Saturday, 31 May 2014

Scottish Independence: Pros & Cons

I've invested many hours in research and debate around the Scottish Independence Referendum debate; this is the simplest summary I can manage.

[If you click on this  you can view and download a pdf complete with links to the detailed blog posts]

This logic flow summarises the arguments for Independence that I've encountered, along with my (hopefully) logical and reasoned responses. Please don't switch off if I'm countering an argument you wouldn't make; trust me all the arguments I address here are widely used.

"We should choose who governs us": I cover this in detail here  > We Should Decide Who Governs Us
  • Its about "Us & Them"
    • This is about Trust: resentment of failures in the past, fear of failures in the future, often voiced as distrust of Westminster, Westminster Politics or the Political Elite
    • The over-used "they say we're too wee, too poor, too stupid" rhetorical trope is often used in this context. I cover this here > Too Wee, Too Poor, Too Stupid; it should come as no surprise that the only people saying this are the pro-independence campaigners implying it's been said by "them"
    • It remains unclear to me why substituting Holyrood for Westminster would change the fundamental nature of politics or create some new, more admirable, political elite.
    • When pressed, this "Us & Them" theme is sometimes really more about Tories or the English; that Independence is a way of getting "them" out of our lives. 
    • The McCrone report is often raised in this context. I cover this here > Trust & The McCrone Report. Put simply: I can't see why the fact that 39 years ago some politicians didn't leak a confidential memo that would have been politically unhelpful to them leads to the conclusion that we should break the Union now.
  • Because it would be "A Better Democracy"
    • I've argue at length here > We Should Decide Who Governs Us that a smaller democracy is not intrinsically a better democracy; that to think so is to fail to understand the very principles of representative democracy.
    • There is a trade-off between the economic scale of a nation and the breadth of others' political opinions that have to be accommodated.  I'm not convinced that Hadrian's wall defines that ideal trade-off point. 
    • There is an argument that the left-leaning political profile of the Scottish electorate would deliver a more stable political force in pursuit of Social Justice. For me this argument has merit, but needs to be considered within the context of the political and economic realities 
      • It has to be believed despite the downsides of separation, not in denial off them
      • Devolution is already delivering a large part of this
      • Social Justice needs to be paid for: the economic realities of independence cannot be ignored (see below)
"So We Get Our Fair Share"

This is all about "Our Oil"; I cover the topic in some detail here > Oil & Gas (Part I); For Richer, For Poorer. I think the following is an analytically robust summary
  • Looking back it's not appropriate to define our "fair share" as keeping all of "our" Oil & Gas revenue; being in a Union must be about pooling & sharing
  • Even if you do the analysis assuming we should have kept "our" Oil & Gas revenue it's clear that the extra funds generated per capita have been effectively received back by greater public spending per capita in Scotland
  • A corollary of this is that if you consider the economics of an Independent Scotland with all of "our" Oil & Gas revenue then we run a higher deficit (Public Spending greater than Tax Revenues) per capita  than the rest of the UK.  [Their is a separate argument relating to what that Public Expenditure has been on and whether an Independent Scotland would incur all of the spending in which it currently shares; we'll come back to that below]
  • Getting "Our Fair Share" would not have made us better off in the past and - remembering we were in a Union - we've actually done pretty well out of the deal.
  • Looking forwards (which is surely what we should be doing) we face declining Oil & Gas reserves and rising extraction costs.  Getting to keep our Oil & Gas revenues is not the answer to an independent Scotland's economic future

"Because We'll Be better Off"

Getting our geographic share of Oil & Gas will not make us better off.  Looking at GDP/Capita is overly-simplistic and flawed in so many ways (I cover this topic here > Look at GDP/Capita, Look at Ireland).  Clearly to understand the economic case for Independence we need to balance
  • Economic Pros of independence
    • "We'd stop spending money that we are currently burdened with our share of"
      • Defence/Trident: for many this is a strong enough reason for Independence in and of itself.
      • HS2:  this is a headline grabber for sure; but I would want to see a broader analysis of transport infrastructure costs and spending allocations before concluding that Scotland would save money by avoiding "projects like these"1.
      • House of Lords: an emotive topic but hardly a big financial consideration.
    • "We'd negotiate with the EU putting Scotland's interests first." I've covered this at some length here > Independent Scotland and the EU.  Given the requirements for an Independent Scotland to renegotiate terms with the EU and achieve unanimous agreement from all member states its hard to envisage more upside than downside. The White Paper asserts that an iScotland can negotiate to remain in the EU without making any concessions on Euro or Schengen Area participation, while retaining the UK Rebate and other opt-outs and simultaneously improving our share of CAP payments, extending fishing rights etc. I don't believe there is an informed person in this debate who believes that is possible and I include in that the experts the SNP cite as being "on their side"
  • Economic Cons of independence. I cover these (with a positive spin) here > The Positive Case for No
    • Currency: their can be no doubt that this is a downside of independence, the only question is how much of a downside
      • Strip aside the political posturing from the debate and the best case that can be argued involves de facto dollarisation whereby Scotland effectively cedes currency control to be able to maintain use of the pound.
      • The jury is in on this one; it's a less stable economic structure than the one we currently enjoy as part of the United Kingdom and an independent Scotland would face a higher cost of debt
      • The EU debate may well (some argue inevitably does) lead Scotland down a path of joining the Euro, of adopting a different currency from our largest trading partner (rUK)
    • EU renegotiation. Covered in detail here > Independent Scotland and the EU and summarised above. The real politik of any such negotiation will leave Scotland worse off than today 
    • Impact on trade with rUK. Covered in detail here > Independence & Scotland's Trade with rUK. Two Thirds of Scotland's exports go to rUK; there can only be economic (and employment) downside from separation
      • Trade with rUK will become international trade: import–export. This, together with the likely divergence over time of tax, excise duty, regulatory and administrative regimes can only damage trade with rUK
      • The longer term possibility of "one in, the other out" of EU and/or different currencies exacerbates this, createing risks for businesses considering investing in Scottish facilities serving rUK markets
    • Impact on the Single Energy Market: a huge issue not (yet at least) much discussed in debate. We currently share a single transmission operator and shared transmission costs, as well as benefiting from UK wide renewables investment policies & security of supply.
    • Cost of Splitting and recreating other shared assets: a recent hot topic, covered in part here: Lies, Damn Lies & Cost Estimates.  
      • Includes: security and intelligence bodies, a Scottish Border and Migration Service and a Scottish Motor Services Agency, official reserves, the BBC and its archives, UK and GB-wide systems for administering welfare and taxation, intelligence sharing, mutual aid between police forces and health services, Jobcentre Plus, DWP and HMRC offices, the Crown Estate and the defence estate, overseas missions of the Foreign and Commonwealth Office etc.
      • ICAS, in Scotland's Tax Future; Taxes Explained, estimate the costs of setting up an independent Scotland's Tax System alone could be well above £750m
    • Global Diplomatic & Trade Networks the White Paper proposes "providing for a streamlined system of overseas representation".
    • Separation of services with flat-rate UK-wide pricing where this doesn't reflect Scotland's true (higher) cost-to-serve: Royal Mail, Telecoms, Power, UK-wide retail chains, etc.

"Because We'll Manage the Economy Better"
To say the quality of the economic case presented in the White Paper is extremely weak would be generous. It beggars belief that nowhere in the 649 page tome have they found room to provide a summary of the costs of the promises made, let alone to show how the books would be balanced. In the absence of any reconciled numbers coming from those attempting to make the case for independence (which it's surely there duty to provide) others have had a go.  This has led to unhelpful spats and accusations of lies and misleading statements (See this post around the "one-off costs" debate > Lies, Damn Lies and Cost Estimates).

In the absence of any analysis from the Scottish Government the Institute for Fiscal Studies (a respected and impartial organisation) have recently published a statement Spending cuts or tax increases would be needed to pay for Independence White Paper giveaways in which they state
  • "The White Paper outlined specific tax raising measures and spending cuts that would together save just under £500 million a year. On top of this there is an aspiration to raise a further £235 million through, as yet unspecified, measures to remove exemptions and reduce tax avoidance."
  • "The spending increases and tax cuts described in the White Paper are more numerous and more costly – around £1.2 billion a year in the short term and potentially considerably more in the longer term if full aspirations for childcare and state pensions are met (although some policies may have dynamic behavioural effects that mean that they could partly pay for themselves)."
That's worth pausing on. The White Paper identifies £0.5bn tax raising and spending cuts to fund around £1.2bn spending increases and tax cuts.  Even allowing for 'as yet unspecified' measures and 'dynamic behavioural effects' its clear to even the most casual observer that the White Paper promises simply don't add up. Its hard to believe this approach will lead to a better managed economy.

There is also a lot of fuss made about the comparison with Norway and that we "should have an oil fund". I cover this in detail here > Oil & Gas (Part II): The Oil Fund. In simple summary: 
  • To have created an Oil Fund we'd have needed to not spend the money.  We (the UK) did spend the money and - as we've shown - Scotland received it's fair share of that money (actually more than its fair share if you consider fair within the Union would mean to share equally on a per capita basis)
  • It's all very well - with the benefit of 20:20 hindsight - to say "we could have had an oil fund". To do so would have involved tough public spending choices (as Norway made; for example healthcare there is not free at point of use).  The SNP were not arguing for this when it would have made a difference in the 1990s.
  • In fact in the White Paper the SNP are not arguing for an Oil Fund now either: they state an Oil Fund "will be started once Scotland's overall budget deficit is reduced to below the level of long-run economic growth and when debt is on a downward trajectory". That hasn't been the case for any of the last 10 years and it's hard to seeing it being the case for an independent Scotland any time soon.
So the SNP's White Paper makes promises that don't add up and the rhetoric of debate is not supported with robust analysis. It would be a generous understatement to say that the case for an independent Scotland's economy being better managed has not been made.

    To Create a Fairer Society
    This is an aim that you are unlikely to find many disagreeing with, but the question is: will Independence deliver a fairer society?

    This depends in part on your belief in economics, on whether or not you are concerned by the fact that the numbers simply don't stack up (see above from IFS). I certainly have not seen anything like a convincing case made for why Scotland would be better off separated from the Union.  Surely that burden of proof rests on the shoulders of those asking us to vote in favour of  independence? It's a burden that has not been met.

    In fact - on the balance of the arguments I've seen and lay out in this blog - it seems clear to me that an independent Scotland would be economically worse off than a Scotland remaining within the Union. There are many laudable "social justice" aspirations in the White Paper but laying out these aspirations without showing how we could afford to deliver them is somewhat pointless.

    I accept and agree that the independence argument is not just about economics.  I believe in creating a more socially just society.  I think there are many things that could and should be improved about the way our political system works.  But I don't believe that breaking the Union between Scotland and the rest of the UK will achieve those things; I don't believe that the economic realities can be ignored. I believe the Scottish Government's White Paper fails to present a coherent, logically consistent or economically robust argument in favour of independence.  It seems clear to me that delivering social justice will be harder without the benefits of Union.

    The independence debate has highlighted concerns that many of use share about the way our country is run, about the social inequalities that exist; but I choose to fight those political battles as part of the Union, sharing the wealth created by the Union and for the benefit of all people within the Union. That is why I will be voting No on 18th September.


    I guess if I apply the discipline of my own "Who Can We Trust" framework I'm a lone wolf. I don't expect you to share my conclusions without checking my bona fides and applying your own reasoning and possibly adding your own research to the information I've presented.  I've shown my workings so you can form your own view.



    1.   It would be interesting to see a long-term analysis of money spent per capita on transport infrastructure in Scotland and compare to the same in rUK.  It's far from obvious to me (given Scotland's geographic diversity and low population density) that Scotland 'loses' by sharing all such infrastructure cost on a Union-wide basis.

    Lies, Damn Lies & Cost Estimates

    A brief post for a change, with some observations on the recent rather fraught debate about the "one-off costs" of independence.

    Neither side has made (or at least shared) a robust analysis of the potential costs 

    [Look out for "could be" and "up to" and "as little as" in the quotes below]
    • HM Treasury has thrown around numbers based (explicitly) on some extremely crude assumptions (below from treasury press release)1
      • "Independent research ... estimates that it could cost up to 1% of a country's GDP" = £1.5bn
      • 180 departments x £15m per department = "up to £2.7bn"  -- the sources of the £15m per department have distanced themselves from this way of using that figure
      • UK government "has already published analysis which calculates that a new benefit system could cost £400m alone, and setting up a new tax system could be as much as £562m."  (I haven't yet chased down this analysis)
    • The Scottish Government has not been forthcoming with any analysis of their own; ducking the question or leaning on others' estimates
      • SNP Finance Minster John Swinney has resolutely refused to offer any figures -- hear him fail to answer the direct question thirteen times here
      • In the recent kerfuffle - some say stramash - Lone Wolf2 Prof Dunleavy has been cited as "estimating instead that the one-off set-up costs would be £150 to £200m
      • The next day Alex Salmond claimed the costs "could be as little as £250m" citing "London School of Economics expert Patrick Dunleavy, who has put the cost at between £150m and £300m"
      • There has been much noise made about the £575 - £625m figure apparently attributable to Swinney per the "leaked paper" below.  To be fair it is simply a "would on this basis be" estimate -- so if there were subsequent robust analysis leading to a different answer it would be reasonable to discard this early estimate. If
    • ICAS are one of our RIBs (Respected Industry Bodies: See Who We Can Trust ... I rate RIBs above Lone Wolves) have said in Scotland's Tax Future: Taxes Explained
      • "Examples from other countries can point towards the scale of costs which might be incurred. In New Zealand, for example, changes to the tax system which are less complex than those for an independent Scotland are costing around £750m. The cost for an independent Scotland could be significantly greater, especially considering the scale and the complexity of the legacy systems which might be inherited from the UK. What it is really going to be, and how it is to be paid for is a question that still needs to be answered"
      • Note the quote above is referring to Tax systems only, not all government departments require
    1. Those who accuse the treasury of "lies" are wide of the mark. If the Treasury had said "we've done thorough and detailed analysis" and then been discovered to have actually just multiplied 180 x £15m, well that would have been lying. In fact they showed their working - it was in the press release - the figure was presented with no pretence to being anything more than a "could be up to" estimate

    2. By referring to Prof Dunleavy as a "Lone Wolf" I do not mean to imply he can't be trusted; just that his is one person's opinion and should be treated as such (rather than as "the truth" because he is "an expert"). I explain further here > Sources: Who Can We Trust

    The lack of good analysis by HM Treasury is disappointing; but the failure of the Scottish Government to come up with any robustly substantiated figures this late in the day is, quite frankly, astounding.

    Its worth remembering that we are discussing unknowns here, that there is no truth (or to paraphrase Foucault: truth is at best plural). All we can ask for is honestly realistic estimates; I doubt we will get that from either side.

    It might inform the debate to consider how accurately these sort of costs estimates normally turn out in reality.  When was the last major public project you can remember that ended up costing less than the initial estimate?  I offer two (admittedly not strictly comparable) examples for contemplation ..

    So my conclusion?  We don't know what the "one-off" costs of independence would be ... but we can safely assume it would be a lot more than the Scottish Government are admitting to.

    Friday, 30 May 2014

    The Positive case for No

    You Don't Know What You've Got. Till it's Gone

    "Our two economies benefit from a flow of people, goods, investment, capital and ideas on a scale that is rare even in this era of global economic integration"
    Scotland's Future: Your Guide to an Independent Scotland p.248

    The quote above (from a joint statement made by David Cameron and Enda Kenny relating to British/Irish relations) is taken directly from the White Paper; my natural reaction is:
    • If that statement accurately describes British/Irish relations, how much more accurately does it describing existing rUK/Scottish relations?
    Of course we could look at data relating to those flows to show how much more true this is for rUK/Scotland (e.g 70% of Scotland's exports go to rUK compared to 15% of Ireland's going to GB) but that is misleading and a distraction from the main argument. If you do want to be distracted I have included an addendum at the foot of this post.

    In addition to the economic and social benefits of this "free flow" within the Union we need to consider the "pooling & sharing" benefits most pithily summed up by the Better Together campaign:

    "...our vision based on a strong Scottish parliament backed up by a system of pooling and sharing risks and resources across the UK."
    Gordon Brown, 21/04/2014

    Through the process of writing this blog and engaging in this debate I have found a number of (to me at least) quite compelling positive reasons for Scotland remaining in the United Kingdom which I'll attempt to list here. If you think I've missed some, do let me know.


    As I explain clearly in my bona fides, I entered this debate as someone who was instinctively in favour of the Union and could see practical downsides from a possible Yes vote for the (Scottish) businesses I'm involved with.  My starting point was the White Paper and then (because I don't see much merit in reading materials that are designed to reinforce my view) I focused on the pro-Independence media and engaged in debate with Yes proponents.  This approach has (probably inevitably) led to me picking apart the pro-independence arguments more than making the Unionist case. I will attempt to address that balance in this post but can't resist making the following points first;
    • The question has been formed as a Yes / No question; those arguing to maintain the Union are seeking the answer "No". It's quite hard to argue that case without sounding - um - negative.
    • If you're arguing to change something that has worked for 300+ years then the burden of proof is yours; you are obliged to make the case for change.  If you'll forgive this Scottish Island boy a little pretentiousness: semper necessitas probandi incumbit ei qui agit (the necessity of proof always lies with the person who lays charges).  Pointing out that the burden of proof has not been met by the arguments presented - that the arguments simply lack logical sense, appear based on irrational resentment, involve sums that don't add up or are based on wildly optimistic assumptions - may be negative, but it's hardly inappropriate.

    • Given we start with the benefits of Union, it's pretty hard to argue against separation without pointing out what will be lost, the downsides of separation. If that's being negative well - again - it's hardly inappropriate

    • There's a wider, relevant point here: it's always going to be harder to get people exercised and engaged by the positive arguments in defence of the Status Quo
      • What do we want?
      • The Status Quo!
      • When do we want it?
      • errr... we've already got it

    • It's possible to look at any success achieved within the Union and blithely assert "we could have achieved that without being in the Union"  (in the same way some point at any political failings in the past 300 years - there have been plenty - and say "that's the sort of thing that wouldn't have happened if we were independent").  I will not preemptively counter-argue that in every case; you can take it as read that I believe that all of the positives listed here have been at the very least helped by the existence of the Union and in some cases are achievements that would be unimaginable without it

    • The benefits of Union listed here flow both ways.  How the benefits are shared is a different and wider question, touched on by this post >  Oil & Gas (Part I): For Richer For Poorer

    • It can be argued that these benefits could - at least in part - be maintained through negotiation and agreement.  Where that is the case it simply reinforces the fact that these are benefits of Union; we achieve those benefits without the "arm's length" contractual negotiations that would be required between iScotland and rUK.  Anyone who believes that those contractual negotiations will be straight forward has - I would suggest - not been paying attention.

    The Benefits of Union

    Ironically perhaps the White Paper is a great place to look if you want to find some of the benefits of Union. If the White Paper talks of the need to negotiate agreements, divide assets, create on-going asset sharing agreements or invest in new infrastructure you will probably be looking at a benefit of the Union behind it all. [All quotes highlighted thus are taken directly from the White Paper]

    • A single currency
      • "These will include the arrangements for the Sterling Area, the role and governance arrangements of the Bank of England, a fiscal stability pact and Scotland’s share of the UK’s £1,267 billion of net assets"
      • This has been such a contentious issue exactly because it is such a great example of a benefit of Union.  There has been plenty written on this topic and I think the jury is in: at best there will be a significant economic cost to an iScotland of any agreement to "keep" the pound (or to pursue "dollarisation" whereby Scotland pegs to the pound). There are plenty of self-explanatory links on this topic in the Who Can We Trust section of this blog (focus on IOs and RIBs, don't get too easily swayed by the Lone Wolves just because they say what you want to hear!)

    • EU membership and opt-outs
      • The EU opt-outs currently enjoyed by Scotland as part of the UK are an asset, a benefit of Union  
      • I've covered this topic at great length under Independent Scotland and the EU; given the real politik of the negotiations triggered by a Yes vote it is hard not to conclude that Scotland's relationship with the EU has benefited from being part of the Union.

    • Borderless Trade
      • If you doubt the scale of this benefit I 'm guessing you have not been involved in making high volumes of shipments outside of the EU. For most of this debate I'm a curious observer, learning as I go; but on this topic I will claim a significant level of experiential knowledge, some of which is covered in my post Independence and Scotland's Trade with rUK .
      • I cite borderless trade as a benefit distinct from EU membership itself because a "benefit of Union" is that we can't end up with a "one of us in, one of us out" scenario.

    • Inward investment
      • All of the above adds up to make Scotland an attractive location for inward investment.  It would be hard to dispute that sharing a currency and EU membership with the rest of the UK adds to our attractiveness as an inward investment location.
      • "Inward investment projects coming to Scotland are at their highest level for 15 years.  Scotland is ranked number one for inward investment projects outside London, up from number two last year and we have maintained our consistent place as one of the top performers when it comes to attracting employment"

    • Royal Mail
      • Given Scotland's relatively lower population density (not to mention number of islands) - and therefore higher cost-to-serve - in this case there can be no debate about "who gets the benefit" -- Scotland benefits from the Royal Mail's Universal Service Obligation (one price goes anywhere, meeting specified minimum service levels)
      • The controversial privatisation of the Royal Mail is a separate issue (I don't like it); the USO is still protected so the privatisation issue is relevant only to the wider political arguments about independence and I'm sticking with the task in hand here: the Royal Mail Universal Service Obligation is a benefit that Scotland achieves within the Union

    • A Single Energy Market
      • This is a huge issue and worthy of a post all on its own; the quotes below from the White Paper do a pretty good job of listing the issues. I think we can chalk the existence of the single energy market, integrated transmission networks and shared support for renewables up as a benefit of the Union.
      • "The Scottish Government plans to establish an Energy Partnership with the Westminster Government, ensuring that we jointly steer the approach to the energy market"
      • "Under these proposals, the current market trading arrangements for electricity and gas will continue, with the aim of maintaining a competitive market for energy throughout these islands. This meets the legitimate expectation of consumers, suppliers and generators of energy across Scotland and the rest of the UK."
      • "This Government proposes that a single Transmission Operator will continue to balance supply and demand across Scotland and the rest of the UK"
      • "The continuation of a system of shared support for renewables and capital costs of transmission among consumers in Scotland and the rest of the UK is a reasonable consideration for meeting the UK’s ongoing green commitments"
      • "Achieving security of supply for Scottish consumers will be the central priority for an independent Scotland. This Government proposes that, provided this is not jeopardised, Scotland will continue to participate in the GB-wide market for electricity and gas, reflecting the integrated transmission networks between Scotland and the rest of the UK. There is a common interest in sharing our energy resources with our neighbours ..."
      • This article by Brian Wilson is recommended further reading > Storm Clouds Gather Over Energy
    • Global Diplomatic and Trade Network
      • Scotland benefits from the UK's Embassies & High Commissions and diplomatic infrastructure. 
      • The White Paper recognises the need to replicate this but suggests doing so only partially " providing for a streamlined system of overseas representation focused on Scottish citizens and priority business sectors"

    • The BBC
      • The White Paper implicitly recognises the value of this asset (although some of the more paranoid pro-independence campaigners don't) even going so far as to - hilariously - name check specific programmes.  I mean seriously? They didn't find time to add up the cost implications of the White Paper promises but they name-checked Strictly ...
      • "Agreements will also cover other national assets and institutions (for example official reserves, the BBC and its archives..."
      • "We propose that the SBS enter into a new formal relationship with the BBC as a joint venture, where the SBS would continue to supply the BBC network with the same level of original programming, in return for ongoing access to BBC services in Scotland"
      • "The maintenance of access to the BBC will ensure that the people of Scotland will still have access to current programming such as EastEnders, Doctor Who, and Strictly Come Dancing, and to channels like CBeebies"

    • Shared Assets & Government Agencies
      • At the time of writing this is a very hot topic because of disagreements about the costs required to recreate these assets and agencies in Scotland. Neither side comes out of the debate well. I expand here > Lies, Damn Lies & Cost Estimates
      • The fact that all we can know is the the number probably lies somewhere between £0.25 and £1.7bn is symptomatic of the data void that this debate operates within. I'm busting my pipe trying to get the issues straight with this blog, chasing primary sources and continually checking the robustness of numbers being used .... and with all the time and money invested by the Scottish Government to make this case they haven't even bothered to do any proper analysis on costs of independence (or none that they dare share, anyway). Rant over. Bringing us back to our topic at hand; read the following quotes and you are reading a laundry list of (the flip side of) the benefits of Union      
      • "In an independent Scotland, we will establish a new security and intelligence body, a Scottish Border and Migration Service and a Scottish Motor Services Agency."
      • "Agreements will also cover other national assets and institutions (for example official reserves, the BBC and its archives, and UK and GB-wide systems for administering welfare and taxation, wherever located). Scotland’s share of UK assets will be realised in a combination of ways – through physical assets, cash transfer and continued use of assets through shared service agreements".
      • In addition, agreement will be sought on issues including: the continued delivery of services across GB and the rest of the UK where this is in the interests of service users and the two governments, either for a transitional period or in the longer term operational agreements for cross-border services (for example, for health treatment, for intelligence sharing, for mutual aid between police forces and health services) based on existing arrangements where appropriate
      • This would include physical assets in Scotland, such as Jobcentre Plus, DWP and HMRC offices, the Crown Estate and the defence estate. It will also include assets outside Scotland in which Scotland nevertheless has an interest as part of the UK, such as the overseas missions of the Foreign and Commonwealth Office.

    • Defence Alliances
      • I'm too tired to work out if I think these are a benefit of Union or not. You decide
      • Agreements will also be reached in relation to [..] membership of other international bodies, including the United Nations, NATO, the Organisation for Security and Co-operation in Europe, the International Monetary Fund, the World Bank Group and the World Trade Organisation. Both the Scottish and Westminster Governments will be involved in these negotiations with our international partners

    • Distinct Cultural Identity
      • The Union structure has allowed Scotland to retain a distinct National identity and for our unique culture to not only survive but thrive. That we share the benefits above whilst maintaining this identity is a benefit of Union in it's own right
      • "Scotland’s strong and vibrant culture is one of our most enduring and powerful national assets. Our rich heritage gives Scotland its sense of place and underpins our understanding of our past, our present and our future. Scotland’s creative communities – our artists, writers, poets, dancers, directors, musicians and designers – provide new insights and drive forward new ideas. They help us see ourselves in new ways and present Scotland in its many dimensions to the wider world. 
        Scotland hosts more than 200 cultural festivals a year. The 2012 Global Culture Summit, held in Edinburgh and attended by 33 nations from across the world, demonstrated that Scotland can facilitate and shape international cultural dialogue."

    Personally, I think that's not a bad list.


    Comments welcome.


    Flow of goods comparisons: Ireland/GB versus Scotland/rUK
    • Checking CSO figures and research from MIT we get see that from an Irish perspective UK represents 13 - 16% of exports and 34 - 36% of imports
    • Using the Quarterly National Accounts Scotland) and summing last 4 quarters' Trade in Goods & Services data (Table G)  shows from a Scottish perspective rUK represents 70% of exports and  74% of imports  (some caveats are worth noting via Full Fact)
    There are geographical factors at play here of course (Ireland is after all "across the water") so I've checked the Canada/USA trade stats and they show from a Canadian perspective the USA represents 75% of exports and 65% of imports [relative population sizes are similar; Canada is 11% of USA, Scotland 9% of rUK]. I'm surprised the UA/Canada example is not cited more often by the pro-independence campaigners to be honest; maybe that's a debate for another day

    Thursday, 22 May 2014

    Oil & Gas (Part I): For Richer, For Poorer

    I explain my bona fides elsewhere on this blog. If you've read them you will understand why I've been so keen to speak up with reference to Independence & Scotland's Trade with rUK and Independent Scotland and the EU.  They are topics that directly impact the businesses I'm involved in and by extension the people I employ, topics where I have direct experience and understanding of the issues which I felt compelled to share in an effort to stimulate reasoned debate on the issues.

    Inevitably - having started to speak out on these topics - I have been drawn into debates around other issues and you'll see these expanding on my links list on the right.  This post joins a growing list which could be classified as "responses to pro-independence arguments" which already include

    The Oil & Gas Questions
    I engaged in extensive debate on this topic as an uniformed observer, trying simply to understand the arguments and form my own view. Here's what I found.

    Two common themes relate to the past (which conditions so many attitudes coming in to the debate)
    • They took our oil: Its ours and they took it, we've never had our fair share of the benefit, we've been net contributors to the Union, its simply not fair
    • The Reserves were mismanaged: We should have created an oil fund like Norway's "Petroleum Fund"; the reserves were not exploited appropriately
    Two relate to a possible Independent future (which is all our vote can actually change)

    • Oil reserves will be better managed by an Independent Scottish government
    • If we are given our geographic share of the oil reserves, our economic future is assured

    1. They Took Our Oil

    This is a hugely emotive subject which goes to the very core of the debate about what Union means.

    Have the benefits of the "our" Oil been shared fairly?
    This has been argued at length of course and there is much debate about how best to measure Scotland's net "contribution to" or "take from" the rest of the UK.  We can think of the spectrum of fairness as being between two points
    1. Scotland gets to keep it's "geographic" share of oil tax receipts (as argued for in the White Paper). This is the equivalent of saying we don't share our oil revenues (i.e. as would be the case for an independent Scotland)
    2. Oil tax receipts are shared across the UK on a "per capita" basis; this would be the most extreme "we're all in this together" view
    I'll go out on limb here and say for me actually historically a per capita share is a reasonable way to look at this (as that's what being in a Union means to me); what should be considered fair as we split our assets for an independent future is a different question and there is wide (although not universal) agreement that the geographic basis will be the fairest way.  I'll come back to this; for now let's accept the "geographic share" argument for historical analysis.

    To be clear: the "geographic share" argument is the one that is the equivalent of saying "Scotland get's to keep 'our' oil money".

    So on that basis how do the numbers look?  I turn here to ICAS , one of my RIBs (Respected Industry Bodies) who provide this helpful analysis of the GERS figures

    Hold on a minute; read those numbers again. Am I missing something here?  What this says (for these two years at least) is public spending per capita in Scotland was about 10% higher than in the UK as a whole; across these two years more public spending per capita was received by Scots than the Tax revenue per capita the Scots contribute even if you allocate the oil tax revenues to the Scots on a geographic share. 

    To put it another way: in the last two years if Scotland had already been independent and was receiving its "geographic share" of oil revenue (the best case scenario) the country would be running a significant per capita spending deficit and a worse one than the UK as a whole.

    I'm struggling here to reconcile the data with the Cybernat rhetoric: "Westminster takes our oil money and gives us pocket money in return" is a refrain I have heard a lot (it competes with "They say we're too wee too poor, too stupid to be independent" line to be the separatists'  most used rhetorical trope).

    So how has this narrative slipped in to (some of) the public consciousness?
    • As reported by STV
      • The Scottish Government said: "the figures showed tax revenues north of the Border were £800 per head higher than the UK as a whole, when a geographic share of North Sea oil is taken into account"
      • First Minister Alex Salmond said: “The figures show that tax revenues generated in 2012-13 were £800 higher per head in Scotland compared with the UK, meaning that now for every one of the last 33 years, tax receipts have been higher in Scotland than the UK.
      • "Business for Scotland" said: "With 8.3% of the UK population, Scotland generated 9.5% of UK tax revenue in the five years to 2012/13, for 9.3% of UK spending.
    • Maureen Watt (SNP MSP): “Westminster has downplayed the value of oil and squandered the revenues for more than 40 years"
    A special mention must go to"Business for Scotland".  These are one of the noisier COGs registered with the electoral commission as a Yes campaigning body. There'll be more on them in another post; suffice it to say they represent a very particular profile of businesses that - how can I put this? - might have their own reasons for promoting the case for an independent Scotland. One of their spokesmen Gavin MacIntryre-Kemp said the following on Newsnight and Online;
    • “Scotland is a wealthy nation but Scotland’s wealth is transferred to London and our economy is being held back.  Scotland generates 9.9% of the UK total tax take but gets only 9.3% of the UK total spending”.

    28/05/14: the section below has been updated from the orginally published version to reflect the latest actual published GERS figures.

    I've gone back to the source data (GERS), collated the numbers onto a spreadsheet, extended the analysis for a few years to give us a bit more context and reconciled the ICAS and BfS figures.

    So what's going on here?
    • Clearly if you use a geographic share basis to allocated oil tax receipts then yes, tax receipts are consistently higher per head in Scotland ...
    • ... but Scotland gets that money back in increased public spending per head
    • But how does that square with the "higher share of tax receipts but lower share of public expenditure" argument?
      • Firstly the year chosen for the 9.8% vs. 9.3% quote was 2011-12 and we now have 2012-13 data available.  The five year data series helps put this volatility in context.
      • Secondly it's simply misleading to present the data in that way "because maths"; the UK has been running a deficit, Public Expenditure is higher than Tax receipts; this means the 9.3% is of a bigger number than the 9.9%.  This is why ICAS (a Respected Industry Body, professionals at presenting numbers and with no political axe to grind) present the data the way they do.  It's why all the main economic forecasters and analysts focus on per capita figures.
    So we can  make some simple statements (with caveats on time periods selected of course, but you can see the data above) that are completely consistent with (but far more meaningful than) the Yes campaign's single statements quoted above:
    1. The Scottish people receive back in higher Public Expenditure per capita an amount equivalent to the higher Tax revenue per capita they could lay claim to contributing
    2. In the last five years: If Scotland had been independent (with it's geographic share of oil revenue) and making the levels of Public Expenditure that have been made whilst part of the UK
      1. Scotland would have been running a significant deficit (similar to the rest of the UK)
      2. In recent years the scale of that deficit is greater for Scotland than the UK as a whole
    Remember: these figure are run assuming geographic share  (84 - 95%) of oil revenues attributed to Scotland.  

    [There is a different argument sometimes put forward around these figures that goes something like "but if we hadn't had to pay our share of the UK debt interest burden then we'd have been far better off". That sounds like a patently ridiculous argument to me, but I will return to it in another post if need be.]

    Were we (are we) honour bound to share the benefits of "Scottish" Oil?
    Its important to remember that the above analysis is based on geographic share of oil tax revenues; it's saying "what would the numbers have looked like if we hadn't shared the oil tax revenues".  It's informative to run "what if we had been independent" analyses; but its logically flawed to then say that if the historical analysis were to show we would have been better off without sharing then that mean we've been unfairly treated as part of the Union. I think this point gets missed because the Independence case falls at the first hurdle: there is no compelling evidence that an Independent Scotland would have been better off if it had got to "keep" its oil revenues.  But why do we even accept that premise for historical purposes?

    The marriage analogy gets over used but in this context I think it's a genuinely helpful one.  People enter into a Union "for richer, for poorer", the underlying principle of a Union must surely be that we pool our assets and resources, we share risks, we share pain, we share good fortune.

    Much has been written about nations' "inherited guilt" (about e.g. slavery or the holocaust); a quick Google search tells me "inherited responsibility" is less discussed, but it's surely a concept that applies here.  Nobody alive today signed up to the Union with England Act; its something we inherit.

    [Out of curiosity I read the Union with England Act 1707.  Couldn't find anything in their that helped, it just depressed me to be honest -- Clause XXV is a doozy. To quote Stephen Fry (talking about Culloden): "Catholic versus Protestant, essentially. It's that kind of fight. And it goes on to this day. Will we never learn? Who knows? Religion. Shit it."]

    Let's try a few thought experiments
    • Would we apply the argument "We'd have never entered the Union if we'd known we were going to find oil off our coast"?  Surely that's like saying I'd never have married you if I'd known I'd already got a winning lottery ticket in my pocket?  Some may think that's a reasonable attitude; I'm not one of those people.
    • If the discovery of a valuable resource is in itself a good enough reason to "split" from your previous partners, doesn't that set a dangerous precedent?  
      • What about Shetland's claim to the Oil revenues, why should they be sharing the fruits of that windfall with the rest of Scotland, let alone the rest of the UK?  Remember too that as a LibDem stronghold they would also be able to apply the (flawed) "we don't get to choose who governs us" argument as well
      • If today's "news" headline Billions of Barrels of Oil have been found in the ground beneath the South of England were taken at face value, would "we" expect "them" to say "its ours, the wider UK shouldn't benefit"?
    So as I've mentioned above; for me actually historically a per capita share is a reasonable way to look at this (as that's what being in a Union means to me); what should be considered fair as we split our assets for an independent future is a different question.

    This may help illustrate my point.  When analysing the benefit to Scotland of the UK Governments Financial Sector Interventions the GERS argues
    • "There are various methods that can be applied to apportion a share of such non-identifiable expenditure to Scotland. The method used in this edition of GERS assigns a population share to Scotland of the total UK expenditure, on the basis that all areas of the UK have benefited equally from the resulting stabilisation of the UK financial system."
    So it seems that sometimes the Scottish Government believes that being part of the Union does mean "we're all in this together" after all.

    So what would the historical numbers look like if we took the per capita approach?

    I've left the %age share of spend numbers in there for comparison purposes and it's worth noting that if we shared oil assets equally equally we'd be getting a higher share of public spend that our share of tax receipts generated; but hopefully we can agree now that is a silly way to look at the figures.  

    So if we had been sharing oil money equally (per capita) then net expenditure in Scotland would have been - consistently  - well over £1,000 per capita higher than the UK average.

    Am I alone in looking at these figures and thinking; "You know what, the Union has treated us pretty fairly when it comes to reinvesting oil proceeds into the Scottish economy through Public Expenditure"?

    Actually it turns out I'm not alone. As I was finalising this post and sourcing links I found this rather excellent article by Professor Brian Ashcroft. The graph below is extracted from that article and provides a helpful
    longer term perspective on the same question; his conclusion appears to be the same as mine.

    Its worth highlighting that all of the analysis above takes a narrow view of the benefits received by Scotland from being part of the Union (i.e. Public Expenditure received).  It's a topic that deserves a separate post.

    OK, that's it for Part I (I've got a plane to catch).  I will return in Part II to cover the following arguments
    • The Reserves were mismanaged: We should have created an oil fund like Norway's "Petroleum Fund"; the reserves were not exploited appropriately
    • Oil reserves will be better managed by an Independent Scottish government
    • If we are given our geographic share of the oil reserves, our economic future is assured

    Who can we Trust?

    This page collates the main sources in the Scottish Referendum debate (with links to key documents) and prioritises them in descending order of objectivity

    • Impartial Observers: IOs
    • Respected Industry Bodies: RIBs
    • Retained Advisers to Governement: RAGs
    • Lone Wolves
    • Campaigning Organisations & Groups: COGs

    To help me sift and assess the mass of research, analysis and - most importantly - opinion available around the Independence referendum debate I decided I needed some sort of framework for working out what weight to give to what sources. This is a best-efforts basis attempt from somebody who is new to 'this sort of thing' so any constructive feedback would be highly welcomed.

    With so many contradictory opinions out there it is self-evident they can't all be right and all opinions are not of equal worth.  People have a natural tendency to place more weight on opinions or pieces of analysis that support their intuitively preferred argument and less on those that don't. To help at least partially shield us from this tendency I propose the following categorisation of sources (and invite additions, amendments or proposed re-allocations)

    Who Can We Trust: In descending order of objectivity;

    Office for National Statistics (ONS) 
    • Factual, historical data (not forecasts)
    • Be wary of simplistic single measure comparisons (as I discuss here: GDP/Capita)
    Impartial Observers: IOs 
    Think of Jupiter's moon Io, orbiting the debate and with the benefit of distance possibly seeing a bigger picture than those mired in it

    Respected Industry Bodies: RIBs
    Think of them as forming the rib-cage, representing vital parts of the economic body
    • What are they
      • Long standing institutions who existed long before and expect to exist long after this specific debate
      • Characterised by a need to be considered and balanced because the views of their members are very unlikely to be unanimously behind one position or the other
    • Look out for
      • The depth of their research; do they merely aggregate opinions or actually invest in primary research and analysis?
      • Their funding: do they rely on donations from particular political parties, businesses or private individuals?
      • Egos: how prominent is the leader's personality in their communications?
    • Think of them as
      • Organisations who have to be very careful before taking a position; if they do, its likely to be pretty well thought through
    • Examples
      • Confederation of British Industry (CBI) [have become clearly #No and tried to register as such with the electoral commission, but I place them here because of their long-standing credibility, breadth of representation and transparent governance structure]
      • Institute of  Chartered Accountiants (ICAS)
    • Relevant Reports / Recommended Reading
      • ICAS
      • CBI
      • Federation of Small Businesses
        • Your Business, Your Vote  which includes the following stunning (when you consider the question was not directly asked) snippet >
        • "In the comments section of this question, 134 members volunteered that they would consider or would definitely be relocating their business outside of an independent Scotland, while a further 51 stated that they would look to close, downsize, sell, or retire early. This totals 185 respondents (10%) who would consider withdrawing their business from the Scottish economy"
      • Weir Group

    Retained Advisers to Government: RAGs
    Think of them as rags used by government to soak up data and from who they wring out answers. These bodies aim to provide independent & authoritative analysis but are often accused of losing objectivity because they serve a particular political master (the rag wringer!).

    Lone Wolves
    Think of them circling the debate, jumping in to bite (often very powerfully) but normally not deigning to stay and fight if challenged.
    • What are they
      • Individuals, ostensibly objective and non-party aligned, relating their expert view
      • Often academic, normally publicity seeking
    • Look out for;
      • Their ego; are they making bold, provocative statements or taking extreme positions to get "airtime"?
      • Any perverse incentives: who has engaged them, are they being paid, do they have anything to gain by leaning for one side of the argument of the other?
      • Remember they lack the intellectual checks & balances that wider bodies (should) have in place
      • Their qualifications and experience; how relevant is it to the topic they are speaking on?
    • Think of them as: 
      • Not as someone who "must be right" but as an academic who has put a paper forward for peer review ... so check their peers' comments before concluding on the merit of their input.
      • Think of climate change debate -- there have been plenty of "respetcted academic" climate change deniers 
    • Examples:
    Campaigning Organisations & Groups: COGs
    Think of them as cogs in a gear-chain, often grinding against each other, rarely meshing but certainly capable of making a lot of noise
    • What are they
      • A collection of people who have gathered together united by a common interest and determined to push one side of the argument (often at all costs)
      • Often "single issue" or "single perspective" focused
      • Normally formed specifically to make noise in this debate and not too fussed about how they do it  (If they intend to spend more than £10,000 in doing so they must register with the electoral commission
    • Look out for
      • Who their members actually are, who actually drives the group, how credible is their claim to be "the voice for xxx"
      • Are they the construct of a political party designed to gain "non-party aligned" credibilty for the party line?
      • Do they provide reasoned and balanced arguments for their case, do they present evidence, are they open in their thought process ... or are they set on generating publicity for a particular view?
      • What is their motivation, what drives them?
    • Think of them as
      • Groups who unashamedly argue one side of the case only: don't expect objectivity or reason, know that any data presented or quotes made are likely to be highly selective. Never take at face value anything they say (but of course you should try and fact check what they say).
    • Examples
      • The White Paper itself of course: Scotland's Future
      • Registered with Electoral Commission as Permitted Participants (so permitted to spend >£10,000) as of 29/07/2014
        • Better Together 2012 Ltd - No
        • Better With Scotland - No
        • Britannica (ex-BNP organiser) - No
        • Business for Scotland Ltd - Yes (this is a very particular cabal, profiled in detail here.)
        • Christians for Independence - Yes
        • Conservative Party - No
        • Cumbria Broadband Rural and Community Projects Limited - No
        • English Democrats - Yes
        • Farming for Yes
        • Generation Yes
        • GMB - No
        • Grand Orange Lodge of Scotland - No
        • Labour for Independence - Yes
        • Labour Party - No
        • Let's Stay Together - No
        • Liberal Democrats - No
        • Mr Alistair McConnachie (barred from UKIP for extreme views) - No
        • Mr Angus MacDonald - No
        • Mr Tony George Stevenson - No
        • Mrs Sarah-Louise Bailey-Kelly - Yes
        • National Collective (Artists and Creatives for Independence Limited) - Yes
        • No Borders Campaign - No
        • Racial Independence Campaign - Yes
        • Scottish Campaign for Nuclear Disarmament - Yes
        • Scottish Green Party - Yes
        • Scottish Independence Convention - Yes
        • Scottish National Party (SNP) - Yes
        • Scottish Socialist Party - Yes
        • Spirit of Independence - Yes
        • Sterlingshire for No Thanks - No
        • The Scottish Research Society - No
        • Union of Shop, Distributive & Allied Workers (USDAW) - No
        • Wealthy Nation - Yes
        • WFS2014 Ltd (Working for Scotland) - No
        • Wings Over Scotland - Yes
        • Women for Independence - Yes
        • Yes Scotland Limited - Yes
    I suppose I should include these; but you've read them already, right?

    Tuesday, 20 May 2014

    Who Says Scotland's too Small to be Independent?

    This isn't a rhetorical question.

    The SNP should be congratulated on managing to get this implied slight to the Scottish people to have been assumed by so many. "They're telling us we're too wee, too poor, too stupid" ... say it often enough and (apparently) people will believe "they" are actually saying it.

    Here's a recent (June 1st 2014) example from Nicola Sturgeon

    • “As a country, we’ve spent an awful long number of years being told we’re too wee, too poor and probably a bit too stupid to be independent,” she said. “If we were too small and too poor and too stupid, if we were the economic basket case, if we were the subsidy junkies that some of our opponents try to imply that we are, then don’t you think Westminster might have offloaded us by now?”
    It appears that this phrase was in fact coined by the SNP's John Swinney back in 2001
    • "And that is why they will always run down the Scots - why they will always say we are too stupid and too poor to be trusted to run the affairs of our own country.
    Could it really be that it's only the SNP and their supporters who say this?

    I've looked very hard for evidence of the No campaign using this line I really have. I've engaged with those referencing this slight to the Scottish Nation and asked them to show me where they read it, who said it, when.

    In response I get links to people pointing out some of the challenges an iScotland will face (tough negotiations with the EU, increased exposure to certain economic risks, damage to trade with the UK etc), lots of rational and reasoned arguments that are well covered elsewhere on this blog.

    Those links have never yet pointed to anyone saying an iScotland is "too small" (either economically or - as hilariously implied by the "responses" to this imagined slight - physically).  Similarly they never link to anybody arguing an iScotland would be "too poor"; just to some people who argue as to why an iScotland may be relatively worse off economically as a result of breaking the Union. Not "too poor" without the Union, not unable to stand on our own feet ...  just better off within it. I don't even need to discuss the "too stupid" line, agreed?

    Now I'm sure someone will be able to dig up a frothing Unionist somewhere who has made some stupid and antagonistic statements that could be at least inferred to be making this slight (although I've yet to find it); but let's just dip our toes into the Twittersphere to see how consistently the separatist campaigners work to perpetuate this myth.

    What follows is honestly representative of what is out there on Twitter (do your own searches if you don't believe me, read my Twitter feed) and if you follow the links (as I have) they don't go to anybody even implying it. These are, of course, all Yes campaigners responding to this assumed slight so as to implant it in the collective consciousness.

    [Watch the clip, that's not what he says]

    [To be fair, the "no borders" cinema advert referenced in this Tweet is embarrasingly piss-poor]

    [Read the quotes linked to, they say nothing of the kind]

    [This GDP/Capita argument crops up a lot; I cover it here > Look at Ireland's GDP/Capita

    Trust me, I really could go on much longer with this, but I think you get the idea by now ...

    So my response to the rhetorical "Who says Scotland's too wee, too poor, too stupid?" is something like this ...

    I'm indebted to @aluminiumville for pointing me towards this: an actual example of a No proponent using these fabled words.  I mean, he is using them in a light-hearted blog for rhetorical effect as an echo of the sort of complaints being made above .... but he does say it.  What's the matter with the Scots.

    My serious point stands.