The claim

“Being part of the United Kingdom is good for Scotland, and Scotland being part of the United Kingdom is good for the rest of the United Kingdom.”
David Cameron, May 11 2011

The background

With Alex Salmond’s SNP winning a majority in the devolved parliament for the first time last week, Scottish independence is firmly back on the political agenda.

There will be a referendum on the issue within five years, although Mr Salmond now says that will happen towards the end of his term as First Minister.

That could have something to do with a lack of clear support for a break from the United Kingdom among Scots. A new YouGov poll for the Sun found that only 29 per cent back independence – as opposed to 41 per cent of adults in England and Wales.

That’s been interpreted as a reflection of the belief in the rest of the UK that Scotland is being subsidised by taxpayers further south.

Mr Cameron promised this week to make an “uplifting and optimistic case of why we are better off together”.

But with people on both sides of the border apparently believing they would benefit economically from the dissolution of the Union, do the facts support Mr Cameron’s case for holding it together?

The analysis

The Government Expenditure and Review Scotland (GERS) calculates how much money is raised through taxes in Scotland and the level of public spending north of the border.

While the figures are not universally accepted, particularly by Scottish nationalists, criticism of GERS has been more muted in recent years, and many economists consider them to be fairly trustworthy.

The latest GERS figures, for the financial year 2008/09, show that the Treasury spent about £54 billion on Scotland and only received £43.5 billion in revenue.

The latest Treasury figures on total central Government expenditure on public services show that for the last decade, central Government has shelled out about £1,000 a year more on the average person in Scotland than in England.

In 2010/11 the projection is that the per capita spend will be £5,795 in England and £6,833 in Scotland. So that appears to vindicate those 41 per cent of disgruntled non-Scots who think their neighbours are doing disproportionately well from the Union.

It’s at this point that the most contentious factor in the whole debate rears its ugly head: North Sea oil.

Most of the United Kingdom’s fossil fuel lies off the coast of Scotland and so the wealth they generate should arguably be added to figures for total revenue from Scotland.

That raises a whole string of important questions: do those natural riches really “belong” to Scotland or the whole of the UK? And would they just be handed over to the government of an independent Scotland?

Detailed research of the money brought in by the UK oil and gas fields suggests that Scottish waters – defined by the line of demarcation used in the fishing industry – accounted for 91.1 per cent of UK North Sea revenue in 2008/09.

If calculations are made on the basis that those assets are Scottish rather than British, they increase Scotland’s contribution to Treasury coffers by £11.7 billion, wiping out the £10.5bn deficit and leaving Scotland in the black to the tune of £1.3bn.

This figure was seized upon with some glee by nationalists when it first emerged, but some economists are preaching caution.

Professor David Bell, an expert on the Scottish economy at the University of Stirling, said: “If the price were to collapse it would mean the difference between a big surplus and a deficit. You can predict volatility in output but that’s quite different from a volatile price.”

In fact, GERS figures show that, largely thanks to big fluctuations in the price of oil, the last 30 years have seen wild variations in the amount of money generated by North Sea oil for the UK.

The figures range from lows of just over £1 billion in the early 1990s to a high of nearly £13 billion in – you’ve guessed it – 2008/09, the year of the much-quoted budget surplus for Scotland.

It would appear that the SNP may be on shaky ground if it is banking on high oil prices to safeguard Scotland’s economy, though some academics like Professor Mike Danson of the University of the West of Scotland disagree.

He told FactCheck: “All the expectations are that we are now past peak oil, so the world is now using more oil than it is discovering each year, and therefore the price will go up. That suggests that it is a firm foundation in terms of future revenue.”

And even if Scotland’s economy were to run at a deficit, that’s far from a sign of impending economic disaster, he added, saying: “Name a country in the world without a surplus. If you look at other comparable small countries, Scotland’s deficit doesn’t look unusual. It’s the scale of national debt in the UK as a whole that stands out as being quite peculiar.”

For Professor Brian Ashcroft of the University of Strathclyde, it’s precisely the question of what contribution Scotland would be expected to make to the UK budget deficit that is the key issue.

Prof Ashcroft says he is personally in favour of the Union but believes there is no question an independent Scotland could survive. But he thinks the rest of the UK would expect a breakaway state to shoulder considerable responsibility for bailing out Scottish banks like HBOS and RBS during the financial crisis.

That raises the controversial question of whether an independent Scotland would have kept afloat if it had had to cope with the 2008 financial crisis alone, he added.

“It’s almost certain that Scotland would survive as one nation and have reasonable performance, but whether it would be well-placed to cope with significant shocks like the major financial crisis we saw is another thing.”

Prof Ashcroft also suggests that England could do badly as a result of independence for Scotland, and not just because of a shortfall in oil revenue.

Loss of the North Sea oilfields would mean George Osborne would never be able to reap the benefit of a windfall tax on the North Sea operators like the one introduced in the last Budget.

Most of the UK’s renewable energy resources like sites for wind and wave power stations are in Scotland, so the potential market for exported electricity would be out of Whitehall’s hands.

And there could be less tangible drawbacks like a loss of prestige on the world stage for a shrunken UK.

Prof Ashcroft said: “There are significant unknowns, but it would be wrong for people in England to think: ‘Oh well, we’ll just get rid of the Scots because of the subsidy, then we’ll be better off.’

“It isn’t necessarily the case that either Scotland or England would be better off by separation. Both could be worse off.”

The verdict

None of the economists FactCheck contacted thought there was a serious risk of an independent Scotland failing to survive.

As David Cameron signalled this week, Unionists need to move past “threats or by saying that small countries can’t make it”.

Control of North Sea oil has been a constant refrain for the SNP, but our experts think it may be a mistake either to bank on oil or to assume that an independent Scotland would fail without it.

The latest opinion polls mean Mr Cameron may have a harder job convincing English and Welsh voters that they need Scotland, despite analysis that shows that the contribution Scotland makes to the rest of the UK has been underestimated.

By Patrick Worrall

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Category: David Cameron, Economy
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