Scottish independence: Why the 'Economics of Independence' paper is a step backwards from the SNP's Growth Commission report

The Scottish Government’s latest ‘Economics of Independence’ publication leaves us little the wiser as to what would actually happen.

If anything, it is a step backwards from the SNP’s Growth Commission report of 2018 and key questions remain unanswered rather than resolved.

This is not unexpected as most of the big calls are not for the Scottish Government alone to make.

They will be the result of negotiations with the UK Government and the EU Commission. So the report is a wish list of things it would ideally like to happen, although even here it is threadbare in places.

Nicola Sturgeon holds a press conference to launch the third paper in the Building a New Scotland series. Picture: David Cheskin-Pool/Getty Images

Taking the big questions in turn.

On currency, there is a commitment to continue using sterling prior to establishing a Scottish pound in the long term.

Here the room for negotiation is vast. First, how exactly will the Scottish Government co-operate with the UK Government in a sterling currency zone and to what extent will this curb its ability to pursue independent fiscal and monetary policies?

Second, will the EU accept Scotland entering into a currency union with a country outside of the EU? Furthermore, would it be happy for Scotland to ultimately start its own currency rather than join the euro, a different situation from those countries who kept their existing currencies on joining?

On the fiscal balance, the re-emergence of North Sea oil and gas revenues has muddied the waters. As a result, the report is incoherent as it refuses to acknowledge exceptional circumstances and necessary trade-offs.

First, it says Scotland’s fiscal position is currently akin to the UK’s, but this is largely a result of the impact of the unstable war in Ukraine on the price of oil.

Second, it says oil revenues will be used for a special Investment Fund – so spent rather than used to narrow the fiscal gap.

Third, it gives no indication as to what it expects future oil revenues to be and how a desired move to net zero will impact on this.

All of this means there is no clarity over what the Scottish Government thinks the underlying fiscal position is – i.e. where Scotland stands in the absence of, erratic – and wealth fund destined – oil revenues.

This, in turn, means there is no discussion of the difficult decisions that still need to be taken over cutting spending, such as on defence, and/or on raising taxes to reach a fiscally stable position.

In the absence of a, Liz Truss-like, faster economic growth rate, the awkward transition period still stands. To deliberately obfuscate on this issue is to avoid a “grown up and honest” discussion.

On trade barriers with the UK, the position taken is naive. First, it implies, not very convincingly, that the EU market is more important to a future Scotland than the UK.

Second, it glosses over any such barriers – physical and regulatory – as something that can be marginalised through future technology. All of this sounds a bit Northern Irish in its wishing away of potential border issues.

There will be much more said about what the economics of an independent Scotland will look like, but, just like Brexit, what finally emerges is not down to what one party seeks, but to what compromises can be negotiated between all parties involved.

- John McLaren is a political economist who has worked in the Treasury, the Scottish Office and for a variety of economic think-tanks