Brian Monteith: Rushing towards fiscal uncertainty

IT’S difficult to trust Salmond’s economic judgment after his previous prevarications and u-turns, writes Brian Monteith

Alex Salmond and Nicola Sturgeon launched the the SNPs white paper that makes promises without spelling out what it will cost us as compared to staying within the UK. Picture: Robert Perry

WHILE pundits and spin doctors seek to suggest who won the first referendum debate between Alex Salmond and Alistair Darling, what is self-evident is that the debate helped to distil the question down to one single issue. In the event that Alex Salmond cannot get the currency option of his choice (a formal currency union using sterling) what is his Plan B? The answer, there was none.

As we hurtle at break-neck speed to the vote on 18 September I am sure we can expect more of the same; the personal but small distractions will be tossed aside and we shall focus more on what for the majority of us are the big issues. Such as what will be the new more expensive price for Scotland remaining a member of the European Union, or how will Scotland pay for the cost of its pension liabilities when our workforce will be shrinking and our pension bill rising (before even considering Nicola Sturgeon’s promise of a lower pensionable age in some parallel universe that only she inhabits).

There may be others, such as the pick-and-mix sweetie shop of freebies and goodies that nationalists have been dreaming up to be paid for by the munificence of oil revenues – while at the same time telling us we can have a sovereign oil fund that by implication requires a more austere approach to public welfare.

We shall see what matters most, but for all that, the one crucial issue that Scots residents (as opposed to the broader body of Scots that would more usually have a say in the future of their country) are already well tuned into is how our economy might or might not work if we secede from the United Kingdom and choose the SNP’s offer of independence without independence. (For those of you not used to reading my column let me recap that there will be no referendum on the new price of EU membership and its tighter straightjacket, there will be less influence than present with any formal currency union and even less still with any unofficial use of sterling, while many other institutions that we shall seek to keep access to such as the BBC we shall have no say in).

Added to this natural interest in the economy is the suggestion by a number of opinion polls that the electorate can be swayed to vote one way or another by believing people will be better off by as little as £500 a year.

Politicians have not been slow to rise to this bait and so we have had Yes campaign newspapers coming through our door telling us we shall all be £5,000 more prosperous from independence while the UK Treasury has published its own studies showing we shall be about £1,400 better off if we keep the status quo.

On top of this state munificence we have also had the unashamed political bribery of the SNP’s white paper that makes a promise on childcare that has not been modelled (so no-one knows how it will be afforded and delivered). A further promise of continuing with free university tuition fees but charging English, Welsh and Northern Irish students must ensure that either entry to the EU will be denied or the policy is abandoned. No one gets into a club who is promising – before joining – to break its rules!

So it is all the more timely that entering the debate today is a new study of the economic consequences of independence written by Scottish economist Ewen Stewart and published by the Scottish Research Society. Titled “Much cost, little benefit” the research paper does not shirk from a detailed and robust analysis that concludes the prospects for Scotland would not be good.

In summary, it draws attention to how Scotland’s public sector is over 50 per cent of GDP, 5 per cent higher than the UK average and that spending is £1,267 a head higher than the UK. Stewart argues an independent Scotland, dependent on a highly cyclical oil sector, cannot maintain this and faces either cutting spending, raising taxes or a combination of both. The nationalist rallying call of ending austerity will be nothing other than a bad joke.

An independent Scotland would be liable for a national debt of £116 billion, rising to £186bn when including bank liabilities. In 2012-13, an independent Scotland’s deficit would have been up to £17.1 bn, or £3,226 per head. The assets of Scottish banks are 12 times GDP, dwarfing those of Iceland and Ireland in 2008 when the banking crash came – which would have bankrupted Scotland had it been independent at that time.

In an independent Scotland, without the support of the Bank of England, Scottish banks would be forced to migrate to London or shrink their balance sheets. Neither are good for Scottish jobs. Contrary to the promises of nationalists, the only banks remaining in Scotland would be food banks as the austerity would cut deeper.

With 70 per cent of Scotland’s trade (accounting for almost 40 per cent of Scotland’s GDP) with the rest of the UK suddenly being recategorised as international and beyond our borders (and thus facing new and serious impediments), an independent Scotland would rely on state spending, volatile and declining oil resources, and a disproportionally large financial sector, making it one of the most unstable economies in Europe. Whereas within the UK, Mr Stewart argues, Scotland benefits from the support of a larger, more diversified economy and the balance sheet of the UK treasury.

Mr Stewart concludes that the sum total of these points and using the Scottish Government’s own annual-deficit projections, is that if Scotland rejoined the EU and had to comply with its compulsory annual borrowing limit, every household in Scotland would be worse off by £3,400-£5,500 a year, plus another £500-£1,000 a year for every £100,000 borrowed on their mortgage.

No doubt there are other economists who will disagree with Mr Stewart. Fair enough, but that only prompts the bigger question – do we trust the judgment of Alex Salmond – the man who told us the pound was a millstone for Scotland only to recommend we keep it, who said he had legal advice on EU membership when there was none – and on the currency has no plan B? And if the answer is no, if his judgment is rejected, how then can he remain First Minister?