Nicola Sturgeon, First Minister of Scotland, has called for a second national referendum on independence from the UK. Fleeing Westminster is to her Scottish National Party (SNP) as leaving the EU was to UKIP: its all-encompassing passion and the party’s raison d’etre.
However, should Scotland leave the UK, it could prove troublesome for a nation that is already struggling. Significant obstacles could leave its economy stagnant.
Simply put, Scotland is in poor fiscal shape, and leaving the UK could remove its lifeline to sane fiscal policy.
Part of the problem is beyond Scotland’s control. During the last independence referendum on September 18, 2014 – which was billed as a “once-in-a-generation” event – North Sea oil sold at $91 a barrel. Last month, the price plummeted to $48, with production costs of $44 a barrel. Scottish oil revenue in 2015-2016 was just one-third what it had been the previous year.
Other troubles, though, are the nation’s own making, such as Scotland’s problem with profligate spending. The Guardian reports:
The Scottish and UK governments spent £1,200 a head more on public services in Scotland, and on Scotland’s share of UK and overseas spending, while overall tax receipts fell by £400 a head.
Compared with spending at UK level, that led to a gulf of £1,600 a head between what was raised in taxes and spent in Scotland. Overall government spending as a share of the economy increased again to reach nearly 44% of Scotland’s GDP, compared with 40% at UK level.
Losing its stipend from Westminster is part, but only part, of the damage independence would do to Scotland. If it forced the government to live within its means, that would be a benefit rather than a liability. However, belt-tightening has not been a major feature of Western democracies in far too long.
Instead, left to its own devices, the SNP would likely make the nation even less competitive. Scotland recently used its devolved powers to keep taxes higher than in the rest of the UK, rejecting a tax cut that will increase the tab for 350,000 Scottish taxpayers. Since Edinburgh does not have devolved powers in other areas, the result is the peculiar outcome that people who make £43,000 pay a 10 percent higher tax rate than those who make £45,000.
Scottish independence is pegged to the hope of somehow retaining the EU membership that belongs to the UK as a whole – something already ruled out by leading EU authorities. Instead, Scotland would first have to obtain independence, then go through the application process, which its present economic condition makes it unlikely to pass.
The EU wants member states to keep their deficit-to-GDP ratio at 3 percent. Last year, Scotland ran a deficit of £15 billion, or 9.5 percent of GDP – compared to 3.8 percent for the UK as a whole. As an independent nation, that’s worse than any other EU member state including Greece, Spain, and Portugal.
Leaving the UK would mean cutting ties with its largest trading partner. Nearly two-thirds (63 percent) of Scottish exports go to the rest of the UK, as opposed to 16 percent to the EU. That’s as a current member of the EU with no tariffs, a privilege it would not enjoy during the interim period between independence and accession to the EU. Simon Wren-Lewis, professor of economics at Oxford University, estimates that Scottish independence would decrease the average Scottish income by as much as 10 percent by 2030.
In the unlikely event that Scotland becomes the new 28th member of the EU, it would then be subject to the significant regulatory and tax liability placed upon member states. (The UK shouldered an undue level of the latter.) Although the “Great Repeal Bill” would codify EU regulations into British law, there is at least the glimmer of hope that some of these regulations may be repealed or modified to better suit the needs and peculiar situation of UK citizens. Remaining, or becoming, an EU member extinguishes the prospect of subsidiarity altogether.
Finally, as Simon Constable notes at Forbes, “The EU might not even exist in a few years.” Such an implosion seems extraordinarily unlikely. However, should Marine Le Pen pull off an upset in France, it is difficult to envision the EU, as currently constituted, surviving that nation’s exit.
It is hard to find the economic upside for the citizens of Scotland if their government maintains its present course, cuts ties with its largest trading partner, and pays an excessively heavy tab in order to struggle under the burden of regulations by Euro-socialists from afar.
(Photo credit: fw42. This photo has been cropped and modified for size. CC BY 2.0.)