Donald MacLaren: Will you put your money where your heart is?

What goes through our minds when someone today asks us the independence question?

“Yes”: because of a massive pride in Scotland, both our identity and our achievements; a strong sense that the country is underperforming and should, given its merits and talents, be far more prosperous; and a real hope that we could be – if, somehow, we could emerge from the state of dependency to which we have been reduced for so long.

“No”: because a major part of that dependency is on a public sector fed from someone else’s budget; because our own government’s achievements have been made possible not so much through Scottish tax revenues but those collected from the English taxpayer; and because if that system changes radically – without Scotland having first put in place a sufficiently wealth-generating mechanism – it is bust.

A new Darien disaster – only this time without investors; with even bigger fallout; and not overseas but in our midst. (And ironically, like Darien, leading promptly to reabsorption into the United Kingdom.)

What happens, then, when irresistible Salmond meets immovable Cameron? A cockfight. Quite a spectacle; but hardly edifying. Great politics (“heart and soul”, etc) but lousy policy. Distracted by advocating their own maximalist positions, neither leader is putting commensurate energy or thought into what could be a win-win for the constituent parts of today’s United Kingdom, whatever the final constitutional arrangement.

A Scotland that has a complementary, collaborative, but healthily competitive relationship with the others. A Scotland that is not passenger but motor – and, explicitly, to wider benefit.

Meanwhile, we are being driven headlong towards a referendum only 30 months away – and what is being put to us, effectively, is: “Jump over the cliff with me. I promise you a happy landing.” Or: “Oh well, let’s go for independence as a priority and if we can’t get that (in case the “Bannockburn bounce” proves insufficient to yield a majority) maybe settle for some enhanced decision-making powers.”

Admittedly, Robert the Bruce was a gambler. But even he believed in meticulous planning. The above propositions fail that test.

That we should stumble into a “fall-back”, some yet to be defined (and even more loosely promised) second-best, is an insult both to Scottish intelligence and to Scotland’s sense of ambition. It risks wasting both.

How then to go about things?

Fiscal autonomy should be the deliberate starting point.

We recognise that a relationship with Westminster based on block grant is flawed and unsustainable. An arrangement whereby corporate revenue generated in Scotland goes south to a common pot and we get the Barnett Formula in return (albeit, hitherto, with relatively generous provisions) is corrosive on all fronts.

Subsidies have their place. But when subsidy and distant central control combine to dominate a national economy they lead to deep internal rot: structural, mental and moral. The natural link between endeavour and reward is severed, leaving both to contract.

A salient feature of the system in the Soviet Union, this was one of the main reasons for economic collapse. Yet, incredibly, it is alive and kicking today in Britain, supposedly one of the world’s most advanced “free” economies: and, if we would only wake up to this, it is kicking Scotland. Why? Because the productive, wealth-creating part of our economy is the junior “partner” to the wealth-spending part of the economy, which is now proportionately larger than in any other country in Europe – including, ironically, the countries of the former Soviet Union.

Britain can do better. Scotland certainly should.

If we accept that, then we take the Barnett Formula by the throat rather than let it continue to do that to us. Turning it from lifeline to a “second string” line of support, we negotiate a new arrangement with Westminster, who will be more attentive to what follows than anything they have heard emanating from Scotland so far:

A. Scotland to have its own – properly its own – budget. Revenues raised in Scotland to go directly to a Scottish exchequer. Scotland to collect its taxes – at a sustainable, not industry-killing, rate; to frame its spending budget to fit, including what it can responsibly still give its citizens for free; and to attract its own foreign direct investment.

B. As a legitimate, sensibly managed component of the above, Scotland to retain the revenues from offshore oil and gas located in its territory – as defined under international maritime law.

C. The Barnett Formula to be phased out in a structured, transparent and predictable way over a set period of years.

D. The arrangement to be trial; not yet terminal.

E. Formal moves towards constitutional independence (though not the process of forward-thinking) to be suspended over that period.

SURELY this is independence in all but name? No. The crucial word is “trial”. It will be a deliberate test for Scots to put their own money where their mouth is – or at least, for many, where their heart is. We will have the opportunity to demonstrate in practice whether or not we are capable of running our affairs in the area where it matters most. Winning a mandate to stand entirely on our own feet could only be a hollow “victory” if we find – too late – that we have hollow legs.

The trial period should be between five and ten years: long enough to see how we cope with cold winds as we emerge from the cocoon of the Barnett Formula; not so long as to allow complacency and drift to set in from the outset.

What are the risks? By the end, in the worst-case scenario, we would have to conclude we gave it our best shot; we had every opportunity to prove, not least to ourselves, that we could work towards “workability”; but too many lines on the graph were now pointing downwards.

Even pleading for, say, another five years would be pointless because it would be already clear that we could not make enough money to run our own economy. We would have to revert to something like the present system – though the planners on both sides of the Border might be expected to come up with something better, and less draining.

In the better-case scenario, we would be able to present clear evidence that a self-financing Scottish economy was looking viable. New industries and marketable technologies will have been developed, not least in the energy sector. We will have been forced to learn the discipline of spending public money wisely; and possibly setting ourselves as a model for others. More Scots will have been encouraged to return from overseas.

And, by having to present a credible face to the investor community, both at home and overseas, we will have been building investor confidence and impetus.

Perhaps most importantly, we will have been converting our economic culture from the habit of living with an unsustainably large public sector to one of living within what we can afford.

The overall result will be the creation of sufficient momentum towards the point where a self-standing Scottish economy could move from trial to consolidation.

That, surely, is the point – and not before – when we ask the Question: “Well now, what do we all think about independence?”

The cart now laden with other essential questions flowing from the idea of an autonomous Scotland needs to be hitched to a reliable horse. Those questions will then be in clearer focus and be more tractable to mature and responsible decision-making.

First, train the horse. That means the economy. Replace, if you like, the old slogan “It’s our oil” with “It’s our money”. And, if we show we can make a decent fist of that, then – unlike oil – there’s a proper chance that it won’t run out.

• Donald MacLaren of MacLaren is a former diplomat and HM Ambassador in eastern Europe.