Scotland's Gamble on an Uncertain Future

On the day that Scotland goes to the polls, I offer my thoughts on Scotland's prospective independence.

Over the past three years, the “No” campaign has repeatedly won in polls of the question “should Scotland be an independent country.” But as the referendum on September 18 gets closer, the margin between the two sides has grown consistently smaller and now the result is within the margin of error — with recent polls suggesting the count is even.

Unfortunately for Scots and those living in Scotland, the debate has continued to leave more questions than answers with regard to what independence means for its political and economic future — despite the Scottish Parliament’s publication of a 670-page white paper and years of planning.

Indeed, the uncertainty of what Scottish independence entails adds considerable strength to the argument that independence represents an unwise endeavor. Perhaps frustratingly, evidence of a strong, stable independent Scotland is not beyond reasonable doubt as questions over its currency, oil, and regional standing abound.

According to the House of Commons Library, Scotland’s public spending per head is £10,152. For the United Kingdom as a whole, that figure is only £8,788 — a difference of £1,300 that current subsidies from London cover, but that Holyrood will have to include in its new budget. Scotland’s spending per head on its National Health Service is also higher than the United Kingdom average while a larger proportion of its population is reliant upon welfare to make ends meet. Without these subsidies, Holyrood needed to provide compelling evidence that it can manage the shortfall while maintaining Scotland’s existing standard of living. In spite of its rhetoric, it has failed to do so.

Moreover, the economy writ large faces a unprecedented volatility in the face of a “Yes” vote as fund managers and capital decides whether to flee to London or not. The Royal Bank of Scotland has made clear that it plans to relocate to London in the event of a “Yes” vote from the Scottish electorate. Ironically, Scotland has already missed out on investment amidst extended negotiations over currency union and Scotland’s exposure to the United Kingdom’s debt.

The uncertainty over the future of the Scottish currency is representative of the wider economic issues with independence.

If Westminster hopes to force Holyrood into paying Scotland’s share of the United Kingdom’s debt, it will likely have to accede to Salmond’s wish to remain part of the Sterling. However, if Westminster does decide to force Scotland out of the Sterling, Salmond has, belatedly, laid out three “Plan Bs.”

While none of them remedy the inevitable increase in transaction costs in the balance of trade between Scotland and the rest of the United Kingdom, they are worthy of further consideration. The first alternative is to have a new Scottish currency pegged to another currency (most likely the pound but perhaps the Euro) with a central bank making sure that the peg stays consistent.

The second is to not create a new currency at all and to either continue using the pound or another currency with no input on monetary policy — taking this path makes Salmond’s recent opposition to joining the Euro nonsensical.

The final option would create a floating Scottish currency without a peg. The latter option is probably the best in general terms as Scotland would have the ability set its own interest rates and manage the volatility of relying upon oil as its primary export, but, as David McCausland of the University of Aberdeen points out, it would have the unintended consequence of substantially increasing the transaction costs in trading with the United Kingdom (Scotland currently exports 60 percent and imports 70 percent of its goods to England, Wales, and Northern Ireland).

Scotland’s future and the value of its oil are also of obvious importance to the impending election. During the campaign, the “Yes” campaign has continually overestimated the value of North Sea oil and its impact on Scotland’s economy and tax base. Industry insiders have claimed that the value of Scotland’s oil may have been overstated by as much as 60 percent. As the BBC noted, the figures from the Scottish government and the Office for Budget Responsibility in London are wildly different. At the very least, the failure to adequately take stock of Scotland’s resource is an abdication of both campaigns’ responsibility to the electorate.

Mirroring arguments on currency and oil, the “Yes” campaign has shrugged off the difficulties faced by Holyrood in convincing Brussels and EU member states to not only admit Scotland, but to do so without making it adhere to the established accession process mandating that all new members must become part of the eurozone. It remains unclear how Scotland will accrue the associated benefits of membership in the European Union and overcome opposition from Eurozone countries that face their own independence movements. Spain, in particular, has intimated that Scotland must “join the queue.”

In other international fora, too, Scotland faces diminishing influence. Instead of being part of a mission with permanent membership of the UN Security Council, it would be on the outside looking in. At the IMF and World Bank, too, Scotland would have a diminished role and would ironically have to cede sovereignty to Brussels during free trade negotiations (in the event that it does join the EU).

On questions of the budget, currency, oil, and representation in Europe the “Yes” campaign has been found wanting. The most compelling argument from Salmond during the referendum cycle has been that Scotland ought to be represented by the party that it votes into power (Scotland provided just one Conservative MP to Westminster in the most recent British election). But devolution already takes Westminster out of many key decisions facing the Scottish electorate and Holyrood currently has powers that it has not yet used, hardly strengthening the argument for needing full independence. As such, I remain in favour of accepting increased powers from Westminster rather than gambling on a future for which we don’t appear to have a clear strategy.

Andrew Reddie is a PhD candidate at the University of California, Berkeley having previously served as the Managing Editor at the Canadian International Council and at the Council on Foreign Relations. He was born in Dunfermline, Scotland. This piece also appeared on the Canadian International Council's website.