Peter Jones: Alex Salmond’s new state of uncertainty

Uncertainty is probably the biggest problem that Alex Salmond faces in trying to win a vote for independence in 2014. His announcement that he is setting up a group which will advise him about the public finances of an independent Scotland shows that he knows it and is trying to deal with it. But he also faces a Catch-22 that looks impossible to cope with.

You may remember from Joseph Heller’s novel of that title that a military pilot in a war wanted to stop flying more missions because he thought he was going crazy and would die. But Catch-22 was an unwritten military rule which said that if you asked to stop flying dangerous missions, you were obviously sane and therefore could not be grounded because of insanity.

A similar kind of conundrum faces Mr Salmond. He wants Scotland to become independent so that he can control economic levers of power and make big changes to “deliver the investment in growth and the creation of a wealthier and fairer society that is at the heart of our arguments for independence”, as he said in a weekend newspaper article.

But the more change he plans to make, the more uncertainty is perceived to exist by businesses and individuals worried about their jobs and income and the less likely they are to vote for independence. One way of dealing with this is to reduce the amount of change that independence would make, reducing uncertainty but also rendering independence rather pointless.

This is actually quite a well-worn political tactic. Before the 1997 general election, and even though John Major’s Conservative government was visibly crumbling and losing credibility, Tony Blair fretted in opposition that Labour did not have enough economic credibility, especially with business and the City of London.

Business worried that Labour was still a high-tax, high-spend party. So he and Gordon Brown promised that they would stick to the Tories’ spending plans for two years after the election, in effect promising that the election of a Labour government meant little change.

Now any nationalist will of course immediately point out that independence means many good things that people will welcome and therefore will rush to vote “yes”. That may well turn out to be the case, although it does depend on more than half the electorate believing what Mr Salmond says.

Forgive me, but in these days of deep public cynicism about politicians, their motives and their truthfulness, I don’t think you can assume that will be the case. And I think Mr Salmond’s announcement of the somewhat grandly-titled fiscal commission of four distinguished professors of economics to preside over a group of civil servants shows that he is certainly not taking it for granted.

Mr Salmond said of the group: “It will oversee the detailed technical work by civil servants on the fiscal and macroeconomic architecture around Scotland’s public finances following independence, including the establishment of a credible fiscal commission which entrenches financial discipline and ensures market confidence.”

The professorial membership is impressive. While Andrew Hughes Hallett, professor of economics at St Andrews University, and his views on the economics of fiscal devolution have been controversial, he is still distinguished in the field of international economic policy. Professors Joseph Stiglitz and Sir Jim Mirrlees have both won Nobel prizes, and Frances Ruane is director of Ireland’s respected Economic and Social Research Institute.

Clearly, any endorsement by them of the plan that Mr Salmond will eventually set out for what Scotland’s public finances are going to look like post-independence will carry considerable weight. I do not imagine, for example, that if they do not think there will be enough tax revenue to put some of the oil tax take into an oil fund for future generations, that they will say there is, otherwise they would be compromising their own academic reputations.

But there is only so far that they can go in dispelling uncertainty. Last week, for example, Scottish Financial Enterprise (SFE), the trade body representing banks, insurers and fund managers, demanded answers to some questions which it said were causing uncertainty.

SFE made it clear it has no view on whether Scotland should be independent or not, that being a question to be answered by “voters and the democratic process”. But, SFE’s chief executive, Owen Kelly, added: “We believe it is important, and possible, for some major uncertainties to be removed which will allow for a more informed referendum process. Too much of the debate is currently founded on assertion and counter-assertion.

“What is needed by our industry are clear answers to questions on currency, EU membership, regulation and the possible impact on the UK as a single market for goods and services.”

Herein lies a significant problem. It is possible, as SFE says, for the major uncertainties it lists to be removed. But to do so, the Scottish Government would have to negotiate and reach agreement, before the referendum, with the EU and the UK government on the terms of Scotland’s EU membership, the continued use of sterling as Scotland’s currency, regulation of the financial services, energy and other industries, and the terms under which the UK would remain a single market.

This does not look at all likely. The EU has studiously resisted saying anything about Scottish EU membership because that will be interpreted as interfering in UK domestic politics. The UK government does not want Scottish independence to happen, so it will do as little as possible to help Mr Salmond’s cause and as much as it can to de-rail it.

As far as I can see, there is only one circumstance which would unlock this further Catch-22. If opinion polls start to show that Scots are likely to vote for independence, then uncertainty could well start to affect the rest of the UK economy. Private investment in the rest of the UK, for example, might be put on hold until after the referendum.

In those circumstances, David Cameron would come under pressure to spell out, for example, how an independent Scotland as part of the sterling zone would be managed and how regulation of some key industries like financial services and energy might be handled, so that uncertainty can be reduced. But opinion polls consistently show that backing for independence is well below 50 per cent. Until that changes, Mr Salmond has an uncertainty problem.