Indy ref report: The balance between risk and reward

There are many variables in calculating how well off an independent Scotland would be and quite a few unknowns.

Here, financial experts and politicians from both sides of the debate examine the issues.

SCOTLAND HAS SO MUCH TO OFFER

by Michelle Thomson, managing director of pro-independence group Business for Scotland

Throughout my business life I’ve had to look at the numbers underpinning businesses of all types. I look at the assets and the liabilities, the income and the spending. On this basis, I’d definitely say Yes to Scotland plc.

We’ve got a stack of pluses in our assets column the EU’s largest oil and gas reserves and 25% of the offshore wind and tidal energy potential, world-leading industries such as life-sciences, food and drink, engineering and tourism, and, for our size, more universities at the top of world leagues than any other nation. We’re wealthier per head than the UK, France and Japan. If anything, we’re not making enough of this great potential, which is why a Yes vote is so important.

We’ll need to take on a share of the UK’s national debt, but projections show that our debt will take up a smaller share of total national wealth than the UK. We’ll be in a strong starting position.

When it comes to income and expenditure, over the past five years Scotland has generated 9.5% of all UK taxes and received 9.3% of UK spending. Our finances have been healthier than the UK’s to the tune of £1,600 per person.

Looking forward, the Scottish Government has proposed a switch away from the UK’s austerity agenda so that we can increase spending on economic growth and key public services more quickly. The numbers show that we can manage this while also delivering a smaller budget deficit than today. A reasonable assessment shows that our national accounts will be improving and on a sustainable path. We will be choosing a different approach from Westminster’s

slash-and-burn agenda. This alternative financial approach will be good for our economy and will help us, crucially, to create more jobs, deliver more revenues and more financial security for the future: a real virtuous circle and good news for our national accounts as we move forward.

SO MANY FACTORS MUDDY WATERS

by John McLaren, Honorary Professor Public Policy at the Adam Smith Business School, University of Glasgow

Would an independent Scotland’s financial position be better or worse under independence?

When answering this question it is important to consider both long and short-term prospects.

In the longer term, forecasts of the outcome depend heavily on assumptions about difficult-to-predict issues such as future growth rates of the economy, population, etc. In the shorter term things are slightly simpler. Both the UK and Scottish Governments roughly agree on Scotland’s share of taxes paid and spending on public services. The two crucial exceptions are North Sea oil and gas related revenues and Scotland’s share of UK debt. The Scottish Government estimates a wide range for North Sea revenues; between £3bn and £8bn for the financial year 2016-17. The UK Government uses the lower, but independently assessed, value.

On debt, the UK Government assumes an independent Scotland inherits its population share, while the Scottish Government assumes a value somewhere between its population share and zero; by 2016-17, the difference ranges between £5.5 bn and zero.

Not surprisingly, depending on which values you use, you get different results as to whether Scotland would be better off or worse off under independence. There are other considerations that matter:

The extra costs Scotland and the UK both incur from running their own affairs.

Scotland’s net cash contribution to the EU budget.

How items like Trident might be dealt with when dividing up UK assets.

What might happen to the Barnett formula.

Each are hard to resolve prior to negotiations and subsequent to any decision on the scale of Scottish defence, embassies etc. However, in the shorter term, the key issues relate to the prospects for North Sea oil revenues and Scotland’s inherited debt. Unfortunately the former is outside Scotland’s control and the latter would be subject to negotiation post the referendum.

A BURDEN ON TOO FEW

by Alistair Darling, former Chancellor and leader of the Better Together campaign

For the best assessment of the impact separation would have on the finances of Scotland, you shouldn’t just look at what any politician or government has said. Listen to the experts.

Last week, impartial economists at the Institute for Fiscal Studies concluded leaving the UK would mean bigger tax rises and deeper spending cuts in Scotland. Alex Salmond wants us to leave the UK and put the burden of paying for the things we use every day on the shoulders of just five million people.

The number of pensioners in Scotland is set to rise rapidly in coming years. This brings extra costs not least extra pension payments and additional NHS care. All the experts are clear that the number of people in work and paying tax isn’t likely to keep pace with the number of pensioners, meaning there would be a big funding gap. This would all be happening at the same time as the tax we get from North Sea oil is falling.

Why would we want to take on all these risks when we don’t have to? Being part of the UK means we can pool and share our resources to pay for pensions and benefits, schools and hospitals. By working together within the UK the money we have to spend on our public services is protected. That’s a clear positive reason why we are better and stronger together.

Being part of the UK means we can have the best of both worlds. We can have a stronger Scottish Parliament, with the guarantee of more powers for Scotland, and we can have the strength, security and stability of being part of the UK.

It’s only Alex Salmond’s obsession with separation that puts that at risk.

GREAT CHANCE TO CASH IN

by John Swinney, Scottish Government Finance Secretary

Scotland can more than afford to be a successful independent country. We are a wealthy nation. In fact on a per capita basis we are the 14th wealthiest country in the OECD, ahead of France, Japan and the UK.

In cash terms, the strength of our fiscal position compared with the UK means we would have been £1,600 per person better off over the last five years. Unfortunately, for too many people in Scotland it does not feel that way.

With independence, one of the key benefits is that we can take control of our own wealth and resources and use our new powers to create jobs and opportunities. Our wealth means we’ve generated more tax, per head, than the UK for the last 33 years.

With independence we can help parents by not spending £600m on Westminster priorities like nuclear weapons and invest more money in childcare instead. And we can encourage more of our young people to stay in Scotland or to come home and join the workforce.

Scotland’s wealth means social security and pensions are more affordable here and with independence we will use that wealth to protect pensions with a triple lock and set a pension age appropriate for our circumstances. Analysis published last week showed boosting our working age population, investing in productivity and increasing employment could generate an additional £5bn in revenues within the next 15 years, without increasing tax rates.

We need the powers of independence to ensure that the wealth properly benefits everyone in our society.