Bill Jamieson: Impact of London distorts the Union

But is it true? And if so, for how long might it hold? The dark spectre that haunts the unionists is perhaps less an independent Scotland than the start of an unravelling of the rest of the UK. First Minister Alex Salmond made a telling point last week that an independent Scotland would encourage the regions in the rest of the UK to be assertive and seek more powers on their own account: don’t begrudge us, follow us.

For those of a Rousseauian disposition, it conjures up a picture across the rest of the UK of a harmonious co-operative federation of city and regional states, competing and asserting but on amicable terms, united in a federalism that would modulate differences and conflicts.

Those of a Hobbesian turn of mind would see something else: the end of the United Kingdom as we know it and its constituent parts degenerating back into warring regions and fiefdoms. It would be less Anglia against Mercia perhaps than the northern regions locked in a nasty, brutish and very long battle for resources and powers against the overbearing megapolis of London.

Disparity between London and the rest of the UK has been glaring for decades but seems to have become more marked in the downturn since 2008. Indeed, it is London’s prosperity and busyness that is the first and lasting impression of any visit to the capital these days. Despite the shake-out in financial sector employment, London barely seems to have suffered a slowdown. By comparison, the centres of Edinburgh and Glasgow seem to have suffered a retail and restaurant massacre. The sense of slowdown and squeeze are palpable.

In the broad historical sweep, how the northerners and the heathlanders would come to hate the continuance of that giant sucking sound of money, ideas, investment and people being constantly drawn south as their own populations age and wither. “Our island story” would have effectively turned a full circle of sorts: a return to a bleak and fissiparous mediaevalism as an impoverishing divide-and-rule settled in. An independent Scotland might be able to stand apart from all this, impervious to such problems south of the Border, were it not for the fact that the rest of that once united kingdom was our single biggest trading partner. Or had been once.

Fortunately, that is not how it looks at present. It is certainly the case that, statistically, the economic heartbeats of the nations and regions of the UK are close. In the three months to end September 2011 – the last quarter for which comparable Scottish and UK figures are available – GDP grew by an identical 0.5 per cent across both. In the fourth quarter of 2011 the UK economy shrank by 0.2 per cent. While the figures for Scottish GDP for the fourth quarter of last year will not be available until April, they are likely to show a similar outcome.

A similar pattern is also evident in employment data. Indeed, as Professor David Bell set out in The Scotsman last week, Scotland’s labour market has tracked the UK better than any other part of the UK except for the East Midlands. The average difference in unemployment rates between Scotland and the UK as a whole during the recession has been only 0.4 per cent. Not only, he added, does this show how policy has not driven any massive differences in labour market outcomes in Scotland since the beginning of recession, but it also demonstrates that Scotland with the UK does indeed form an optimal currency area.

The point was recognised by the SNP-sympathetic Professor Andrew Hughes Hallett in the Reform Scotland publication on the economy late last year and has become the official position of the SNP, or at least for now.

As for current trends, the latest Lloyds TSB/Markit Purchasing Managers Index activity data points to a pick-up in private sector output growth across most UK regions and this looks to have continued into February. The Lloyds Bank UK Regional Snapshot out last week found that public sector job losses have been proportionately sharper in those regions that are less reliant on govern-ment employment, such as the south-west and east of England. However, both the activity and new business indices for the North-west, Scotland and East Midlands show expansion.

Little of this should surprise given the level of economic integration between the two countries, the similarity of consumer markets and the fact that the rest of the UK is by far and away Scotland’s biggest export market. So, if the economic pulses are so close, the labour market moving in synch and the direction of economic travel is shared, what is it in the economic realm that is so negative for Scotland or different from the UK average as to require separation? On this view, the economic crux of the SNP case would seem to rest on little more than the narcissism of small differences. Yes, unemployment is slightly higher and yes, average incomes lower, though barely so once London is taken out of the equation. So the key elements of the independence case rest on a belief that an independent Scotland would manipulate the levers of economic power in a manner more conducive to growth, enterprise and prosperity – compatible, of course, with commitments to equality, fairness and welfare.

But differences there are between the two economies. And they would come to matter in the event of independence. The biggest, of course, is North Sea oil. A Scotland enjoying an 80-90 per cent share of North Sea oil tax revenues would look very different, both in terms of per capita income and the public finances. Such revenues would indeed be a game-changer, though with the notable caveat on volatility of both output and price. For example, oil and gas production both fell in October of last year compared with the previous period in 2010. Average daily oil output was 887,687 barrels per day, down 26 per cent compared with October 2010. The price volatility is also widely understood. This is not to argue that output has only one way to go or that oil prices will slump. But such volatility needs to be borne in mind in any post-independence vote construct.

There are other important differences. There is a significantly higher share of government spending as a percentage of GDP and more people employed in the public sector. This may help explain why overall numbers employed in Scotland are higher as a proportion of the working age total than in most areas of the rest of the UK.

The big economic dividing lines in the UK are not between England and Scotland but between London and the rest of the UK in GDP and labour market terms, Scotland is close to the ex-London average. Whether independent or not, Scotland’s biggest challenge is to how to deal with the countervailing pull of the London megapolis. And that is as much a challenge for David Cameron as it is for Alex Salmond.