It's Not About The Numbers

Here's the thing: I don't think the independence debate should be about the numbers.

My heart tells me that the Union works, that being part of the United Kingdom makes us stronger, that sharing with our neighbours makes good sense and is - frankly - a morally sound way to behave.

I recognise of course that there are many decent and rational Yes voters who don't share my view.  At the heart of the difference between us is that they see a constitutional problem that needs fixing and I don't.

You see: I have no problem with "us" being the people of the United Kingdom, so I believe that we already get to decide who governs us.

I accept that the party I vote for won't always be the party in power and I know that will still be the case in an independent Scotland because that's how representative democracy works.

I recognise that politicians sometimes disappoint us, sometimes make mistakes - but I don't see that as a problem confined to Westminster; I don't believe that the Scottish political elite are in some way immune from these human failings.

I also recognise that Scotland faces demographic and economic challenges that mean our priorities will sometimes differ from those of the rest of the UK.  I see the devolved parliament as an excellent way to address those differences whilst retaining the benefits of Union (of which having a shared currency is but one powerful example).

I do understand that some Yes voters believe that - as the rest of the UK lurches to the right -  an independent Scotland could cast itself free and become a shining beacon for social justice.  I don't doubt that this is a view held with heartfelt conviction by many; but I wonder if some of these voters forget that for 13 of the last 17 years we had a UK Labour government that Scotland voted for. Disenchantment with New Labour and the Blair years is not a uniquely Scottish phenomenon. Similarly, just because the Tories are in power now doesn't strike me as sufficient reason to discard 307 years of Union.  Some - few in my experience, but some - Yes voters rise above the party political distractions and argue instead that (implicitly) Hadrian's wall defines the optimal trade-off point between economic scale and getting what "we" want all the time. I question whether the Scottish electorate will turn out to be as politically different from the rest of the UK as this view implies, but that is by-the-by.

So from these diametrically opposed starting points (gut feelings that we should either stay together or go it alone) each side views the evidence through our own prisms, refracting away unhelpful truths and drawing focus on the arguments that support our prejudice.  I don't claim to be immune from this tendency but I try very hard to maintain objectivity. I have spent the last three months immersed in the arguments of the Yes camp and consciously avoiding Better Together literature.  I wanted to face the counter-arguments and challenge my intuition rather than seek the reassurance of evidence that reinforces my beliefs.

I have been shocked by what I've found, particularly with respect to how oil & gas revenues are shared.

I expected to have to make the argument that within a Union it's only right and proper that you share resources; I expected to use the tortured analogy that if you were to discover after you'd been married for a few years that you'd had a winning lottery ticket in your back-pocket all along, it would be morally indefensible to argue you shouldn't share it with your partner. Particularly if you'd already been married for 270 years; I mean - do you ever wash those jeans?

I've covered the detail elsewhere on this blog: the numbers are all there, sourced directly from the Scottish Government's own GERS report (and presented in full and using most up-to-date figures) > £8.3bn Better Off?

I offer the following as a fair summary:  Scotland receives "back" from the Treasury as much in additional public spend per head as we contribute in additional tax per head if you attribute all "our" oil & gas income to us on a geographic basis.  It's remarkable how well this balances out; the average annual per capita difference shows Scotland making a £2 per person net contribution over the last 7 years if you assume we should keep all of "our" oil & gas income. Over the last 4 years we were in fact net beneficiaries to the tune of £156 per person and last year  by £512 per person.

Pause for a moment.  Isn't that an incredible observation?  What a wonderfully well balanced Union this is. Despite the fact that the rest of the UK could quite reasonably lay claim to "keeping" their per capita share of oil & gas income, in fact we in Scotland get a higher level of public spending per capita that almost exactly matches "our" higher tax contribution.  Indeed in recent years being part of the UK smooths the volatility of Oil & Gas income; we're able to maintain our level of public spending even when our Oil & Gas tax income (hopefully temporarily) dips.  You'd think even the most hardened Nationalist must look at that and - begrudgingly perhaps - accept that we get a pretty fair deal.

But of course we don't hear the Yes camp admitting that. Instead we hear - from the likes of First Minister Alex Salmond and the risible Business for Scotland - that we would have been "£8bn better off" if only we'd had our "fair share".   That is a frankly ludicrous statement.  They attempt to justify it by saying we should have had an even higher percentage of expenditure than we actually did - the implication being that we should have spent £8.3bn more than we actually did resulting in an even higher per capita deficit (as a result of which of course we would have been responsible for far more than our per capita share of UK debt).  If you're the sort of person who thinks running up a bigger credit card debt makes you "better off" then you may buy that argument; I'm not and I don't. The detail is all here > The £8bn Misdirection

Of course if you're a committed Yes or a committed No then the numbers frankly make no difference to you anyway; but if you've been swayed to vote Yes because you believe we're hard done to by the Treasury you really should think again.

Go back 25 years and the story is broadly the same ... but it's only fair to observe that if you go back even further (to the 1980's when we benefited from the main Oil & Gas boom) then - not surprisingly - you find a decade during which Scotland was a significant net contributor to the UK.  If we were voting to rewind to 1980 - and if you took a purely selfish view - then you could make a case that Independence would have made "us" better off.  But of course we were part of a Union then and - not to put too fine a point on it - we're not voting for a time-machine.

We can only change what's ahead of us and nobody is predicting another 80's style boom. At current public expenditure levels and keeping all "our" oil and gas we in Scotland run a very significant deficit (£2,268 for every Scottish man, woman and child last year).  Its worth noting that before the fabled Oil Fund can be created we need to at least be running a surplus (as per the Scottish Government's own criteria) and that's not forecast to happen in any of the projections I've seen.

So how would an independent Scotland address the deficit? The data show quite clearly that the current run-rate structure of UK tax and spending is in fact beneficial to Scotland (neutral at worst).  Voting Yes doesn't make us wealthier - but of course it facilitates different tax and spending decisions than Westminster might make.

So what tough choices would an independent Scotland make to address the reality of the deficit?  Well if you want to get past glib statements like "by investing our enormous wealth for the benefit of future generations" I'm afraid you're out of luck.

There are some examples given in the White Paper - primarily centered around Trident and defence spending - but famously the figures simply don't stack up. Don't take my word for it; the highly respected and impartial Institute for Fiscal Studies had a very close look and concluded Spending cuts or tax increases would be needed to pay for Independence White Paper giveaways.  Specifically they concluded the specified tax increases & spending cuts would save £500m p.a. but that spending increase and tax cuts would cost around £1.2bn p.a. in the short term and potentially considerably more in the long term. I am not aware that the Yes camp have even challenged this IFS analysis.

So we have to look beyond the White Paper and see what both sides are saying.

The Yes camp suggest that independence will allow us to avoid the austerity measures and spending cuts imposed by "Westminster" - without of course suggesting how an independent Scotland would address the very real deficit problem.  They argue that remaining in the Union and taking our share of the necessary cuts is somehow unfair - whilst simultaneously arguing that we should keep the pound.

As for the Yes camp's argument about the risk to Scotland's NHS caused by creeping privatisation in England ... well that is possibly the most cynical ploy of the lot.  They are relying on successfully obfuscating the difference in voters eyes between privatisation of provision (which is happening North and South of the border but does not imply spending cuts) with a move to a "patient pays" private healthcare model (which would  lead to spending cuts but is not happening and would be electoral suicide for any party to pursue).

At the risk of stating the obvious: if UK spending cuts are required to address the deficit and debt problem (and protect the value of our currency) then of course Scotland should have to take our fair share of the pain. But devolution means we already make our own decisions about where that pain is felt - we can prioritise protecting the NHS for example - but we can't escape the harsh economic realities.  The same would of course be true for an independent Scotland: independence is not a Get Out Of Jail Free card.

We've got this far without discussing currency or EU membership.  I've covered both at length before (Currency Union & Economic Asymmetry  and Independent Scotland and the EU) and nothing from the recent debates has changed my conclusions;

• Currency Union is arguably the least worst option for Scotland but even if it could be achieved our relative scale means it would mean de-facto sterlingisation - we would inherit monetary policy designed for rUK that would be increasingly inappropriate for an independent Scotland aspiring to pursue a divergent economic path.  Whatever happens with currency it is a clear downside of independence
• There are significant risks to at least the terms of our membership of the EU and quite possibly to our membership at all  (given the need to achieve unanimous approval from all 28 member states and the very real risk that we won't be able to satisfy the requirement of having a stable currency).

So where does all that leave us?  Well for me - after covering all of this ground - I'd like to leave this debate at the point where I came in.

Jobs.

I am a founder, investor, shareholder and Director in businesses that employ over 300 worldwide, 220 of them in West Lothian (I've laid out my bona fides for all to see).

As I have explained elsewhere (Independent Scotland and rUK Trade) the dot.com businesses I run would change overnight  from being domestic businesses to being businesses that export 90% of their turnover to rUK. This exposes us to new costs, risks and uncertainties; it would place us at a competitive disadvantage to our competitors based South of the border.   In addition to the obvious currency and EU membership uncertainty (which includes the risk that we will have different VAT regimes or that one of Scotland or rUK is in the EU while the other is out) we are faced with practical issues such as changing shipping costs: the Royal Mail Universal Service Obligation survives privatisation but won't survive separation and we can expect couriers to vary pricing across national borders.

Of course there is a simple but deeply painful solution to those problems; we would move our warehouse operations South of the border and make people redundant as a direct result.  

We are not unique; we're not even unusual.   Scotland exports 4x as much to rUK as it does to the whole EU.  To put it another way: independence shrinks our domestic market by 90%.  Are my employees just an unlucky few? Let's see what other businesses think;

• Bibby Financial Services' SME Survey found "Over a quarter (26 per cent) of Scottish small and medium-sized businesses fear they will lose business if there is a ‘yes’ vote in the referendum and some 70 per cent have rejected the idea that independence would be a positive step for the nation"
• A Federation of Small Business Survey of 1,800 small Scottish Businesses observed (note the question was not directly asked): "In the comments section of this question, 134 members volunteered that they would consider or would definitely be relocating their business outside of an independent Scotland, while a further 51 stated that they would look to close, downsize, sell, or retire early. This totals 185 respondents (10%) who would consider withdrawing their business from the Scottish economy"
• Working for Scotland have assembled testimonials and public statements from a wide range of businesses and Unions voicing their fears and concerns for businesses and jobs in an independent Scotland.  Not suprisingly the defence and financial services sectors feature heavily

• The Treasury estimate that 270,000 jobs are on the line: that's 10% of all employment in Scotland

It's clear to me that - even if you assume the Treasury is over-stating the case - the impact of a Yes vote on employment in Scotland would be little short of devastating.  I certainly believe over 100,000 jobs would be lost.  Of course that has an impact in terms of GDP, tax income and welfare spending all of which negatvely impact  the deficit.  

But it's not about the numbers.

It's about the people who will lose their jobs, their livelihoods, their families.  Ten's of thousands of people, ten's of thousands of households.

For those who'll react to this blog and accuse me of scare-mongering:  I'm one of those who'll have to look people in the eye and explain why I'm making them redundant - I've had to do it before and I can assure you that focuses the mind; it was the worst day of my professional life.  If I have to do it again I at least want to know that I did what I could to avoid it happening; I don't want anybody to turn round to me and say "I wish you'd told me that before I voted".  I won't hide the truth from my employees simply to protect myself from the abuse I will inevitably receive for speaking out.

Thank you for reading.

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.

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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.

@kevverage  

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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.