Scottish Independence for Dummies

Today we have experienced in Spain a simulation of an "Independence Referendum". Though it looked as if it were an official one, it was only a consultation for the Catalonian population. However, not long ago, Europe went through an official process of independence of an English speaking country. Of course I am talking about the Scottish Independence issue.

Although I am not really into politics, my curiosity was awakened so I checked to what extent there were similarities between the Catalonian situation and the Scottish situation. I did some research, and as it usually happens to me when I am surfing the internet, I soon got lost in tons and tons of information that made me drift away from the main topic. 

All in all, apart from finding some useful information about the issue, I came across an article that I found quite curious. It is the story of the relationship between England and Scotland told as if they were two friends that share a flat. The good thing is that there are continuous callouts in the text that explain what are they really talking about, however, I recommend reading the whole thing and then check these callouts. Of course, you will realize soon that the writer was for the independence, I wish he had been more neutral, so the reader can make his/her own conclusions, but the thing to highlight is the metaphor that depicts both countries as flatmates. Enjoy! 

Are you left bemused by stats, figures and spin? Do "constitutional arrangements" sound
like something you should be visiting the doctor for? Or maybe that's what florists do? Do seemingly contradictory statements about the same set of numbers leave you not knowing who to trust? You're not alone!

This handy guide presents all the key facts you need to know in a simple and clear story we can all relate to. Many of the arguments about big important things may seem petty when reduced to a personal level but on a national scale represent billions of pounds which could be spent on health or education. 

A key is given so you can relate the story to Scotland's economy and constitutional arrangements. All the numbers are worked out per person to equalise for different size population in Scotland and the rest of the UK.

You can use the reference numbers to jump back and forward between the story and the key.

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You share a flat with Dave. He's your best friend but one of those friends you can't really work out why? Circumstance mostly. He's been a part of your life for as long as you can remember. You grew up next door and, as kids, would constantly fight (which was tough as Dave is a few years older than you). You still bicker occasionally but nothing like as much.

Somehow, and neither of you can quite remember how, at age 18, you decide to share a flat. An agreement is drawn up where you share your money and make decisions together. Dave will manage the finances and make the important decisions. You can sometimes sway him if he's not sure but essentially, what he says goes.(1) He will collect your salary and decide how much to give you as an allowance(2). You'll have a shared credit card but only he's allowed to use it (3).

As Dave tells it, all this was your idea but you vaguely seem to remember not being happy about it at the time (4). You try not to think about that. It was a long time ago.

So you move in together. Like most adolescent boys you were trouble! You were intelligent and inventive (5) but spent most of your time terrorising the neighbours (6). You look back on those days with a bit of shame and regret but hey, you were kids then and everybody was doing it! Whenever Dave talks about those days though, you see a smirk come across his face and have to resist an ever-so slight urge to slap him! The other week he dragged you out of the flat to cause trouble again (7). You were not impressed!

Work's tough at the moment. One day you're having a discussion about your household finances with a work colleague. He mentions that he has saved up 90,000 pounds (8) in the bank and the interest he's earning is seeing him through very nicely. That's odd. You've got the same job as him and are the same age. You're virtually the same person (9)! Shouldn't you be doing better? You go home that evening to look through your shared credit card statements and see that you and Dave are in 21,000 pounds worth of debt each. (10). How did this happen?

You add up everything you've earnt over the last couple of years and everything you've spent. It comes to -2,800 pounds (11). But hold on... Dave comes to you every month and asks you to pay your half of the credit card interest on this huge debt. Why am I paying all that you ask? You go back through crossing out your interest payments and find that you've actually earnt 12,830 pounds more than you've spent (12). Instead of paying interest you should be earning it! So why are you in 21,000 pounds worth of debt? Well Dave does like his expensive toys (13) but even so, he's been living beyond his means on the credit card for years.(14)

Fed up, you go to him and threaten to cancel the credit card, move out, collect your own wages and manage your own finances like anyone else. Dave doesn't like this:

"But I give you 12% more in your allowance than I give myself. I subsidise you!" He omits that you earn 18% more than him (15) but then 'creative accountancy' is pretty much what he does for a living.

"and last month a few quid of your spending came from me (he means the credit card) (16). Like I've been telling you for years, I subsidise you and you couldn't survive on your own." Again, he forgets to mention he put even more on the card for himself and you'll both have to pay all of it back 50-50.

"Look of the size of this debt!" he says, "How are you ever going to pay this back?" Frustrated, you say "Debt which you racked up!... and don't I already owe that now?"

More conciliatory now, he says "You're my best friend. Do you really want to turn us into complete strangers unable to talk to each other?"(17) "What do you mean complete strangers? I'm only moving next door." you say. "Well you can't have access to our shared TV" he shouts. (18)

"I just want to manage my own affairs like any normal person and look, last year I would have created 824 pounds less debt doing that (19)". "Sure, last year!" he snarls but that extra part-time weekend job you have? I think they're going to cut down your hours and then where will you be!" You know this isn't true. He tried telling you this before and it wasn't true then either (20). Your boss has told you that he thinks he will need to increase your hours and that you'll be employed there for years to come (21). Besides, even if you didn't have that job, you'd still earn the same as him (22).

He thinks for a while. "Maybe you could have some more control over your finances in the future" he says (23). This sounds good to you. Moving out is a hassle and if you could manage your own affairs, that might be ok. "So can I collect all my own wages?". He snorts derisively "Don't be silly". (24). "The credit card company knows me but they don't know you." You know that recently they've started to wonder if Dave might be a deadbeat. (25) "What can I have?" you say. "I'll have to think about that... but you have to decide to stay first" (26).

"Look, moving out will just create so many problems! For a start, our friends might not want to talk to you anymore."(27) Dave's recently been having a spat with your friends (28). Some time ago you all decided to all chip in for a communal barbecue and Dave always tells you that this gives them complete control of your lives! (29) You've always secretly thought they like you more than him anyway.

"What about last year then this building needed a new roof? You would have had to pay for all that yourself". You later phone the tenancy association and find out that the costs were shared amongst all the building residents and your share would have been roughly the same (30). "Isn't it better that we share our income and debts? Aren't we stronger together?" You think about this for a while. It seems to make sense but then you look at the massive credit card bill and your calculation of how much more you've earnt than you've spent and you think about your work colleague. It doesn't seem like you're better off sharing.

"What about our great collection of war memorabilia?" he says. You like it but you've never really been as keen as him on it. "Most of that's kept in your room" (31) you tell him. "You just let me have the old aircraft dials because you're worried about the radium (32)! For the money I pay towards it I could have my own collection of the pieces I like. (33)"

Exasperated Dave goes off to the kitchen mumbling something about pandas (34) and you're left to make the choice.

What do you do next?

KEY

(1) Scotland elects 4% of the UK parliaments with 59 MPs elected to the House of Commons out of 650 MPs and 785 Lords. The Scottish Government have called the (unelected) House of Lords an 'affront to democracy'.

An analysis of voting outcomes in General Elections since 1945 show that in only 2 occasions (2010 and 1964) did Scotland's votes make a difference to the outcome of a General Election.

(2) The majority of Income tax and all VAT, Corporation Tax, Oil Revenues etc. from Scotland go to the UK treasury. A block grant is given to Scotland in return calculated under the Barnett formula.

The Barnett formula is said to have "no legal standing or democratic justification", and, being merely a convention, could be changed by the Treasury at will. In recent years, Barnett has called for a review of its long-term viability.

(3) Government borrowing is a matter reserved to Westminster although the 2012 Scotland act, due to come into effect in 2015, does allow some borrowing but places severe limits, essentially limiting this to around 0.2% GDP.

(4) The Act of Union was deeply unpopular in Scotland. Widespread rioting occurred. Bribery played a large part in the eventual signing of the act as did the 1705 Alien Act which included an embargo on the import of Scottish products into England and English colonies.

(5) The Scottish Enlightenment was the period in 18th century Scotland characterised by an outpouring of intellectual and scientific accomplishments. Among the fields that rapidly advanced were philosophy, political economy, engineering, architecture, medicine, geology, archaeology, law, agriculture, chemistry and sociology.

(6) Scots were hugely important to the global growth of the British Empire. The first three Governor-Generals of India were Scots. Vast fortunes were made by imperial administrators and entrepreneurs. However, there were also scholars and scientists who made important contributions to culture and society. The Scots may have run the Empire, and profited by it, but at the end of the day it was London that decided its fate.

(7) A clumsy metaphor for the Iraq war, deeply unpopular in Scotland (and most of the UK for that matter!). The majority of Scottish MPs voted against the war with many defying the 'party whip' when the House of Commons as a whole voted in favour (65%).

(8) Norway established its oil fund in 1990, although it did not start transferring money into the fund until 1996. The fund is now worth 450 billion GBP, equivalent to 90,000 GBP per person and is the largest sovereign wealth fund in the world.

(9) There are remarkable similarities between Norway and Scotland in terms of population, natural resources and social outlook. They also had a union with a larger neighbour (Sweden) for centuries which ended in 1905. Today GDP/head is $53,470 compared to $35,642 in the UK and $44,378 in Scotland.

(10) Current UK Government debt is around 1.3 trillion pounds, about 21,000 pounds per person. Debt is shared evenly by every person in the UK (including Scotland).

(11) The Government Expenditure and Revenue Scotland (GERS) accounts show a deficit over the last 30 years of around 15 billion pounds. This is 1.25% of the UK's deficit over the same period of around 1.2 trillion pounds.

(12) Over the last 30 years, Scotland has paid 83 billion pounds servicing UK debts. Neglecting this, Scotland would have generated a surplus of 68bn GBP over the last 30 years (one of the only countries in the EU to have been in surplus over this period).

(13) Scotland's share of Trident's (UK Nuclear deterrent) annual running costs is 163m pounds. A replacement for this system is under consideration by the UK government at a cost of around 100 billion pounds. Scotland's share of the HS2 high speed rail line between London and Birmingham (i.e. nowhere near Scotland!) is estimated around 4 billion pounds.

(14) The UK last ran a budget surplus in 2001/2. According to the Office for Budget Responsibility it is not forecast to run a surplus at any time in the next 50 years! By comparison, Scotland last ran a surplus in 2008/9 and is forecast to return to surplus in 2017/18.

(15) In April 2013 the Scottish Government produced a report detailing Tax revenues in Scotland since 1980. This showed that Scotland's tax revenues per head were higher than the UK's every year. In 2011/12 they were higher than the UK's by 1700 pounds per head. It also shows that Scotland had contributed 222 billion pounds more in tax over those years than if it had been operating at 'UK average'.

It is quite common to hear that Scotland's spending per head is 1200 pounds more than the UK's but less common to hear that revenue is 1700 pounds higher.

(16) It is common to hear that Scotland receives more from the UK treasury than it gives. This is misleading as much of the money is never seen in Scotland and it is money borrowed from international money markets on Scotland's behalf.

Even though Scotland borrows a smaller percentage (has a smaller deficit) than the UK (Scotland-5%, UK-7.9%), debts and debt interest payments are shared evenly across all people in the UK. When the UK is in surplus, Scotland contributes more to the surplus and when the UK is in deficit (as at the moment), Scotland contributes less to the debt.

(17) This could relate to any number of things from "Your family in England will become foreigners" to "You won't be able to use the NHS in England" despite the fact that Scotland already runs its own, independent, healthcare system with reciprocal arrangements with the NHS in England (as is normal between neighbouring countries and all EU member states).

Most commonly, however, it is applied to "barriers to trade" even though the EU specifically forbids any such "barriers" between member states.

(18) This relates to the Bank of England which, despite the name, is the Central Bank of the whole UK, not just England. It is run as a private company, independent from Government and considers the whole of the UK when setting interest rates. The Scottish Government would seek a formal currency union with the UK whereby it would carry on as at present with the Scottish Government seeking some representation on the board (which is more than they have at present).

Note that it does not relate to the pound as a currency which, like the Euro or US Dollar, is a fully tradable currency and can be used by anybody.

(19) In 2011/12, Scotland took on an extra 4.4bn GBP of UK debt (824 GBP per person).

(20) Dennis Healey who was Chancellor from 1974 to 1979 said the government downplayed figures on Scotland's oil wealth to counter nationalism ahead of the 1979 devolution referendum.

Lord Healey told Holyrood magazine the unionist parties were now "worried stiff" about losing UK oil revenues if Scots vote for independence next year. The Labour peer said the UK would "suffer enormously" without the billions of pounds in tax the Treasury receives from oil.

He went on to claim that an independent Scotland would "survive perfectly well" due to North Sea reserves and that the rest of the UK would "just need to adjust".

(21) Chief Executive of Oil and Gas UK, Malcolm Webb said that tax revenues can now be confidently expected to rise over the coming years.

Speaking to energy magazine 'Enterprising Energy' earlier this year, he said:"...the projects approved in 2011 and 2012 alone will over time produce more than two billion barrels of oil and gas, generate 100 billion pounds value for the economy and an additional 25 billion pounds in production taxes for the Exchequer."

Challenging claims that the sector is running down, Mr Webb added: "The North Sea oil and gas sector, contrary to what some sources say, still has a long productive life ahead of it; we estimate 50 years or more."

(22) In 2011/12 Scotland's GDP excluding oil revenue was 99% of UK average, including oil it was around 20% higher.

(23) All three main unionist parties have launched commissions to look at further devolution (although it has only been a year since limited powers were devolved to the Scottish Parliament). According to Scottish Secretary Michael Moore - "Devo max is really a brand without a product, a concept of more powers for Scotland without any detail about what that entails".

(24) In September 2011, SNP Angus MacNeil asked at Prime Ministers Questions "A poll last week showed that 68% of Scots want oil revenues devolved to Scotland. Does the Prime Minister agree with 68% of Scots or not?" The Prime Minister responded (amongst raucous laughter) "If you ask a stupid question, you get a stupid answer."

When the Scottish parliament was set up (with a mandate for tax varying powers from a 'Yes' vote on the second question in the 1997 devolution referendum) it was given the power to vary income tax by 3p (often referred to as the tartan tax) but that any increase in revenue would be cancelled out by a reduction in block grant. For this reason, the power has never been used.

(25) In February 2013, the UK's credit rating was downgraded from AAA to Aa1 by the ratings agency Moodys.

A UK government consultation suggested that Scotland would have a "perceived lower creditworthiness" thanks to its smaller number of taxpayers and lack of track record in borrowing. However, the Scottish Government suggest that, with a lower budget deficit than the UK and North Sea Oil assets worth $1.5 trillion, Scotland would be more likely to reclaim a AAA rating and that almost two-thirds of countries with an AAA rating are small countries with a population of less than 10 million.

According to David Riley of Fitch's credit rating agency, when put under pressure by a House of Commons Treasury Committee to say that Scotland would not have a AAA credit rating: "With all due respect, I think you are trying to get me to make a pronouncement about a sovereign that currently does not exist and that I do not have the information to make the judgment."

(26) No Westminster bill on further devolution will be passed before the Independence Referendum. In September 2013 Prime Minister David Cameron said he was open to the idea of further devolution but that the discussions should be held after the referendum.

(27) This relates to stories that Scotland would be somehow ejected from the EU and have to re-negotiate back in from outside. In February 2013, Professors James Crawford and Alan Boyle produced a report on Scotland's EU membership commissioned by the UK Government.

Professor James Crawford of Cambridge University said the negotiations for Scotland to continue its membership of the European Union, which would take place during that 18 month period were not "necessarily going to be difficult" and that the 18-month period set out by the Scottish Government for the negotiation of Scotland's independence in the wake of a 'Yes' vote is realistic.

(28) In January 2013, Prime Minister David Cameron promised an in/out referendum on EU membership if the Conservative Party wins the next General Election.

According to Gavin McCrone: "Membership of the EU is very important for Scotland because so many inward investment companies have chosen it as a base from which to serve the European market. If Scotland was outside the EU, it would be more difficult to attract inward investment and, depending on what agreement was reached on access to the single market, some of those already in Scotland may leave."

He added: "If, therefore, it seems increasingly likely that the UK will leave the EU, the logical consequence could be an increase in support for independence."

(29) It is common to hear statements like "The EU creates XX% (some high number) of our laws". According to Westminster, around 7% of UK laws originate in the EU. These are mostly to do with harmonisation in certain industries (electricity transmission frequencies and food labelling etc.) which help create a common market and are really dull! Taxation, Pensions, Welfare, and Defence policies etc. are all decided in Westminster.

(30) According to Scottish Secretary Michael Moore "the scale of the financial disaster that befell both Royal Bank of Scotland and Halifax Bank of Scotland would have placed a crippling burden upon Scotland. By being part of the United Kingdom we shared the risks". However, Andrew Hughes Hallett, Professor of Economics at St Andrew's University described Moore's answer as "a nonsense".

According to Andrew Hughes-Hallet: "By international convention, when banks which operate in more than one country get into these sorts of conditions, the bailout is shared in proportion to the area of activities of those banks. In the case of the RBS, roughly speaking 90% of its UK operations are in England and 10% are in Scotland."

George Walker, Professor of International Finance Law at Queen Mary University, London and also Glasgow University, supported this position. So did Andrew Campbell, Professor of international and finance law at Leeds University.

Professor Walker said it was inconceivable that the Treasury would not have stepped in to save RBS's English operations, even if Scotland was independent. "Many of those (RBS) subsidiaries operate out of London and only out of London. I don't think you can, simply, look at it purely on the basis of where, as you point out, the brass plate of the holding company is."

(31) At the moment, there is 3.3bn GBP of defence spending (roughly 10%) allocated on behalf of Scotland but only around 1.7bn GBP is actually spent in Scotland.

(32) In January 2013, the Ministry of Defence ruled out relocating trident nuclear submarines to Devonport, Plymouth as it was too close to a civilian population in case of an accident. They are currently based in Faslane, less than 40km from the centre of Glasgow.

(33) The SNP have said that Scotland would maintain a standing army of 8,000-10,000 troops and would prioritise the procurement of frigates, along the lines of Type 26 vessels being planned by the UK, from a 2.5 billion GBP annual defence budget. The Royal United Services Institute had previously costed an Independent Scotland's Defence at only 1.8bn GBP per year.

(34) A catch-all covering anything from "China will take away your Pandas" to "Scotland will become a hotbed for terrorism and the RAF will be forced to bomb Edinburgh and Glasgow airports!!!"