significant factor in the pro-case; but look at what happened to coal!

  • rate this
    +3

    Comment number 115.

    108.A gom "the incompetance and corruption of London based government"

    Surely not!

    If only they were just incompetent - that with mitigate against the corruption.

    Incompetence should have a random effect, the fact that ONLY bankers make money shows that the evil of corruption has won through.

    The ONLY way to keep England (yes ENGLAND) together is to expunge the bankers & their friends.

  • rate this
    +3

    Comment number 114.

    I don't think many Scots want independence from the UK.
    They want independence from Westminster just like everyone else outside London.
    Being honest, with the thought of Cameron or Milliband being PM after the next elections who wouldn't want off this putred circus ride?
    Our politics are beyond disgusting.

  • rate this
    +2

    Comment number 113.

    Having spent some time living in Glasgow & having many Scottish friends,I've come to the conclusion that most 'yes' voters aren't that bothered about the future prosperity or infrastructure of an independendent Scotland.

    For them independence is an end in itself & whatever comes after they will have acheived their primary goal.

 

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