WHEN Scots come to decide whether to vote Yes or No to independence in next year’s referendum, one issue above all is likely to influence their choice – the economy. The most important political decision for more than 300 years will turn on people’s judgement about how a go-it-alone Scotland might prosper or otherwise.
A key plank in the argument against an independent Scotland has long been that the size and strength of the UK economy offers a stability and confidence which it would be daft to throw away. But that case for maintaining the Union took a serious dent at the weekend when the UK lost its AAA credit rating.
The Yes camp said it was “clear evidence that Westminster isn’t working” and gleefully demanded that leaflets produced by the Better Together campaign boasting “Scots save billions on the cost of mortgages due to the UK’s AAA credit rating” should be withdrawn.
Chancellor George Osborne used to say it was “essential” that the UK should hang on to its AAA rating. What investor would come here if there was a downgrade and a collapse of confidence, he asked.
Mr Osborne insists he is not going to change his policies, but the decision by credit ratings agency Moody’s to remove AAA status undermines the Conservative-Lib Dem coalition’s justification for its austerity cuts and tax rises. The downgrade may not make as much difference to the economy as it once would – the United States and France have already lost their AAA rating without total collapse. But the political significance of the move is still serious.
Of course, no-one knows what credit rating an independent Scotland would get, but Nationalists say almost two-thirds of the countries that now hold AAA status have populations of fewer than ten million, including Sweden, Denmark, and Norway.
One senior SNP minister says: “As a stable European democracy which is oil-rich and has major renewables potential, I think Scotland’s credit rating would be extremely good.”
Nevertheless, many of the questions raised previously about Scotland’s economic position still persist.
Interestingly, the pro-UK campaign is keen not to be seen saying independence is an economic non-starter. Former Chancellor Alistair Darling, Labour MP for Edinburgh South-West and the face of Better Together, says: “My argument is not that Scotland couldn’t go it alone. It could, because any country can – provided you accept you have to cut your coat according to your cloth.
“If you look at independent studies, what they say is that in the near term, ten years or so, you’re okay, provided oil prices remain high. After that, problems start. At some point, oil starts to decline and revenue starts to decline.
“Even the Nationalists’ own economic advisers’ report the other week said this is a bit of a shot in the dark, there is a lot of uncertainty here, you will have to pull in your belts.”
Pro-independence campaigners say oil is still a rich source of revenue for Scotland for at least the next 40 years.
But Mr Darling says: “Forty years is like tomorrow in the scheme of things.
“And decisions on how much oil comes out of the North Sea would be taken not in Scotland but in Texas. Most of these companies are multinationals and Scotland is a small part of their operations. They look at it in the same way as they look at Nigeria or northern Russia. They decide this year we’ll go here, next year we’ll go somewhere else.”
The shadow of the 2008 banking crisis still looms large – and it’s something the former Chancellor knows more about than most. “If Scotland had been on its own when RBS collapsed, I’m not saying it couldn’t have gone it alone but it would almost certainly run into massive difficulties because of the sheer size of what happened. You have narrower shoulders than the UK so when shocks to the system come you take a bigger hit.”
Possibly even more crucial is the question of the currency. The SNP has said Scotland would retain the pound after independence and establish a formal sterling zone with the rest of the UK.
But that plan has been called into question, not least by Edinburgh-born economist Professor John Kay, a former adviser to Alex Salmond, who warns a monetary union would not allow Scotland the freedom over tax and spending policies which it wants independence to bring.
Scotland would be a junior partner in any currency union, he argues, leaving the UK government and Bank of England calling the shots. “Scotland is 8.5 per cent of the monetary union and the rest of the UK is 91.5 per cent. You’re not going to play an equal role, to put it mildly.”
Instead, Scotland should be ready to adopt its own currency, says Professor Kay. That’s not what the SNP wants, but as the debate continues between now and autumn next year, it must be able to convince voters of what the economy of an independent Scotland would look like.
The AAA downgrade is a major blow to the anti-independence case, but other difficult questions remain.
Voters caught between a rock and a hard place
THE referendum campaign boils down to a battle between confidence and doubt.
The Yes side need people to believe in the possibilities that independence might offer - the chance for Scotland to shape its own destiny, to have its own voice in the world and to make its own fortune.
The No side have to persuade people of the uncertainties involved, the risks of going it alone and the questions raised over every aspect of life they now take for granted.
Pro-independence campaigners have sought to offer both the prospect of radical change, leaving behind the unpopular policies of UK governments, but also the reassurance that many things will continue as they are – the Queen, the currency and people’s favourite TV programmes.
The pro-union camp, at least the Labour part of it, tries to combine outspoken criticism of the policies of the current Westminster government – which has nowhere near majority support in Scotland – with arguing that staying in the United Kingdom is in Scotland’s interests.
Opinion polls show support for independence roughly static among the population at large, but one survey earlier this month found the number of 18-24 year-olds backing a Yes vote had doubled from 27 to 58 per cent since October.
One senior SNP figure said: “I’ve always believed most people would support an independent Scotland in principle, but they all have buts. Our job is to remove the buts and that is happening.”