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.

    1 comment:

    Unknown said...

    I've enjoyed reading your posts during this campaign Kevin because they invariably offer a refreshing alternative to the hype and distorted facts presented by each side. You have always left a trail to lead to the source of any stated fact so that its authenticity can be verified and this has been much appreciated.