The Emotional Case for Union: Articulating an Implicit Moral Contract

Whether you’re still mourning the result of the EU referendum or are one of those who sees Brexit as some brave new dawn (I know you’re out there), if you’d rather not see the break up of the UK then take a moment to consider this: Brexit is an illustration of the price we pay if we neglect to counter relentless grievance-mongering against a long-standing Union.

Alternatively, if you’re against Brexit but in favour of Scottish independence based on some emotional or “democratic deficit” based argument, I hope what follows may at least give you some pause for thought.

If however you’re in favour both of Brexit and Scotland leaving the UK ... well I’m afraid I can’t help you, best you stop reading now.

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It’s probably fair to suggest that what we saw with the EU referendum was the rational economic arguments against Brexit losing out to the emotional “taking back control” arguments in favour. Conversely, the Scottish Independence referendum was won by many voting No because their head was convinced by the economic arguments against, despite their heart being tempted by the emotional case for.

That’s partly because the economic arguments against Scottish Independence were an order of magnitude more compelling that those against Brexit: however bad you think Brexit is for the UK, exiting the UK would be so much worse for Scotland.

But what I want to focus on here is the nature of the emotional arguments in favour of Union, and the fact that far from being distinct or conflicting, the economic and emotional cases are inextricably intertwined. The economic case only exists because of the emotional case, it’s just that the emotional case is so deeply ingrained in most of us that we struggle to articulate it.

This debate matters and it matters now. If we wait until the imminent threat of another referendum before bothering to make the positive emotional case for the UK, we risk seeing Scotland’s relationship with the UK following the same path as the UK’s with the EU. Relationships suffer if emotions are neglected; a good marriage needs to be worked at.

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Let’s start by looking at the SNP’s core - and superficially compelling - emotional argument:

"The SNP believes that decisions about Scotland’s future – about our economy and society – are best taken by the people of Scotland: the more powers we have in Scotland the more we can achieve for the people who live here" - SNP 2015 Manifesto

In part this formulation simply relies on the reader’s sense of identity meaning that “we” and “Scotland” are emotionally synonymous. Of course those who are happy to think of “we” as the people of the UK can simply substitute “the UK” for “Scotland” in the phrase above and - if you’re so minded - this phrase then becomes an articulation of why we should leave the EU. There’s an obvious irony to the fact that the SNP’s core argument for independence is effectively the same as UKIP’s “take back control” argument for the Brexit the SNP so vehemently oppose.

But what of those who intuitively have a primarily Scottish sense of identity? For those people, the fundamental issue should be that the implied logical connection between the SNP’s statement and the conclusion that Scotland should be independent doesn’t actually exist; you can agree that “decisions about Scotland’s future should be taken by the people of Scotland” without concluding that Scotland should be an independent country.

Representative democracy allows us to decide how best to define which group of “us” should make what decisions. We decide that some issues make sense controlled at local council level, some by the constituent nations within the UK, some by the UK as a whole. Of course many also believe that some are better taken at an EU level or by the United Nations. So what some lazily term a “democratic deficit” others see as simply the result of deciding to participate in a democratic hierarchy that allows some decisions to be taken as part of a larger whole for a wider common good.

The biggest weakness in the SNP’s argument is of course the fact that the 2014 independence referendum took place and that the result was so clear. That vote wasn’t just about self-determination, it was self-determination. It was the purest possible demonstration of the people of Scotland making a decision about Scotland’s future – and we decided that our economy and society would be best served by remaining part of a wider democratic union. Just because the SNP don’t like that answer doesn’t make it not so.

The SNP would of course be quick to point out that no decision can be permanent and since the indyref there has been “material change” with the EU referendum vote threatening to see Scotland “dragged out of the EU against our will”.

Of course there have been other “material changes”, not least those to the economic case for independence. The oil revenue forecasts used by the SNP to underpin their fiscal projections are now known to have been recklessly optimistic and the SNP have accepted that they need a more credible answer to the currency question than simply saying “we’ll keep the pound” (but have yet to find one). The deafening silence from the “SNP Growth Commission” suggests they’re struggling to find a palatable strategy for maintaining an independent Scotland’s fiscal sustainability without slashing public services and while also finding the capacity to invest to grow the Scottish economy faster that the rest of the UK. They may be finding that it’s a lot easier to complain about how things are than it is to outline a credible alternative for how things should be.

The Nationalist’s biggest economic problem though is Brexit itself. Their previous assertion that Scotland’s trade with the rest of the UK would be unaffected by independence has gone from being at best dubious to now completely indefensible. If Brexit means the UK becomes subject to trade barriers with the EU, then a decision about Scottish independence becomes in part a decision about which trading block we favour: we would have to choose between the UK and the EU (or quite possibly risk ending up in neither). The fact that we export four times more to the rest of the UK than we do to the rest of the EU is now a pretty compelling economic argument against Scottish independence.

So the economic case remains the Nationalists Achilles’ heel, and they know it. In the press this week Ian Blackford MP (Leader of the SNP in the House of Commons) was quoted as saying that the SNP must convince Scots voters that their “economic future is better as an independent country”. Given they’ve demonstrably failed to do so to date, you’d think the SNP might at least consider the possibility that they’ll need to convince people that having a worse economic future is a price worth paying for independence

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But just as the Nationalists need to work on their economic case, so those of us who intuitively feel that the Union is “a good thing” need to find better ways to articulate and communicate our emotional case. One blog certainly won’t do it, but let me make a tentative start.

The people of the UK are bound together by much more than a common language and the economic self-interest of a shared currency and the UK-wide single market. We have a long history of common endeavour and a shared a sense of responsibility to look after all of those who live on these islands.

This results in what we might term an implicit moral contract that most of us accept without ever really considering it. This assumed contract means that wherever you live in the UK, whatever your background, class or economic circumstances, we will pool together to look after you.

There are standards of education you should receive, healthcare you should access, public services you should be able to rely on, a sense of security you should feel and a standard of living you should be able to maintain which should exist wherever you live within the UK. These things should not be based on the economic contribution you individually (or your region collectively) make. As a matter of principle we pool and share resources to ensure that basic standards are guaranteed - and over time raised - for all of “us” in the UK.

Needless to say, politicians will make their own cases for how best to fairly go about it and we can argue the merits of their different strategies all day long - but I’d hazard that few of them would disagree that their aim is to deliver against this contract, that it transcends party politics.

This moral contract lies at the heart of the emotional case for maintaining the Union and fairly obviously underpins the economic one. If you accept this implicit moral contract, questions like “why should we share our oil?” or “why should Scotland need fiscal transfers from the rest of the UK?” just seem daft: pooling and sharing happens because it’s the morally decent thing to do.

Similarly the flaw in the thinking which suggests “full fiscal autonomy” for any constituent part of the UK is some kind of ideal end-game becomes clear: if we economically ring-fence any geographic area of the UK we necessarily break this contract. Fiscal transfers are not a symptom of regional economic failings, they're the tangible result of a positive moral choice.

Referendums certainly (and general elections possibly) can offer us the chance to choose to narrow the definition of the “us” that this moral contract applies to.  Just as the EU referendum appears to have shown that many believe “we” shouldn’t include our EU neighbours, so it’s fair that Scottish Nationalists are free to argue that “we” shouldn’t include those with whom we share these islands.

Those committed to breaking up the UK will keep working towards it. Those of us who disagree with them, who believe that more unites than divides us on these islands, who believe that this implicit moral contract is something precious to be cherished - it's time we got to work too.

Who's Really Against Austerity?

It's increasingly clear that the key to political popularity these days is to tell anybody who'll listen that you're "anti-austerity" and that your opponents are "pro-austerity". It's quite simple really: we're being subjected to unnecessary hardship because [insert nemesis] is ideologically committed to austerity and causing unnecessary economic pain. The names of Paul Krugman and Joseph Stiglitz are normally mentioned; cue rapturous applause and soaring poll ratings.

Now the two Nobel Laureats cited above are undoubtedly hugely influential economic thinkers and staggeringly smart men - but I would suggest they are only peerless in their field when it comes to self-promotion. You don't need to believe you're smarter than them to observe that it's easy to build a popular following by telling people that they needn't be enduring the austerity being foisted on them by nasty politicians. That those nasty politicians have to prioritise actually running national economies ahead of selling popular books on economics and building their media profiles is by the by.

I'm not saying that Krugman and Stiglitz are wrong - I'm simply suggesting that they could well be wrong, that having a Nobel Prize does not confer infallibility.

If we were able to sit and discuss the question of austerity with either of these two eminent men, I'd like to think that they'd make nuanced arguments. Maybe they'd suggest that austerity isn't really a binary choice - it's not something that you either do or don't do - but that's its all about timing and degree. Maybe they'd sheepishly explain that part of their role is to gain headlines, fill column inches, boost their universities' profiles - to be box office.  Maybe we'd discover some of their more simplistic (some say strident, some say patronising) pronouncements are simply a result of them playing to the gallery;

"I don’t know how many Britons realise the extent to which their economic debate has diverged from the rest of the western world – the extent to which the UK seems stuck on obsessions that have been mainly laughed out of the discourse elsewhere" - Paul Krugman

"Austerity has failed. But its defenders are willing to claim victory on the basis of the weakest possible evidence: the economy is no longer collapsing, so austerity must be working!" - Joseph Stiglitz

When it comes to the public debate they are in the enviable position of arguing against strategies currently being pursued - it's pretty easy for them to simply assert that whatever the current outcomes, it would have all been so much better if only more politicians had listened to them.

Unfortunately for Krugman he squandered some of this advantage by making doom-laden forecasts of continued economic decline and spiraling unemployment. As many commentators have pointed out, events have proved him wrong: "Paul Krugman is wrong about the UK and borrowing" (Andrew Lilico), "Where Krugman Goes Wrong About Expansionary Austerity" (Tim Worstall), "Paul Krugman has got it wrong on austerity" (Jeffrey Sach).

Fair enough. There's nothing wrong with lauded experts' forecasts occasionally being seen to be wrong (unless you're one of those who believe Nobel Prize winning economists are somehow meant to be infallible).

How does Krugman explain why economies pursuing the austerity he dismisses have been recovering? Take this example where he states that after imposing "harsh austerity" in 2010:

"... Prime Minister David Cameron’s government backed off, putting plans for further austerity on hold (but without admitting that it was doing any such thing)" - Krugman

Krugman is so passionately wedded to "austerity bad" (in a way that doesn't allow for any nuance around nature or degree of austerity being pursued) that the only way he can explain how unemployment has continued to fall and modest economic growth has been delivered is to suggest that we've not really been experiencing austerity after all. We went from "harsh austerity" (we'll come on to look at whether that was actually true) to no austerity at all. Who knew?

Of course the reality that Krugman himself is tacitly admitting to here is that austerity isn't as black-and-white a choice as his headline assertions would have us believe.

One of the problems is that it's not always clear what we mean when we talk about austerity. This isn't "just semantics" - it's important that we agree what a word means before we decide if we're for or against it.  Let's take two definitions of "austerity";

• "In economics, austerity is a set of policies with the aim of reducing government budget deficits. Austerity policies may include spending cuts, tax increases, or a mixture of both."
  - Wikipedia
• "A lower standard of living associated with the curtailment of government spending" - Chambers Dictionary: 

Of course the first of these defines austerity policies, the second describes the hardship that is one of the potential outcomes of some austerity policies. This semantic confusion is easily exploited in the world of sound-bite politics. It's as if we used the same word for surgery and pain: we're probably all against pain (other than the occasional masochist among us) but I'd suggest fewer of us are against surgery.

So let's agree that by "anti-austerity" we mean being against directly addressing the deficit through spending reductions and/or increases in taxation rates (the alternative being to increase expenditure and/or lower taxation rates in the hope that resultant economic growth will lead to higher tax revenues sufficient to cause indirect deficit reduction ... or I suppose if you're really blasé there's an option not to worry about deficit reduction at all).

If you accept this definition and think about it for even just a nano-second, it's clear that statements like "Anyone who understands macroeconomics knows that austerity is microeconomic theory that can't work" are nonsensical. The corollary of that argument would be that no spending level can be too high, no taxation level can ever be too low - that no matter what the deficit level you should never reduce spending levels or raise tax rates (because that would be the very definition of austerity and that "can't work").

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As an aside; the quote above comes from a Twitter exchange with Richard Murphy of Tax Research UK. He often makes very useful contributions to taxation debates in particular - but in this instance he actually asserted that austerity was "deliberate sabotage of UK economy". He appears to be currently acting as Jeremy Corbyn's economic advisor. Quite incredible.

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To be clear: I'm not championing "austerity" here, I'm merely suggesting that we have to look at the nature, scale and pace of austerity measures being introduced before we can form a view as to whether they are appropriate or not. I'm also not arguing that the way the austerity we have experienced in the UK has been delivered is "right" - I happen to believe that too much attention has been paid to reducing spend and not enough to raising taxes (as we'll come on to see), and that the spread of pain has fallen far too heavily on the poorest in society. This graph (created by the ever excellent IFS) illustrates the second of these points clearly - the people being squeezed down on are not the middle, they're the poor.

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Twitter exchanges have taught me that people struggle to read this graph  so I'll walk through it (assuming you've at least read the title). 

• From left to right we see the poorest in society across to the richest, broken into deciles (groups of 10%) - so the poorest 10% in our society are the left-most column, the richest 10% the right-most of the continuous sequence. The final column on its own on the right is the overall average.
• The coloured bar elements sum to show the annual cash impact (the white line) of the tax and benefit reforms on individuals in each of these groups - so the poorest 10% loose £800, the next poorest 10% lose £1,300 ... whereas the richest 10% only lose £200 and the second-richest 10% actually gain nearly £200
• The blue line shows the same thing but as a percent of net income (i.e. what proportion of "take-home" money is lost) using the right-hand scale  - so the poorest 10% and next poorest 10% are about 7% worse off ... whereas the richest 10% are only 1% worse off and the second richest 10% are actually slightly better off.

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It strikes me the only way we can move away from the simplistic binary rhetoric of pro- and anti- austerity is to look at some actual data - what levels of austerity are we in the UK experiencing and how do these compare with other economic areas? If we're "anti-austerity" what precisely is it that we're against?

I've downloaded info from the Eurostat Annual Macro-economic Database (May 2015) and stuck to this single source (trusting that the EU's economists are better at compiling cross-country comparable economic data than this weary blogger). The data series they provide includes forecasts for 2015 and 2016 - for some reason they don't provide data prior to 2006 for "Euro area" or Greece. So be it.

The analytical approach I've chosen is to take 2006 as a base year for indexing purposes  (i.e. the year before the current economic crisis kicked-off) and to look 10 years either-side so we can see the net effect of the financial crisis and austerity measures in context. It's an approach that has its pros and cons (choosing an arbitrary starting year is always slightly dodgy) but it gets us going, allows us to at least start asking some sensible questions.  If you think of understanding the figures as peeling the onion, what follows is just the removal of the crusty brown outer layer.

Starting with government expenditure (excluding debt interest) in real terms and comparing the UK with the US and the Euro Area;

The surge in spending through 2007 - 2012 is due in part to government interventions to support the banks¹ (the UK intervened earlier than the Euro Area) ... so presumably part of the subsequent apparent decrease would be due to these interventions not being repeated. The key here is that I think it's reasonable to compare our 100 index point of 2006 (before any interventions) to 2014 (after the main interventions) to get a sense of the underlying real terms increase in spending over that period. On that basis we can see that government spending in the UK and Euro Area is actually about 10% higher than pre-crisis levels and the US is on track to be 20% higher. 

Now let's add to this graph some selected Euro Area countries to provide a little wider context - the scale of the financial intervention in Ireland of course stands out;

It's interesting to note that the only countries spending below pre-crisis levels are (of course) Greece and (just) Italy. The trend in UK spending is towards the bottom end of the range of other countries but is very similar (post 2006) to Germany and the Euro Area countries. Prior to 2006 it's clear the the UK's rate of government spending was increasing at a markedly faster rate than all but Ireland; France and in particular Germany have seen far smoother (but on average lower) spending growth over the period. The forecasts (when Eurostat published these figures in March) are for The UK to be the only country other than Greece to be reducing real spend.

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As an aside: in the context of the Scottish FFA debate I've highlighted before that if you were to close the £8bn deficit gap through spending cuts that would require a 12% reduction in government spending. That would drop us somewhere between Italy and Greece on this graph - proof that it could be done I guess.

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To what extent are these absolute expenditure trends supported by GDP growth? To understand this (and get a sense of the different government spending models) we can look at spending as percent of GDP;

It's no surprise that the US has a lower government spending model and it's clear their forecast spending increase is GDP growth driven (spend/GDP is actually slightly declining). The UK's model is to to spend slightly less of GDP than the Euro Area average - and the current trend is to further widen that gap.

Adding other countries for a wider perspective, France's higher spend model stands out.

So we've seen the spend side of austerity - now let's look at the taxation side. We're going to look here at the Tax Burden as percentage of GDP² so we can see the extent to which tax has been used as austerity measure (again indexed to 2006);

It's striking that (relative to the starting point of 2006), the UK has been been reducing the tax burden overall whereas the Euro Area and the US have been increasing it. Oil revenue declines will be a contributing factor here but certainly doesn't explain this size of shift³; clearly something else is going on. Depending on your perspective you might see this as justified if it drives superior growth in the UK, or you might feel that increasing the overall tax burden is (potentially) a good way to make sure those with broader shoulders can take their share of the pain of austerity (and free economic capacity for spending driven growth).

Adding other countries to the graph simply reinforces this observation - the UK's is the only line heading downwards in recent years, the only country reducing our tax burden;

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Here's a good point to pause and consider Krugman's comment about the "harsh austerity" implemented in the UK in 2010.

I'd suggest you would measure "harshness" by either the steepness of either the increase in tax burden/GDP or the decrease in real expenditure - or possibly by the overall change in these measure from 2006 (pre-crisis) to now. On that basis I reckon Greece, Ireland and Spain have experienced far harsher cost side austerity than us and we've largely avoided tax side austerity (unlike Greece, Italy, France and - to a minor degree - Germany).

Some of the poorest people in the UK have experienced austerity of course (per the earlier IFS "squeezed Poor" analysis) - but at a macro level it's hard to argue that the UK as a whole has experienced "harsh" austerity.

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To complete the picture it makes sense to look at the tax burden as a percentage of GDP. As you would expect this is broadly the same profile as the spend/GDP graphs: the US economy is a low tax / low spend model; the Euro Area is (on average) a higher tax / higher spend model than the UK

You know the drill by now - we'll add other countries and you can pick your favourite;

So now we've got an actual data driven view of the alternative tax/spend and austerity models being pursued, let's see what macro outcomes are being delivered. We'll start with real GDP (again indexed to 2006);

The Euro Area has had it's double dip recession and is limping back towards growth; the UK is back to reasonable levels of growth; the US has been growing steadily now for 5 years. If what we've been experiencing is austerity, by this measure at least it's working. Of course we will never know what might have happened had we just kept spending ...

Let's add the other countries for the wider context;

It's clear that in terms of real GDP growth only the US and Germany (of our selected subset of countries) have done better than the UK since 2006 ... and if you look carefully you'll see that we've grown faster than all of these comparators except the US since 1996*. The scale of Greece, Italy and Spain's woes is clear, as is the extent to which they drag down the Euro Area.

*Addendum: looking again I see Ireland has actually grown significantly faster over the long period

Finally let's look at Deficit/GDP. This is simply an arithmetic function of all the figures we've just covered plus non tax-burden government revenues less debt interest^4,5 (I'm too tired to graph these but trust me it all adds up - I'm careful like that);

On this important measure (below the line means the absolute debt is increasing), the UK and the US started from worse positions in 2006 and fell deeper than the Euro Area - but in all cases the deficit to GDP ratio is improving and (recognising the last two years are forecasts) the UK appears to be reducing its deficit at an accelerating rate. On this measure we are close to getting back to where we were before the crisis - although of course our debt burden now is much greater and the UK's deficit rate is still materially worse than that of the Euro Area.

One last time; let's crowd the graph up;

We weren't in a great place in 2006. The combination of cost-side austerity and GDP growth is slowly coming to our rescue but on latest actual numbers we still have a deficit of concerning magnitude (for reference the EU's "excessive deficit" threshold is 3%). It's possible that reducing the tax burden is at least in part the driver of higher GDP growth - but it's yet to be shown whether that will truly deliver in terms of deficit reduction.

Focusing on the UK: it seems to me there's room to be a bit more aggressive on overall taxation levels and certainly opportunities to spread some of the pain away from the poorest in society; in return it looks like we could let our belt out a notch on expenditure to drive economic growth through investment.  Of course that - at its simplest - was the Labour Party's economic strategy going in to the last General Election.

Funnily enough it's also pretty much what the SNP's published economic strategy was too. Analysis by the IFS showed they basically matched Labour's more relaxed spending plans ...

... but (despite their cries of "social justice") were less willing to use tax increases as an economic lever.

Of course the SNP's rhetoric was that they were the only anti-austerity party⁶.  The IFS showed - and anybody paying attention already knew - the easy sound-bites were not supported by published policies.  So next time somebody tells you they're against austerity, maybe ask them what they actually mean by that.

It strikes me that being against austerity is like being against surgery: it's unpleasant, you only do it if you have to and there are a wide range of different procedures to choose from.  Not all cuts are the same.

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Footnotes

1. As explained at least in part by Eurostat (Impact of support for financial institutions on government deficitsImpact of support for financial institutions on government deficits) bank capital injections were largely treated as "deficit increasing capital transfers (government expenditure)" and had a big impact on Euro Area Expenditure in 2010 and 2012 - these were calculated to increase Euro Area deficit by about 0.5% of GDP in each of those years and given spend/GDP is <50%, the direct  impact of the bailouts would only be about 2 index points on the Euro Area spending line. The impact in Ireland was much larger (20% of GDP in 2010) and was significant in Greece and Spain in (3 - 4%of GDP 2012).

2. This this makes up about 90% of the total government revenue for the UK and Euro Area, about 83% in the US.

3. Oil revenues went from 2.3% of UK revenue in 08-09 to 0.8% in 13-14 (per HMRC/GERS) so that would only explain roughly 1.5 points of index movement

4. It breaks down like this:

  -  Revenue/GDP  = (Tax burden/GDP + other revenues/GDP*) 

  -  Spend/GDP = (Spend.GDP + interest/GDP**)

  -  Deficit/GDP = Revenue/GDP - Spend/GDP

* In the UK these are fairly consistently about 4% or GDP, in the US 6-7% -- I've not dug into detail but I presume they include Gross Operating Surplus of state owned assets and proceeds from asset sales

** In the UK this was 2.0% of GDP in 2006, 2.7% in 2014

5. An annoying definitional idiosyncracy: Public deficit/surplus is defined in the Maastricht Treaty as general government net borrowing/lending according to the European System of Accounts (ESA95) - to all intents and purposes this means that we can treat "net borrowing/lending" as the same thing as "deficit". I've checked and the figures do indeed reconcile closely with the figures you'll find elsewhere n this blog using UK Government and GERS figures.

6. "48 Hours To End Austerity: SNP MPs will vote for an end to austerity and against Labour or Tory cuts"

The Case in Summary

"For too long, the referendum debate has been presented as one side representing Scotland and the other side representing Britain.  In fact, the real debate is between two Scottish visions of Scotland's future – the nationalist one based on the breaking of all political links with the UK and 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

There will be many detailed posts to come so to help keep a logical thread in place I will attempt to maintain a simple summary of the arguments as I understand them here. I'll try and edit on an ongoing basis, amending as necessary, responding to comment where appropriate, altering my view if persuaded. This is a work in progress, not a completed thesis!


1. We Should Decide who Governs Us (summarises We Should Decide who Governs Us)

"The people of Scotland will always get governments we vote for"
SNP White Paper, part 1 (first bullet point)

This seems to be the most often cited reason for voting for Independence; on the surface hard to argue with but if you scratch the surface of that argument (which I do in some detail, here) you might conclude;

• Making a country smaller does not make it in some way "more democratic", it just makes it smaller. That might be better or worse for a variety of reasons, but being "more democratic" will not be one of them.
• "We" (the people of the UK) do decide who governs us: it's a representative democracy
• In a representative democracy, no constituency always gets the government they vote for
• Of course Scotland is more than "just a constituency": that's why we have a devolved Scottish Parliament
• We make a trade-off between the scale of our democratic State and the extent to which we get what "we" want all the time: otherwise why not "Independence for Shetland"?
• It is naive in the extreme to point at every political failing in the last 50 years and blame it on "Westminster politics". In 13 of the last 17 years the UK has been governed by the party Scotland voted for; we can't pretend failings in that time would not have happened if only the Scottish vote had counted

A point that needs clarifying: This is not a vote for self-determination. The vote is self determination, we - the people of Scotland - are exercising that right, not voting for it. We are voting to decide if we'd rather be separated from the Union ("free to pursue 'our' own path") or remain within the Union ("continuing to benefit from pooling and sharing risks &  resources across the UK").

There is a sensible argument that Scotland is so consistently Left-leaning that we could form an Independent State that would stand as a beacon for social justice around the world (and get involved in fewer wars). It's a good argument if;

• If it is believed with a strength of conviction that justifies the case despite the loss of the benefits of Union, not in denial of them
• If you believe that the politics of an Independent Scotland will be immune from the failings of the Politics of Westminster (they'll still be politicians after all)
• If your aspirations for a more socially just society stop on this side of Hadrian's wall
• If you believe the the aspirational vision presented in the White Paper is actually achievable in any meaningful sense
• There are posts here on Scotland & the EU, Trade with rUK and more to come covering specific areas where the White Paper simply fails to recognise (let alone address) the issues
• Look in the White Paper and see if anywhere the economic implications of the promises made are actually added up. I've looked, I can't find it anywhere. That is an extraordinary failing on the part of those trying to make the case for breaking the Union.

2. We want our fair share of Oil Money (Summarising  Oil & Gas (Part I): For Richer, For Poorer and Oil & Gas (Part II): The Oil Fund)

This one is surprisingly straight-forward when you look at the figures dispassionately.  The numbers used by both sides of the argument are the same, and they show;

• Scotland receives a higher level of public expenditure per head than rUK which almost exactly compensates for the higher tax revenues generated per head even if you give Scotland her geographic share of oil tax revenue
• An independent Scotland (with our geographic share of oil tax revenue and making the same levels of public expenditure as we have been) would be running a higher per capita deficit that the UK
• Comparing *percentage* of tax revenue versus *percentage* of public expenditure is simply not the right way to look at it (they are percentages of different numbers). It's the *absolute* per capita numbers that count as any economist (or honest politician) knows.
• It is demonstrably incorrect to claim that Scotland has not had its "fair share" of the oil revenues generated

All of the above is based on the premise that to show Scotland has been treated fairly within the Union requires us to show that Scotland effectively got to keep its oil revenues in the form of greater public spending. I argue that's not an appropriate way to consider the analysis historically as a part of the Union with the commitments to pooling and sharing that implies.  For me it's like saying "If I'd known I had that winning lottery ticket in my pocket I'd never have married you".

Questions about the strategy of what reserves to exploit when and whether a (UK) oil fund should have been established are separate from this. One of the arguments put forward by the Scottish Government is that we should have had an oil fund, that if we had we'd now be as wealthy as Norway.  That's all well and good but - at the risk of stating the obvious -  to have created an Oil Fund we'd have needed to not spend the money.  I cover this in detail here: Oil & Gas (Part II): The Oil Fund

Norway founded their "Petroleum Fund" in 1990 and have made some tough choices to be able to fund it: the cost of living in Norway is 40% higher than the UK and (for example) the healthcare system is not free at point of use and compares very poorly to the NHS.  Now don't get me wrong - the OECD better life index shows Norway comfortably out-performing the UK on most measures.  My point is not that Norway made bad choices but rather they made tough and at times unpopular choices to get to where they are.  It's all very well - with the benefit of 20:20 hindsight - to say "we could have had an oil fund". The question is not who is saying that now but who was saying that then; can we really assume that an independent Scotland would have made different choices?

So to see if we might have done I checked through the SNP manifestos back as far as 1997 (there is a limit to the suffering I am willing to go through for this blog and that was it).

I found one mention of the possibility of a Scottish oil fund in the 2005 manifesto; nothing before and nothing after. Norway is mentioned once in the 1997 manifesto and only reappears in 2007 (when it is mentioned 5 times). The first mention in Hansard is an early day motion in January 2002.  To put the level of noise made about an oil fund into context: my Hansard searches turned up 68 results relating to "Oil Fund" compared to 674 results relating to "Scottish Gaelic".

I think we can conclude that the Oil Fund about which the SNP are so keen to talk now wasn't very near the top of their priority list when it could have actually made a difference in the 1990s.

So it's hard to argue that an independent Scotland would have had the political vision and conviction to make the sacrifices required to build an oil fund; we can't credibly say "we'd have had an oil fund if only it hadn't been for pesky Westminster". We didn't make the sacrifices at the time, we spent our share of the money. Should've, would've, could've.

Of course all of this is of academic interest only. The past is the past; Time's arrow flies and we can only change what's in front of us.

So what relevance is the Oil Fund debate to the future? Vote for independence and we will have an oil fund, right? Well, not quite.  The relevant passage from the White Paper is extracted below

Let's just pick out the key words: "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.  If there is an opportunity to build an oil fund in the future then that opportunity will exist for the UK as much as it would for an independent Scotland. It's not an independence issues, its a broader question of political will and vision, of whether "we" would be willing to sacrifice "jam today" if we face the choice again.  For reasons outlined elsewhere in this blog, the economic capacity to build an Oil Fund in the future is more likely to exist for Scotland as part of the United Kingdom than for an independent Scotland no longer enjoying the economic benefits of Union.

3. Trading with rUK (Summarising  Independence & Scotland's Trade with rUK.)

Two-thirds of Scotland's exports go to rUK ("rest of UK); as a direct consequence many jobs in Scotland are contingent on seamless trading between Scotland and the UK. In fact (as elaborated in my post Business for Scotland: Who are they?) current best available estimates are that 37% of jobs in Scotland depend on links to the rest of the UK.  That independence will impact that trading relationship is undeniable, the only question is how much and in return for what upside.

One of the underpinning drivers for the Independence case is to allow divergent approaches to the EU; this inevitably creates risks for those trading between an iScotland and rUK and therefore for employment in Scotland.

• It becomes likely (it can be argued as inevitable) that we will have separate currencies within a few years because Sterling-zone participation is incompatible with the conditions likely to be imposed for an iScotland to negotiate continued (constructive) EU membership.
• This point is important: 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. This is plainly unrealistic; if you disagree please read my detailed analysis here: Independent Scotland and the EU.
• Independence creates the conditions where it is possible for one of iScotland or rUK to be in the EU whilst the other is out; where sales from a Scottish businesses to rUK could become cross-border from an EU perspective. That this "one in, the other out" scenario would make trade with rUK more difficult than it is today is obvious. To be clear; it's not inevitable, but it is a significant risk that only a pro-independence vote exposes us to.
• The line that "the biggest risk to Scotland with respect to the EU is an in/out referendum" is often used in this context. Let's think this through;
• Independence doesn't protect Scotland from the major downside of a possible "out" vote. Excluding Oil & Gas, Scotland exports four time as much to rUK as it does to the rest of the EU [Scotland's Global Connections Survey 2012]
• If one was to pursue a purely rational self-interest argument on this point alone: surely better to be "in the UK outside the EU" than "inside the EU outside the UK"?  
• I want my vote to be able to keep the whole of the UK in the EU (by voting against the parties pushing for a referendum and/or by exercising my vote in such a referendum if it ever takes place). At the risk of stating the obvious; the Scottish electorate lose any say in that matter if we vote Yes on September 18th
• Assuming both iScotland and rUK remain in the EU (IMHO the likely end-game under an independence scenario) the concessions an iScotland will have had to make (nobody credibly argues concessions won't be required) can only create complications to trade with the UK. 

Continuing to physically ship goods "across the border" is vital to our economic success; a Yes vote would fundamentally change the risk profile of many Scottish businesses. This is not a marginal issue; this is about employment in and the wider economic success of an independent Scotland.

To be absolutely clear: there are other arguments for and against (I will try and cover many of them) but for me this issue is the one which seems least well understood in the debates I have participated in and witnessed.  I am NOT saying that an independent Scotland couldn't continue to trade with rUK and EU, I'm NOT saying an independent Scotland couldn't succeed on the global stage: all I am saying is that I am convinced that Scotland as part of the Union will be more successful than Scotland outside of it because of our seamless trading links with rUK.

Any credible argument for Independence must be made despite these risks, not in denial of them.

If you're not convinced, please read the full post here: Independence & Scotland's Trade with rUK.


4. Scotland and the EU (summarising Independent Scotland and the EU)

The following are Verbatim quotes from the White Paper (the emphases are my own)

• "While the Scottish Government recognises the political and economic objectives of the Eurozone, an independent Scotland will not seek membership"
• "Will Scotland be forced to join the Euro? No"
• "Nor will we seek membership of the Schengen area."
• "Would an independent Scotland be forced to join the Schengen Agreement? No."
• "the Scottish Government will not seek to re-open budget discussions until the next funding cycle ... the UK rebate will be a matter for agreement between the Scottish and Westminster Governments"
• "We will seek to negotiate an uplift in CAP Pillar 2 funding"
• "will give Scotland the opportunity to take a leadership role in reforming the Common Fisheries Policy"
• "the Scottish Government will seek to retain the current flexibility to opt into new measures on Justice and Home Affairs."

You will notice a lot of "seeking to" and "not Seeking to". Nobody should (or reasonably could) believe that all of the benefits and concessions "sought" will be achieved. Similarly nobody is arguing that an independent Scotland could be "forced" into anything either. It's a negotiation, Scotland can decide if the conditions placed on it to remain in the EU are too onerous, can choose not to remain in the EU, can decide to trade-off various elements of the wish-list in return for the benefit of remaining in the EU. It's a negotiation.

To understand the context of this negotiation let's accept the most favourable scenario, the one the SNP base their case on: the written evidence provided to the Scottish parliament by Graham Avery. Verbatim quotes (again emphases my own):

• "In accession negotiations with non-member countries the EU has always strongly resisted other changes or opt-outs from the basic Treaties; at this stage it remains to be seen what might be requested by Scottish representatives concerning the euro or the Schengen area of free movement of persons."
• "it remains to be seen whether Scottish representatives would request changes in the application of EU rules and policies, for example the fisheries policy or payments into the EU budget"

If you read the White Paper and listen to the rhetoric used in debate, these issues don't "remain to be seen". It appears Mr Avery's case is not predicated on the same assumptions as the White Paper; or at least he has been careful to distance himself from those assumptions when making his case for a possible negotiated remaining in the EU. I personally think those statements are a tacit admission on his part that the conditions "sought" in the White Paper are clearly unachievable, but maybe I'm reaching a little there. Form your own view.

The SNP often adopts the line "we couldn't be made to join [Eurozone or Schengen]  because we don't meet the conditions".  Yet. We don't meet the conditions yet. Given all new member states have to join, it seems pretty much inevitable that legally binding commitments will be sought from an Independent Scotland to join these arrangements within a set period of becoming a new Member State.  As I have mentioned elsewhere on this blog, Chic Brodie (SNP MSP) offered, during a public debate, that in his opinion commitments to join the Euro would indeed inevitably be required. 

Let's move on to the the specific process required, again to quote Mr Avery's paper:

• "a modification of the EU Treaties would be necessary"
• "[Scotland] could indicate its wish for Scotland to remain in the EU, and this would lead to negotiations in an appropriate framework to prepare the necessary modification of the Treaties. Proposals would be submitted for approval to the EU institutions and the Parliaments of 28 member states".

This means every one of the 28 member states has to agree to any Treaty amendments "in accordance with their own constitutional requirements" -- as I understand it that means in some cases even requiring a referendum on the issue in their own country, that it may be necessary for a referendum in France to be held to ratify the Treaty changes required.  To quote Alex Barker of the FT on "how do you revise EU treaties": "The conference of member states will have to agree each and every tweak to the treaty by unanimity. All 27 [28 with Croatia] member states hold a veto and could stop the process in its tracks."

In my detailed post I elaborate on the broader context, the stances of those we would be negotiating with. There is an excellent summary of the Member states' summarised positions (or lack of position) on the BBC website (here) or read my full post on the topic here: Independent Scotland & the EU.  I think we can achieve consensus around this point: an independent Scotland would face an almighty challenge to achieve unanimous agreement from all 28 Member states given the clear (and understandable) resistance from some.

So how is an independent Scotland being positioned for this negotiation?  As recently as April 28th Alex Salmond was grabbing headlines [Alex Salmond's fisheries threat to EU alarms industry] by claimed that 12 European nations could be barred from Scottish and Norwegian waters if an independent Scotland was refused EU membership.

How about the timing of all this? Let me quote again from the White Paper: "The 18 month period between the referendum and the planned date of formal independence provides sufficient time for discussions settling an independent Scotland’s terms of EU membership."

So there we have it. A requirement for unanimous agreement from 28 Member states, clear resistance from many, antagonistic posturing from Alex Salmond, a wish-list that even the most optimistic separatists would appear to accept is unachievable and 18 months to negotiate it. What could possibly go wrong?

As I've said elsewhere; the SNP position on this is akin to asking you to jump with them out of a plane without a parachute on the basis that you will be able to negotiate a parachute on the way down. And you'll be able to keep hold of your Gin and Tonic. We'll probably be able to get some of those nice nibbles too ...

Lets be clear: an Independent Scotland could play an important role in the EU, could 'hold its own' as an independent country.  But a thoughtful voter should, I submit, ask themselves these questions;

• Understanding the nature of the context outlined here, would we be in a better position with respect to the EU following the discontinuity and renegotiation that separation from the UK would require?
• Is it realistic to assume that an independent Scotland could both remain in the EU and achieve even half of the White Paper wish-list?
• Is it realistic that full and productive participation in the EU can be achieved without making commitments to join the Euro?

5. The Benefits of Union (summarising 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?

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


Context

The pro-Independence camp often ask the pro-Union camp to be more positive; the context does make this difficult (but not impossible)

• 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. 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 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. The detailed post this summarises includes lengthy quote from the White Paper which I have removed here for brevity

• A single currency
• 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
• 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.
• 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. 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.
• 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
• 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 that will still be available in an iScotland
• 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
• Further interventions from Professor Dunleavy have left him looking somewhat - how can i put this? - less that impartial.  See Dunleavy & The Costs of Independence; its clear the one-off costs are in fact well over £1bn
• Assets and resources relevant to this include: security & intelligence, border & migration service, Motor services Agency, the BBC and its archives, systems for administering welfare & taxation, 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
• Issues include membership of the United Nations, NATO, the Organisation for Security and Co-operation in Europe
• NATO membership for iScotland is no gimme - it's worth noting that former Secretary General of the NATO Lord Robertson of Port Ellen stated "He's taking the Scottish people for fools by claiming that [the SNP] would want Scotland to be in Nato but laying down conditions that would make it impossible. It's a confidence trick both on their membership and the Scottish people." He may have over-cooked his case in some of his statements but on this specific issue he has a point; he's been quoted elsewhere as saying "while the alliance had no issue with non-nuclear members, it had no room for anti-nuclear ones"
• Other International Organisation Memberships
• International Monetary Fund, the World Bank Group and the World Trade Organisation.
• 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

Independence & Scotland's Trade with rUK

The single most important purely rational argument in this debate for me is underpinned by the fact that 2/3 of Scotland's exports go to rUK ("rest of UK); as a direct consequence many jobs in Scotland are contingent on seamless trading between Scotland and the UK.  That independence will impact that trading relationship is undeniable, the only question is how much and in return for what upside.

I will discuss the upside case for Independence elsewhere; I have engaged, read and listened on that topic. I will also elaborate separately on the detail of the Currency Union debate and negotiations required to remain in or rejoin the EU; I've done the background work, I will share it, what follows is reasoned conclusion not emotional assertion.

One of the underpinning drivers for the Independence case is to allow divergent approaches to the EU; this inevitably creates risks for those trading between an iScotland and rUK and therefore for employment in Scotland.

• It becomes likely (it can be argued as inevitable) that we will have separate currencies within a few years because Sterling-zone participation is incompatible with the conditions likely to be imposed for an iScotland to negotiate continued EU membership. I explain my reasoning in detail here, but you don't need to take my word for it: Chis Brodie (SNP MSP) stated in a public debate (a small village hall debate in Gifford East Lothian on 15/05/14) that in the negotiations to remain within the EU he expected an iScotland to be required to make commitments about joining the Euro. This is in direct contradiction with the currency assertions made in the White Paper, p.378 "Will Scotland join the Euro? No."
• This point is important: 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". The (informed) pro-independence lobby are knowingly misleading the electorate on this point, relying on the hope that you won't check the facts and understand the complexities of how the EU works; heaven knows I didn't until I researched it for this --if your interested I elaborate here
• Independence also creates the conditions where it is possible for one of iScotland or rUK to be in the EU whilst the other is out; where sales from a Scottish businesses to rUK could become cross-border from an EU perspective. That this "one in, the other out" scenario would make trade with rUK more difficult than it is today is obvious. To be clear; it's not inevitable, but it is a significant risk that only a pro-independence vote exposes us to.
• The line that "the biggest risk to Scotland with respect to the EU is an in/out referendum" is often used in this context. Let's think this through
• Independence doesn't protect Scotland from the major downside of a possible "out" vote. Excluding Oil & Gas, Scotland exports four time as much to rUK as it does to the rest of the EU [Scotland's Global Connections Survey 2012]
• If one was to pursue a purely rational self-interest argument on this point alone: surely better to be "in the UK outside the EU" than "inside the EU outside the UK"?  
• All of the above is why I want my vote to be able to keep the whole of the UK in the EU (by voting against the parties pushing for a referendum and/or by exercising my vote in such a referendum if it ever takes place). At the risk of stating the obvious; the Scottish electorate lose any say in that matter if we vote Yes on September 18th
• Assuming both iScotland and rUK remain in the EU (in my opinion the likely end-game under an independence scenario) the concessions an iScotland will have had to make (nobody credibly argues concessions won't be required)  can only create complications to trade with the UK. Euro and Schengen area participation are the headline grabbers but EU attempts to drive VAT rate harmonisation will also be a material factor; I certainly don't claim to have assembled a complete list of the issues.
• As the HM Government paper Scotland Analysis: Borders & Citizenship makes clear;
• "In the event of a vote for independence, an international border would be created between an independent Scottish state and the continuing UK. Trade across that border, classed currently as domestic, will become international trade: import–export. This, together with the likely divergence over time of tax, excise duty, regulatory and administrative regimes would be expected to trigger a ’border effect‘: international evidence shows that flows of trade, labour and capital are much larger between two regions of the same country than between two (otherwise similar) regions of two different countries. This effect occurs even when there is no physical border between countries and even where trade agreements and structures, such as the European Single Market, are in place. While historical and cultural ties between Scotland and the continuing UK would prevent an immediate fall off in trade flows, evidence of previous separations points to the erosion of these ties as time passes. Combined with regulatory divergence, Scottish independence would lead to barriers to trade and obstacles to labour and capital mobility"

Two-thirds of Scottish Exports are to rUK, manufacturing industries account for 26% of those exports, Food & Drink forms a major part; continuing to physically ship goods "across the border" is vital to our economic success; adding possible (likely) exposure to currency risk on top of "cross border" shipping requirements would fundamentally change the risk profile of many Scottish businesses.

This is not a marginal issue, the businesses I can speak for are not unusual.  This is not about making threats or protecting the interests of a few rich shareholders.  I don't deny that I believe a vote for independence would damage my businesses and that would impact me directly (I don't expect anybody else to care about that, if you read My Bona Fides you might accept its not what motivates me in this debate); the point is there are wider implications for employment and the economic success of an independent Scotland that I feel should be understood by anyone wishing to make an informed decision as to how to cast their vote on September 18th.

The businesses I am involved with are already contingency planning around our options in the case of a Yes vote. Our heads tell us that we would need to relocate our stock-holding and warehousing to protect our businesses under that scenario; the prospect of having to do so fills my heart with genuine sadness. That's why I'm speaking out, adding my voice to those arguing for a No vote on September the 18th, doing what I can to avoid the outcome I dread.

To be absolutely clear: there are other arguments for and against (I will try and cover many of them) but for me this issue is the one which seems least well understood in the debates I have participated in and witnessed.  I am NOT saying that an independent Scotland couldn't continue to trade with rUK and EU, I'm NOT saying an independent Scotland couldn't succeed on the global stage: all I am saying is that this logic convinces me that Scotland as part of the Union will be more successful than Scotland outside of it because of our trade relationship with rUK.

Independent Scotland and the EU

"This independence advantage will be of greatest benefit in our relationship with the EU"

Scotland's Future (SNP White Paper), p229.

If you have the time to read the White Paper I suggest you play close attention to the semantics (I have). You might skim the document (or listen to some of the Separatist rhetoric) and come away with the impression that the line is basically "We will negotiate to stay within the EU and you can expect us to retain all the opt-outs we currently enjoy as part of the UK and negotiate other benefits for an independent Scotland at the same time".

OK so you haven't got the time -- let me help you; the following are Verbatim quotes from the White Paper (the emphases are my own)

• "We recognise that specific provisions will need to be included in the EU Treaties as part of the amendment process to ensure the principle of continuity of effect with respect to the terms and conditions of Scotland's independent EU membership, including detailed considerations around current opt-outs, in particular the rebate, Eurozone, Justice and Home Affairs and the Schengen travel area"
• "While the Scottish Government recognises the political and economic objectives of the Eurozone, an independent Scotland will not seek membership"
• "Will Scotland be forced to join the Euro? No"
• "Scotland will continue to use the pound, just as we do today"
• "Nor will we seek membership of the Schengen area."
• "Would an independent Scotland be forced to join the Schengen Agreement? No."
• "the Scottish Government will not seek to re-open budget discussions until the next funding cycle, at which point we will be negotiating as a full member state. Prior to 2020, the division of the share of the UK rebate will be a matter for agreement between the Scottish and Westminster Governments and the Scottish Government will argue for an equitable share"
• "We will seek to negotiate an uplift in CAP Pillar 2 funding for rural development to invest in our rural services and economy"
• "This status will give Scotland the opportunity to take a leadership role in reforming the Common Fisheries Policy"
• "the Scottish Government will seek to retain the current flexibility to opt into new measures on Justice and Home Affairs."

You will notice a lot of "seeking to" and "not Seeking to" with the definitive "No" only being used only in the context of being "forced to". 

So let's be absolutely clear about this: the White Paper is a negotiation wish list, nothing more. They have wisely avoided explicit promises on these matters (other than "continuing to keep the pound"; for how long of course is not clear) because they know nothing can be promised.  Nobody should (or reasonably could) believe that all of the benefits and concessions "sought" will be achieved. Similarly nobody is arguing that an independent Scotland could be "forced" into anything either. It's a negotiation, Scotland can decide if the conditions placed on it to remain in the EU are too onerous, can choose not to remain in the EU, can decide to trade-off various elements of the wish-list in return for the benefit of remaining in the EU. It's a negotiation.

So we need to understand the nature of this negotiation if we are to take an informed view of the likely outcome; how much of this wish list might we expect to actually happen and what concessions are likely?

There has been (and continues to be) plenty of disagreement about the legal basis on which Scotland would be negotiating its position with the EU --  but for the sake of argument let's accept the most favourable scenario, the one the SNP base their case on: the written evidence provided to the Scottish parliament by Graham Avery.

As an aside: since I first published this post Professor Tomkins has written this extremely well reasoned, scrupulously balanced and very clearly explained exposition on the legal issue surrounding EU membership for iScotland; I strongly recommend you read it > Scotland and the EU 

Let's take a couple of verbatim quotes (again emphases my own):

• "In accession negotiations with non-member countries the EU has always strongly resisted other changes or opt-outs from the basic Treaties; at this stage it remains to be seen what might be requested by Scottish representatives concerning the euro or the Schengen area of free movement of persons. Without embarking here on a discussion of the implications for Scotland of these policies, we may note that although new member states are required to accept them in principle, they do not become members of the eurozone or Schengen immediately on accession"
• "it remains to be seen whether Scottish representatives would request changes in the application of EU rules and policies, for example the fisheries policy or payments into the EU budget"

Now you might have though from the White Paper and the rhetoric used in debate that these issues don't "remain to be seen".  I was fortunate enough to be able to ask Chic Brodie (SNP MSP, at an open debate in Gifford, 15/05/2014) why Mr Avery thought an independent Scottish government's position on these issues "remains to be seen" when they are laid out so clearly in the White Paper. His response was something along the lines of "maybe he hadn't managed to read all of the White Paper". I kid you not; there were about 100 witnesses.

So Mr Avery's case is not predicated on the same assumptions as the White Paper with respect to the negotiating position of an independent Scottish government; or at least he has been careful to distance himself from those assumptions when making his case for a possible negotiated remaining in the EU. I personally think those statements are a tacit admission on his part that the conditions "sought" in the White Paper are clearly unachievable, but maybe I'm reaching a little there.  Form your own view.

Note also that we would "not become members of the eurozone or Schengen immediately on accession". There is an important point here. The SNP often adopts the line "we couldn't be made to join [Eurozone or Schengen]  because we don't meet the conditions".  Yet. We don't meet the conditions yet. Given all new member states have to join, it seems pretty much inevitable that legally binding commitments will be sought from an Independent Scotland to join these arrangements within a set period of becoming an new Member State.  As I have mentioned elsewhere on this blog, Chic Brodie (SNP MSP) also offered that commitments to join the Euro would be inevitably required.  Worth remembering that for when we come back to debate Currency Union in a different post.

Let's move on to the the specific process required, again to quote Mr Avery's paper:

• "..negotiations on the terms of Scottish membership should take place in the period following the referendum and before the date of independence. For that purpose, Article 48 would be the legal basis: this approach is sometimes described as ‘internal enlargement’. The alternative would be the traditional procedure for EU enlargement, under which non-member countries are admitted; this approach, which means that Scotland would have to leave the EU and then apply for membership under Article 49, would be undesirable for practical and political reasons. Neither of these legal bases would provide ‘automatic’ or ‘guaranteed’ EU membership for Scotland"
• "a modification of the EU Treaties would be necessary, if only to provide for Scottish representation in the EU institutions (number of members of European Parliament, number of votes in Council of Ministers, etc.).
• "The main parties in negotiations for Scottish accession to the EU would be the member states (28 members after Croatia’s accession in 2013) and the Scottish government (as constituted under pre-independence arrangements). It may be noted that in this situation the government of Scotland - not yet an independent state - could not in fact submit an application for EU membership under Article 49 of the Treaty. But it could indicate its wish for Scotland to remain in the EU, and this would lead to negotiations in an appropriate framework to prepare the necessary modification of the Treaties. Proposals would be submitted for approval to the EU institutions and the Parliaments of 28 member states and of Scotland, and would come into force on the date of Scottish independence.

Just to be totally clear on this, to quote directly from Article 48:  "The amendments shall enter into force after being ratified by all the Member States in accordance with their respective constitutional requirements."  Nowhere in Mr Avery's paper does he use the words "unanimous" or "veto" (which may be why the SNP likes it so much) but that is what this means: every one of the 28 member states has to agree to any Treaty amendments "in accordance with their own constitutional requirements" -- as I understand it that means in some cases even requiring a referendum on the issue in their own country, that it may be necessary for a referendum in France to be held to ratify the Treaty changes required.

To quote Alex Barker of the FT on "how do you revise EU treaties": "The conference of member states will have to agree each and every tweak to the treaty by unanimity. All 27 [28 with Croatia] member states hold a veto and could stop the process in its tracks."

So this is a tricky negotiation to say the least. How confident are we feeling about that wish list?

Let's consider the broader context, the stances of those we would be negotiating with. There is an excellent summary of the Member States' summarised positions (or lack of position) on the BBC website: I strongly advise you read the full list here. If you can't be bothered,  let me select for you those where an opinion was expressed (most are variations on "no comment");

• Czech Republic: Minister of Foreign Affairs Karel Schwarzenberg said: "As far I as know the rules, if Scotland were to become independent, it would have to apply for the membership." He said, if that happened, Scotland would get a "worse deal" than it has as part of the UK.
• Latvia: Foreign Minister Edgars Rinkevics said, in the event of Scotland becoming an independent country: "The procedure of admitting a new member to the EU would have to be followed. All the chapters of negotiations have to be opened, duly negotiated and then closed." On whether the rest of the UK would continue as an EU member, he said: "I understand that the commission and colleagues from EU legal services are also currently considering that. I think we need solid legal opinion on this."
• Luxembourg; Foreign Minister Jean Asselborn said: "As we are all facing serious economic and social challenges, this is a time for solidarity between Member States of the EU and within Member States, rather than for going separate ways. This being said, Scotland's constitutional future is a matter to be decided by the people of Scotland. But its future within the EU is a matter for the whole EU and can thus only be determined with the agreement of all Member States."
• Netherlands: "The Netherlands government did not take any position yet, we'll first need to await the result of the referendum. The Netherlands believes Scotland today is a highly valued and integral part of the Union. If Scottish people opt for independence, EU and the member states will need to discuss specific consequences of this choice for Scottish / UK relations with EU."
• Slovakia: Minister of Foreign Affairs Miroslav Lajcak said: "There is no clear answer to this. In the end, it is a political decision made by all the member states."
• Spain; Spain indicated that the position stated by its Foreign Minister, Jose Manuel Garcia-Margallo, in October was still relevant. He told the Spanish senate: "In the hypothetical case of independence, Scotland would have to join the queue and ask to be admitted, needing the unanimous approval of all member states to obtain the status of a candidate country - and to sign the final treaty (of accession)."
• United Kingdom: "In the event of independence, the UK is confident that the remaining UK would be recognised as the continuator state and could continue to exercise the UK's existing international rights and obligations at international organisations such as the EU, NATO and the UN. The Scottish government has accepted that negotiations on membership would be required. This chimes with President Barroso's position, that any country separating from an EU member state would need to negotiate its own terms of membership. This is the UK government's assessment of international expert opinion."
• European Commission: European Commission president Jose Manuel Barosso said: "If one part of a country - I am not referring now to any specific one - wants to become an independent state, of course as an independent state it has to apply to the European membership according to the rules - that is obvious." The commission has said it can only comment specifically on Scottish independence if the UK government asks it to do so and details a precise scenario.

From other sources

• Spanish prime minister Mariano Rajoy is on record as saying "if part of a member state becomes independent, it would be left out of the European Union, and it would be good for citizens (in the EU) and Scots to know that.” (see detail here). 
• European Commission President Jose Manuel Barroso has said it would be "extremely difficult, if not impossible" for an independent Scotland to join the European Union (see detail here)
• Herman Van Rompuy (President of the European Council) said a newly independent state, breaking away from an existing EU member, would be classed as a "third country" and would have to apply using "the known accession procedures" (detail here) 
• Italy and Belgium (like Spain) have strong separatist movements in their own countries so we can make an intelligent guess as to the position that they are likely to adopt.

I know approximately nothing about international law and I am aware that many argue that some of the assertions made above may not stand up to legal scrutiny; I'd suggest that's not the point. The point is an independent Scotland would face an almighty challenge to achieve unanimous agreement from all 28 Member states given the clear (and understandable) resistance from some.

Maybe glance your eye back over the wish-list of things that the White Paper explains the SNP will be seeking?

So how is an independent Scotland being positioned for this negotiation?  As recently as April 28th Alex Salmond was grabbing headlines [Alex Salmond's fisheries threat to EU alarms industry] by claimed that 12 European nations could be barred from Scottish and Norwegian waters if an independent Scotland was refused EU membership.  A fairly major diplomatic gaffe it would be fair to say -- read the article if you don't see why.

How about the timing of all this?  Remember the statement from Avery

• "negotiations on the terms of Scottish membership should take place in the period following the referendum and before the date of independence". 

Let me quote again from the White Paper:

• "The 18 month period between the referendum and the planned date of formal independence provides sufficient time for discussions settling an independent Scotland’s terms of EU membership."

So there we have it. A requirement for unanimous agreement from 28 Member states, clear resistance from many, antagonistic posturing from Alex Salmond, a wish-list that even the most optimistic separatists would appear to accept is unachievable and 18 months to negotiate it. What could possibly go wrong?

As I've said elsewhere; the SNP position on this is akin to asking you to jump with them out of a plane without a parachute on the basis that you will be able to negotiate a parachute on the way down. And you'll be able to keep hold of your Gin and Tonic. We'll probably be able to get some of those nice nibbles too ...

Apologies for slipping in to flippant mode.  Let me finish with words from the SNP's own publication Scotland in the European Union:

• "The Scottish Government believes that the EU provides the best international economic framework within which to optimise the economic and social gains from independence and to tackle the global challenges we, and other countries, face. Today the EU is the world?s largest single market, comprising upwards of 500 million consumers. Membership of the EU, and access to the Single Market, provides Scottish firms with access to more firms to trade with, and more potential customers to sell to. Independent membership of the EU will protect Scotland's vital place in the EU single market allowing for the free movement of goods, services, capital and persons. As a result an independent Scotland will, as a matter of EU law, retain unimpeded access to the markets of all EU member states, including of course markets in the remainder of the UK"

Couldn't put it better myself.  [The point about "unimpeded access to ... markets in the remainder of the UK" could send us off on a tangent which I cover here; suffice to say that wouldn't be true if the rUK was outside the EU (and we would be powerless to stop that happening if we leave the UK)]

The point here is that the people we would be negotiating with know how important the EU is to Scotland. Of course Scotland brings a lot to the table as well, the White Paper lays that our very effectively (World class universities, 10% of Europe's wave potential, 25% or Europe's potential Wind and Tidal Energy, a £13bn food & drink industry, etc.). Scotland can and should play an important role in the EU, certainly could as an independent country.  But a thoughtful voter should, I submit, ask themselves these questions;

• Understanding the nature of the context outlined here, would we be in a better position with respect to the EU following the discontinuity and renegotiation that separation from the UK would require?
• Is it realistic to assume that an independent Scotland could both remain in the EU and achieve even half of the White Paper wish-list?
• Is it realistic that full and productive participation in the EU can be achieved without making commitments to join the Euro?

There are positive argument to be made for Independence (I will get to them, I promise); but they need to be argued for despite the costs and risks of getting there. not in denial of them.

Addendum

I would humbly suggest that having understood the broad context I have attempted to lay out here, narrowly argued claims made by the likes of "business for Scotland" (on whom more in another post) such as An independent Scotland would get a better deal from the EU might be considered with a pinch of salt.