The document summarizes the key economic factors in the Scottish independence debate. It discusses Scotland's historical economic relationship with the UK and the roles of oil revenues and public spending. The debate centers around issues like EU and NATO membership, currency, and the sustainability of Scotland's economy and public services without support from the UK. Supporters and opponents each cite economic evidence for their positions, but the long-term economic impacts remain uncertain and will only be clear many years in the future.

1. Economic Factors Affecting Scottish Independence
Gennifer Harding-Gosnell
4/5/14
On September 18, the Scottish population will vote on a referendum that will decide if Scotland should become
an independent country or remain part of the United Kingdom. Five months before the referendum is to be held,
polling shows support for and opposition against independence running neck-and-neck among voters, each side
within just a few points of one another, indicating a decision could be made on Scotland’s permanent future that
only has the support of just about half of the country’s voting population.
Throughout history, there have been several notable movements toward gradually breaking Scotland away from
the Union. Scottish home rule movements began in the mid-1800s, influenced by similar measures put forth by
Ireland at that time. In response to these efforts, Parliament established the Secretary for Scotland governmental
post and the Scottish Office to represent the particular interests of Scotland to the British government. Another
attempt to establish home rule was made by Scotland in 1913 but was interrupted by the beginning of the First
World War. Further efforts were made throughout the 1930s and ‘40s, including a petition signed by nearly 2
million people, and symbolic gestures of independence, like removing The Coronation Stone from Westminster
Abbey.
The Scottish National Party began to champion the cause for independence in the 1960s and early ‘70s, leading
to the first devolution referendum, held in 1979. A slight majority of voters favored devolution, but not enough
of the overall electorate showed up to the polls and the measure was rejected by Parliament. Internal debates
among Scotland’s main political parties would continue throughout the Thatcher and Major governments’ reigns.
Under the Labour government, Parliament approved the Scotland Act 1998, creating the Scottish Parliament and
establishing devolved powers to them, including education, food regulations, local government standards, arts,
tourism and limited powers to change income tax rates.
Elections in 2007 made the SNP Scotland’s largest political party, giving them a mandate to begin pushing once
again for full Scottish independence. The SNP published a White Paper titled Scotland’s Future to the public in
early 2010, proposing three separate directions, all of which continued the movement to devolve more powers to
Scottish Parliament, and one of which was full independence, but the measures did not receive enough support
from opposition MSPs. The Scottish National Party gained an overall majority in the 2011 parliamentary
elections and once again proposed the referendum. The UK and Scottish Parliaments negotiated the legality and
details of holding the referendum which resulted in the Edinburgh Agreement of 2012, establishing the necessary
parameters for holding the vote. The Scottish Independence Referendum Act was then passed in Scottish
Parliament in June 2013 and received Royal Assent in August of that year. A revised (and much longer) White
Paper, also titled Scotland’s Future, was published outlining the case for independence and the means by which it
could happen.
Since the legal go-ahead has been given for the referendum to be held, issues on both sides of the independence
argument have been heavily, and often heatedly, debated by everyone from government officials and economists
to punters at pubs from Glasgow to London. The logistics of breaking ties between the UK and Scotland are still
being sorted and scrutinized at great depth, such as the sharing of intelligence information between Scotland and
the UK, how Scotland will (or will not) be recognized by the EU, membership in NATO, whether or not to keep
pounds as Scotland’s currency and the ownership of defense equipment and sites.
Economics play a vital role in the debate; an independent Scotland that finds it is unable to sustain itself would
be a catastrophe for Scotland and the UK, and most certainly will wreak havoc on the rest of Europe as well.

2. There is no room for economic policies to be incorrect and predictions to be off once an independent Scotland is
established without risk of facing the dire fiscal consequences a modern society is capable of. The seriousness of
these consequences has kept much of the bickering on overall independence narrowed down into economic
terms.
The pro-independence movement is led first and foremost by the Scottish National Party, which has championed
the right of Scottish independence since its inception in the 1930s. The other three main political parties in
Scotland do not support Scottish independence, but the SNP does receive support from other fringe political
parties in Scotland, including the Green Party and the Socialists. Scotland’s First Minister Alex Salmond has
become the public face of the pro-independence movement. Yes Scotland Ltd, the umbrella organization for all
parties, groups and individuals who support independence, launched initially in 2012 and has been staging
demonstrations and promoting the cause since.
The anti-independence movement, “unionism”, is led by the UK Government and its main political parties, the
Liberal Democrats, Labour and Conservatives. The British National Party and the UK Independence Party also
support unionism. Within Scotland, the Scottish Liberal Democrats, Scottish Conservative Party and the Scottish
Labour Party also endorse unionism. British Prime Minister David Cameron is the highest ranking official
representing the anti-independence movement. Everyone supporting Scotland staying in the United Kingdom is
represented by the umbrella organization, Better Together.
Both sides have developed comprehensive lists of reasons why they support or oppose Scottish independence
and offer evidence to support their claims. Those in favor of independence tout the idea of nationalism and self-
determination, that the people who live in Scotland and those who are most invested in and will be affected by
its future, are creating that future for themselves by voting for independence. A Scotland not tied to the UK can
make its own decisions about foreign and defense policy and can represent itself on the world stage.
Unionists cite historical ties and tradition between Scotland and the UK being unbreakable. Emigration between
Scotland in the UK is strong; nearly 500,000 citizens from other parts of the UK live in Scotland, and nearly
700,000 Scots live in the rest of the UK. Unionists fear an independent Scotland would be seen as vulnerable,
subject to skepticism and bullying by larger nations, especially with regard to the EU, NATO and the UN and
economically by credit rating agencies like Moody’s and Standard & Poor’s and councils like the G20.
Complex issues like membership to the EU, currency, immigration and border control and sharing of the national
debt are still being negotiated, and the economic arguments on both sides are still the most passionately debated.
One of the most hotly contested debates between the two sides is the oil in the North Sea. Oil was discovered in
the North Sea beds in the 1960s; active drilling commenced by the 1970s. The majority of the oil fields found
within the UK’s jurisdiction of the North Sea were to the north and east of the Scottish mainland. The large port
city of Aberdeen, Scotland became the center of the UK’s oil industry during the 70s and continues to reap the
benefits of its location to the oil fields to this day. The SNP incorporated the catch-phrase, “It’s Scotland’s Oil”,
into its campaign for Scottish independence in the 70’s, and the notion behind that phrase has once again been
brought forth to support the current independence campaign. First Minister Alex Salmond touts North Sea oil’s
yearly revenue as making Scotland “one of the wealthiest countries in the world” and that differences between
tax revenue and spending in Scotland alone were almost identical to the revenue versus spending figures for the
rest of the UK, promoting what he sees as evidence of Scotland’s fiscal stability. Tax revenues generated last
year were £800 higher per person in Scotland than compared with the rest of the UK. A 41.5% drop in North Sea
oil revenue over the last two years was credited by Salmond to the shutting down of operations to increase
investment which would raise revenue in the long-term. Detractors argue that such a sharp, significant drop in oil
revenue would have forced an independent Scotland to curb spending on services and raise taxes. The Institute
for Fiscal Studies, in reviewing the findings of the same GERS report cited by Salmond, says: “For the first time

3. in 5 years GERS suggests that Scotland’s net fiscal balance, or budget deficit, was worse than that of the UK as a
whole even when allocating North Sea revenues to Scotland on an illustrative geographic basis.” The volatile
nature of oil prices is also taken into consideration by unionists as being too risky to be dependable.
Opponents of Scottish independence also cite the future of the resource itself, saying Scotland cannot rely on oil
alone because it is a finite natural resource. Facts and figures compiled by the Office of Budget Responsibility as
stated in a BBC report show that 40 billion barrels of oil have been extracted from the North Sea and only 24
billion could potentially still be extracted from the area, leaving only 30 to 40 years of production time, and
monetary gains, left. OBR predicts a 38% drop in oil revenue as early as 2017. Supporters argue that the oil
would be depleted much more slowly if it belonged only to Scotland, and that the monetary rewards from the
sale of the oil would be used to create a national fund that could support the whole country using just one-tenth
of the oil’s yearly revenue. Unionists want that revenue to stay with the whole of the UK, which could lose up to
90% of the money generated by North Sea oil if Scotland separates and the oil fields are divided up
geographically. An OBR forecast of Scotland’s oil revenues imply a decreased revenue stream between 2014 and
2017 which would have a much more adverse effect on Scotland’s economy than for the UK as a whole.
In relation to public spending, Scotland’s welfare system is expected to see huge overhauls should a “yes” vote
occur. In the Scottish government’s publication in support of independence, Scotland’s Future, the UK’s current
welfare system is described as “damaging” and “counterproductive”. Measures to be taken following
independence according to the document are:

Abolish the bedroom tax within the first year
Halt the further roll out of Universal Credit and Personal Independence Payments in
Scotland
Ensure that benefits and tax credits increase at least in line with inflation
The publication further states: “If there is a vote for independence in the referendum, the Scottish government
will ask the Westminster Government to stop the roll-out in Scotland of Universal Credit and Personal
Independence Payments immediately.” In a statement that should please unionists, an independent group set up
by Scotland’s Deputy First Minister, Nicola Sturgeon, has warned that an immediate separation from the UK’s
welfare system would create “serious risk to the continuity of payments” to both UK and Scottish claimants, and
that a fully independent social welfare system could take up to 2020 to fully implement. Yes Scotland states that
the infrastructure needed to implement welfare benefits throughout Scotland already exists there as part of the
UK’s current system.
In a move to curb the pro-independence movement which has steadily been gaining in support, the UK
government has announced it will devolve the power to set a cap on discretionary housing payments for citizens
who need extra help, thus allowing the Scottish Parliament the right to abolish the bedroom tax, a hugely
unpopular Conservative measure affecting UK citizens on low incomes with extra rooms living in council
housing.
Many separatists, including the Scottish Government itself, have attempted to draw off anti-London sentiments
to gain support. In other areas of the UK away from London, there is the perception that decision-making in
Westminster tends to favor the area in which it sits, to the disadvantage of the rest of the UK. Put bluntly, Liberal
Democrats business secretary Vince Cable once described London as “a giant suction machine draining the life
out of the UK.” Laws, economic policies, political power and transport innovations all appear to many living
outside of south east England to be London-centric, and that politicians based in London are too far removed
from the areas up north they are supposed to be governing to be able to properly represent their needs and
interests. The ingrained cultural dislike between the north and the south of England has somewhat been exploited
by Scottish separatists to further their cause to gain support specifically from northern Englanders. In Scotland’s

4. Future, the Scottish government states: “Under the Westminster system, Scotland is also locked in to one of the
most unequal economic models in the developed world: since 1975 income inequality among working-age
people has increased faster in the UK than in any other country in the OECD. The increasing geographical
imbalance concentrates jobs, population growth and investment in London and the South East of England, but no
action has been taken to address this by successive Westminster governments.” Supporters are spreading this
message. Stewart Maxwell, MSP for West of Scotland in the Scottish Parliament, says on his website: “With a
Yes vote and independence, the growth of a strong economic power in Scotland would benefit everyone –
including our neighbors in the north of England.” It is believed that Scotland has long endured UK governments
and policies that it did not vote for or support, especially with regard to Tory governments. Unionists insist that a
collapse of the Scottish economy, which many feel is highly probable in an independent Scotland, would force a
bail out from the City, in part because of the long shared history and ties between England and Scotland and the
perception of those ties to the rest of the world, but also in order to save itself. London would be left no choice.
Many of those in favor of maintaining the union between Scotland and the UK cite a short attention span on the
part of the pro-independence movement, that a repeat of the bank bailout of Lloyd’s and the Royal Bank of
Scotland in 2008 by the British Government is too much of a risk to take. In an article for the Telegraph, Liam
Halligan states: “Whatever pledges the Westminster government makes, whatever is written on the statutes and
press releases, wouldn’t get close to unravelling, in the eyes of the world, more than three centuries of shared
history and collective responsibility. Edinburgh’s problem would be London’s problem – no question. Any other
story, and amid the fear and loathing of a serious financial crisis, the rest of the world wouldn’t buy it. Were the
financial barbarians to gather at Edinburgh’s gates, the message from the money-men to London would be clear:
‘Bail out the Scots or we’ll destroy your banking sector, too.’” The Scottish government believes the country’s
annual revenues, in particular from North Sea oil, will be enough support to avert any serious crisis in the wake
of a possible financial sector collapse, though they have proposed to keep the Bank of England as a “lender of
last resort”.
The other down side to Scotland’s independence financially is the potential for increased costs of borrowing.
Moody’s recently reported that Scotland would most likely receive an investment-grade A rating, below the UK’s
AA1 rating, making borrowing by the Scottish government more difficult and costly. The report stated: “While
there are significant uncertainties associated with Scottish arrangements post-independence, an ‘A’ rating is
perhaps the most likely at the outset, but with risks tilted to the downside.” The pro-independence movement has
not put much stock in Moody’s report, saying that Standard Poor’s, another credit rating agency, has said
Scotland would qualify for its highest economic assessment.
In light of the economic factors being cited on both sides of the Scottish independence debate, is separation from
the UK favorable for Scotland, or is England’s neighbor to the north setting itself up for an almost certain
failure? Only time, many years of it, will tell.