Does Scotland have too much to lose from independence?

Alex Salmond, First Minister of Scotland The election victory of Alex Salmond's SNP has put Scottish independence back on the political agenda

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Scotland seems to have maintained a level of public service the rest of the UK is denied - but would independence mean giving it all up?

Alex Salmond emerged triumphant from the Scottish elections in May with an overall majority of 69 out of 129 seats at Holyrood.

A chill wind promptly wafted south to Westminster, where Prime Minister David Cameron is having to take the prospect of Scottish independence seriously.

No question the Scottish National Party (SNP) leader had beaten the main Westminster parties at their own game in Scotland, turning a minor party into a major political event.

But how might an independent Scotland work - and crucially in these lean times, how could it be afforded?

Scotland has had golden years in terms of a spending settlement. It still has 12 per cent higher per capita spending on health, for instance, than England. Scottish teachers' pay also rose by over 20 per cent from 2001, though contact time with pupils went down.

Lean times ahead

Devolution coincided with a benign environment in public finances - and a Labour government happy to dole out the dosh north of the border. Now public services in England are retrenching - job cuts, pension changes and angry unions tell that tale all too clearly.

Public workers protest in London over pension cuts Can Scotland remain immune to public spending cuts as people in England feel the squeeze?

In Scotland though, Mr Salmond insists that he can offer "economic security" - and intends to avoid public sector redundancies.

The first question an Englishman or woman confronts on travelling through the fiscal looking glass to Scotland is: "How on earth can they afford all this?"

Some think they may not be able to for much longer.

Free tuition fees for Scottish and EU students, free NHS prescriptions, free social care for the elderly - the list of things Scotland is currently paying for out of public funds that England cannot provide. Wales is also similarly subsidised in some areas, though the bill is much smaller.

Start Quote

The public are used to quite high levels of spending, but unfortunately the levels of revenue coming into the UK government to pay for that [aren't] there anymore.”

End Quote Prof John McClaren Former Labour advisor

According to John Kay, an economist and member of the Scottish government's advisory board:

"The effect of Gordon Brown's spending splurge (translated into an increase in the block grant to the Scottish government), was to increase expenditure by more than 50 per cent in real terms in the first seven years of the restored parliament."

But the generosity of the UK government during the Brown years could be a source of future problems for Mr Salmond.

The country has grown used to high public spending as part of the benign post-devolution mood. Scotland cannot escape the cuts, but it is delaying many of them.

Some reductions are already biting in school closures to pay for free university tuition and in lack of infrastructure investment.

The SNP finance minister John Swinney cites cancer drugs to me as one area in which English patients can receive treatment on the NHS not available north of the border. He also says the Scottish government has already made significant savings:

"We've reduced the number of public bodies there are in Scotland by 25 per cent over the last four years. We didn't wait for the Lib-Dem Conservative government to come in and tell us to.

"We got on and did that to release efficiencies and to reduce the costs of government, and with those resources we can then redeploy those to fund priorities that matter."

'Neverendum'?

So, how does a party which embraces independence make the case that Scots really would be financially secure when the transfers from London are gone?

Professor John McClaren, a former advisor to Labour leaders in Scotland, sees a crunch coming:

Black Law wind farm South Lanarkshire in Scotland Renewable energy is seen as a key industry for the economic prosperity of an independent Scotland

"The public are used to quite high levels of spending, but unfortunately the levels of revenue coming into the UK government to pay for that [aren't] isn't there anymore. That's not really been addressed."

Scottish Nationalist politicians can, of course, claim that the public has experienced the SNP as a minority government at Holyrood, and has made a choice this year that the party can be trusted on managing the economy (or at least, prefers them to the alternatives).

But it is possible that the light will change as a referendum nears - though the failure to put a date on it leads to some joking that it is a "neverendum".

Advocates of a separate Scotland say that North Sea oil revenues and renewables would provide good foundations for its economy. But oil prices rise and fall, North Sea oil is getting harder to extract and renewables, though very promising for the Scottish economy, have been supported by cross-subsidy.

At the moment, there is appetite among Nationalists for a lower corporation tax regime than south of the border to attract business.

That is a competitively sound idea in principle - but any race to match low Irish corporation tax levels also means the country might well lose business revenues, at least in the short term.

FIND OUT MORE

Listen to Anne McElvoy's full report on BBC Radio 4's Analysis on Monday, 4 July 2011 at 2030 BST and Sunday 10 July at 2130 BST

Scotland under independence would also have to make some tough decisions about which of its free services it can truly afford to keep.

And the more England changes its spending patterns, the greater the contrast - and the pressure to come in Scotland.

With Scottish universities charging no fees at all and English ones planning to charge up to £9,000 per year, there is a danger that, as the revenue gap opens up, Scotland's often very good higher education sector could become the English system's poor relation.

So against a background of austerity, what sort of independence should the SNP try to bring about?

"Independence Lite"

The talk on my Scottish travels was rarely of a full break with England. Mr Salmond himself has cultivated a good relationship with the Queen over a shared love of horse-racing.

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John Swinney

What our politics are about is about political control - political, economic and financial control to ensure we can create a strong and a fair country”

End Quote John Swinney SNP

Her Majesty would certainly keep Balmoral, a head on the stamps and all the trappings, should Scotland vote "yes" to independence.

To judge by the response to the Royal Bank of Scotland crisis, the SNP is in no hurry to extricate Scottish financial services from UK-wide safety nets either. And as for joining the Euro and ditching the pound - well, that no longer seems like a realistic prospect as Greece burns.

Disentangling pensions and welfare from a UK-wide system which guarantees the same level of benefit in Glasgow as Gloucester might not appeal to voters either.

Perhaps the answer lies somewhere between what is being called "Independence Lite" and "Devolution Max".

This is echoed by the SNP's John Swinney, who says Scottish independence does not mean a clean break from the rest of the UK:

"If I think about when I joined the SNP in 1979, the definition of independence was very different to what it is today.

"[Today] we argue for Scottish independence within a social union with the rest of the United Kingdom because we have so many social contacts.

"What our politics are about is about political control - political, economic and financial control to ensure we can create a strong and a fair country."

The Nationalists will have one shot at a referendum for the foreseeable future and they will not want to put before the public a notion of Scottish autonomy which seems to risk more than it gains in economic certainty.

A little independence might just go a long way, when all is said and done.

Anne McElvoy is Public Policy Editor of The Economist. She presents Analysis on BBC Radio 4 on Monday 4 July at 2030 BST and Sunday 10 July at 2130 BST. Listen again via the BBC iPlayer or download the podcast.

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