The leader of the Scots Numpty Party (SNP) Alex Salmond has a secret love. He has a long-time partner Independence , but also a burgeoning affair with the siren Devomax. No, this not a relative of the cyber personality Max Headroom, although it is just as artificial and improbable a creation.
Like all lovers with two mistresses who know of the others existence the SNP leader has been drifting into a fevered incoherence as he tries to keep both the objects of his affection satisfied. Only the other day he said that if Scotland votes for independence it will still be part of the UK: “That union, that United Kingdom if you like, would be maintained after Scottish political independence.” (http://www.scotsman.com/news/politics/i_still_want_to_be_in_uk_says_alex_salmond_1_ 2085533)
Exactly what finery Miss Devomax should be clothed in when he finally presents her to the world, Master Salmond has not crystallised even in his own mind, but he knows that her garb would indubitably involve a skirt of full fiscal autonomy. As Scotland under the reign of Mistress Devomax would be technically part of the UK, her political clothes would also mean keeping the Queen as head of state, continuing to use the Pound and sharing defence, foreign affairs, EU membership and the servicing of the National Debt and all other financial obligations in the UK including Foreign Aid. (Strangely, when speaking of his ever less secret love, the SNP leader always omits to mention the “servicing of the National Debt and all other financial obligations in the UK”). In short , it would be Home Rule more or less.
The biggest fly in the Devomax ointment is fiscal autonomy which would mean Scotland raising all its government revenue from taxes which it imposed and collected itself. Some of those taxes would have to be used to pay a share proportionate to Scotland’s fraction of the UK population (around 9%) of the UK defence budget, the foreign affairs budget and the servicing of the National Debt and all other accrued financial obligations in the UK. (Devomax would also mean that Scotland would have to fund the cost in Scotland of welfare, education, housing, the arts, the NHS , transport, roads, the environment, PFI and PPP projects in Scotland, policing and justice . Some of this is already funded from the Treasury disbursement to Scotland but much is not, for example, most of Scottish welfare. )
A fiscally independent Scotland would radically change the relationship between Scotland and the rest of the UK. If the Scots were paying part of the expenditure on UK projects such as defence and Foreign Aid they would expect to have some say in those projects. This would cause immense difficulty both in terms of the level of expenditure and how the UK project expenditure was deployed.
How much would Scotland have to contribute to the UK budget under Devomax? It would be a substantial. Let us have a look at the financial year 2011/12. The UK defence budget for 2011/12 is £40 billion, National Debt interest is £50 billion, http://cdn.hm-treasury.gov.uk/2011budget_complete.pdf p6), Foreign Aid is £8.7 billion (http://www.dailymail.co.uk/news/article-1391334/Britain-doles-aid-country-despite-savage-cutbacks-home.html ), the Foreign and Commonwealth Office is £1,6 billion (go to http://www.fco.gov.uk/en/publications-and-documents/publications1/annual-reports/business-plan and click on Business Plan). The net UK contribution to the EU in 2010 (the latest figure available) was £9.2 billion with the gross contribution being a whopping £19.7 billion. (http://blogs.telegraph.co.uk/news/danielhannan/100081949/britains-net-contribution-to-the-eu-budget-has-risen-by-74-per-cent-in-one-year/). The total (taking only the net contribution to the EU into account) is £110 billion. That would mean Scotland’s share would have been £10 billion. If the accrued liabilities of UK taxpayer funded pensions at the point of fiscal separation were dealt with at the UK level as well that would add billions more Scotland would have to put into the UK pot. In addition, there is the question of how much of the financial chaos created by the Scottish banks RBS and HBOS should be laid at the Scotland’s door. The headline amounts involved in rescuing the banks are large enough (£45 billion for RBS and £20 billion for HBOS via the Lloyds Banking Group rescue (http://money.uk.msn.com/news/articles.aspx?cp-documentid=152384309), but the true figure runs into hundreds of billions (http://www.guardian.co.uk/news/datablog/2011/nov/12/bank-bailouts-uk-credit-crunch and http://englandcalling.wordpress.com/2011/06/02/the-wages-of-scottish-independence-public-debt/.)
That is the position now. By the time a referendum is likely to be held and a decision made, it is likely to be 2015. By then the national debt is projected to be around £1.4 billion as against £1 trillion in 2012. That would add something like £45 billion for Scotland to service. Foreign Aid is due to increase to £11.5 billion by 2014 (http://www.dfid.gov.uk/news/latest-news/2010/spending-review-2010/). The EU net contribution is also due to rise after 2013.
Although it is impossible to give more than a rough approximation of what a Scottish government would have to be handing over to the UK Treasury under Devomax, realistically it would be in the region of £20 billion per annum, a sum which would probably represent at least a quarter of the total Scottish budget by the time Devomax was a fact. That would put great pressure on domestic Scottish government spending and heighten the already natural desire of a Devomax Scottish government to demand a strong say in the UK’s affairs.
The general difficulty with UK projects is obvious. Scotland would expect a say on the amount spent and the nature of the spending , but the rest of the UK – which is 91% of the UK population – would overwhelmingly outweigh the Scots in any democratic procedure to make decisions. It is impossible have an arrangement which did not have one of two outcomes that would be unpalatable to one of the two parties. Either Scottish wishes would be ignored or the Scottish tail would wag the rest of the UK dog by giving them a disproportionately powerful say.
The situation would be exceptionally sharp in the case of defence. The SNP is ideologically against a nuclear deterrent. There is probably a majority of the Scottish public who support this view. Any likely Scottish government for the foreseeable future will have the SNP as at least a strong partner in a coalition. This state of affairs has three possible consequences. If things stay as they are with the nuclear facilities in Scotland continuing, they would be a high value bargaining chip for a Scottish government to extract substantial concessions from Westminster on other subjects, for example, the servicing of the UK national debt. Alternatively, if the nuclear deterrent facilities were placed entirely in England the Scots will cavil at paying a proportionate share of its costs even though they would benefit from the protection it offers. More generally, a Scottish government ideologically opposed to a nuclear deterrent might try to refuse to pay anything towards it.
The other great military problem would be action overseas which would have profound foreign policy implications. It would clearly be absurd to get into a situation where Westminster decided on foreign action and the Scottish government could veto the deployment. There would also be occasions where even if a fighting role was not being contemplated disputes could arise, for example, over the military being used in policing roles such as those in the Balkans or substantial amounts of the military budget being used to defend the Falklands. In addition, Scotland might well try to engineer a situation where there were military assets such as Scottish regiments which, while they were not formally under the control of the Scottish government, were in practice always stationed in Scotland or at least in the UK , with an understanding that they were not to be deployed overseas .
The second immediate and pressing problem would be foreign policy in general and the EU in particular. Apart from foreign policy relating to the armed forces, there would also be many points of potential conflict between Scotland and the rest of the UK. For example, Scotland might object to funding or facilitating the British arms trade while the UK government was in favour or the UK government could be in favour of restricting immigration and Scotland for increasing it.
But those problems would be nothing compared to the perpetual wrangles over the EU. Assuming the UK remains a member of the EU and the EU is not dissolved by the economic acid bath which is the Euro collapse, how would the UK’s relations with the EU be decided with a quasi-independent Scotland paying part of the annual membership fee? Scotland would undoubtedly ask for some form of official representation and however that was delivered it would weaken the hand of the UK government because it would seem to the rest of the EU that the UK was speaking with two voices. That could provide a lever for the EU to weaken the UK by playing Scotland off against the rest of the UK.
In any discussions of new policy or bargaining over such things as the UK rebate, fishing quotas or the disbursement of that part of the money from the UK EU budget contribution which is returned to the UK in various ways, the UK could find itself in a similar position to that UK domestic politics is presently in with the coalition government: no clear public voice but one perpetually moving as deals are done behind the scenes. Most dramatically, imagine a situation where there is a new EU treaty which greatly increases the move towards a United States of Europe. Scotland would be in favour: the UK government probably would oppose such a treaty. Even if the decision was left to a UK referendum would a quasi-independent Scotland accept such a referendum? Would they not seek a referendum for Scotland only? In the medium term the likely response by the EU would be to try to expand their long-held regionalist plan to dissolve the power of nation states within the EU to allow places such as Scotland a large and ever increasing autonomy within the EU while Scotland remain legally part of a member state.
The other great immediate Devomax problem would be the management of the Pound. Many of the problems associated with a supposedly independent Scotland continuing to use the pound also apply to Devomax– see http://englandcalling.wordpress.com/2012/01/22/an-independent-scotland-must-not-be-allowed-to-have-the-pound-as-their-official-currency/. Foreigners at both the business and government levels would begin to see the UK not as single economic sphere but as two separate economies. That would create uncertainty which would of itself weaken the Pound.
If Scotland had a much weaker economy than the rest of the UK under Devomax, which is probable because of the dangerous narrowness of the Scottish economy and its massive public sector, something similar to the Euro situation would arise. The value of the Pound against other currencies would be suppressed, just as the Euro has not reflected the strength of the German economy because of the other weaker vessels such as Greece and Italy. An artificially low Pound might sound attractive for exports, but it also means more expensive imports and creates a risk that the currency may slip into the dangerous territory of precipitously devaluing until the credibility of the currency itself is in danger. At the very least a Pound dependent on two separate fiscal policies would mean that the massively larger entity – the UK minus Scotland – would to some degree be dependent on the behaviour of the much smaller entity – Scotland.
Fiscal autonomy also means, in theory at least, no transfer of money from the rest of the UK (in practice from England) to Scotland if the Scottish economy runs into serious trouble. This could easily happen because of the size of the tax take Scotland would have to generate to meet their present obligations under Devomax.
The quick way of getting a quick approximation of the amount of money a Scottish government under Devomax would have to raise to fund present expenditure . The total budget projection for £2011/12 is £710 billion (http://cdn.hm-treasury.gov.uk/2011budget_complete.pdf p6). 9% of that is £64 billion.
In 2009/10 – the last year for which there are official Scottish government figures for public expenditure in Scotland : Government Expenditure and Revenue Scotland ( GERS) - Scottish tax revenues were £42,201 billion excluding North Sea oil and £48,132 billion with what are coyly called “an illustrative geographical share “ of North Sea oil revenues with expenditure for the year of £62.086 billion (http://www.scotland.gov.uk/Publications/2011/06/21144516/1). Even with the Oil revenues included there was a shortfall of £14 billion in tax revenue.
But there are problems with GERS which could well substantially understate public expenditure in Scotland. For many items there are no official statistics collected for Scotland alone. Consequently, the GERS figures are often based on extrapolations from UK statistics with methodologies which even the GERS compilers warn do not produce objective data: “… these methodologies are subjective and therefore the figures should be viewed accordingly” (http://www.scotland.gov.uk/Publications/2011/06/21144516/2). The other problem is the treatment of North Sea Oil revenues. The “illustrative geographical share of North Sea oil revenues” are based on a study by the University of Aberdeen (http://www.scotland.gov.uk/Publications/2011/06/21144516/7).
The fact that both the GERS estimates and the North Sea oil revenue estimate have been made in Scotland rather than by non-Scottish bodies puts a large question mark against their impartiality. If there is partiality favouring Scotland in the GERS estimates it does not have to be conscious. It is human nature to always put the best appearance on things from the individual’s point of view. That is particularly true when a study is commissioned by those with political power.
Even if there is no overestimating of the bare figures they would not tell the whole story. Scotland’s GDP is dangerously dependent on public spending. By 2012 it will be in the region of 67% of Scottish GDP (http://www.telegraph.co.uk/news/uknews/scotland/4217793/Scotlands-dependence-on-state-increasing.html). The important thing to understand about tax collection is that tax collected from those drawing their pay from the public purse is that it is simply recycled taxpayers’ money. It is only the money derived from private enterprise which drives an economy. We can see this graphically in the present UK financial position. Only the private sector can grow the economy to allow larger tax receipts to reduce the deficit. To have two thirds of an economy dependent on public expenditure is profoundly precarious because the tax base can shrink radically very rapidly. It is doubly dangerous for a small country of only 5 million people which does not have much diversity in in the little there is of a private sector.
Even if 90% of the oil tax revenues were allocated to Scotland this would not, on average, compensate for the loss of a subsidy of some £8 billion pa which Scotland presently receives from the UK treasury through higher per capita funding resulting from the Barnett Formula. Not only that but revenues veer about wildly. In 1991/2 they were a paltry £647 million; in 2008/9 £13 billion; in 2009/10 they dropped dramatically to £6.4 billion. (http://www.scotland.gov.uk/Publications/2011/06/21144516/7). The remaining oil in Scottish waters is also declining rapidly and becoming more expensive to extract as the major oil discoveries run down (http://englandcalling.wordpress.com/2011/05/14/the-truth-about-uk-oil-and-gas/). While it is true that overall oil consumption is rising because of the countries such as China and India, which might be expected to keep the price of oil high, there are also dramatic developments around shale oil and gas so there is no guarantee that the price of oil will remain high or continue to rise. In any event it would be a rash government to base its future on a single crock of gold.
There is also the strong possibility under Devomax of the English public sector jobs exported to Scotland being repatriated (http://englandcalling.wordpress.com/2011/05/06/scottish-independence-yes-but-only-on-these-terms/) and of companies in Scotland moving out of Scotland if a Scottish government cannot afford to offer them financial incentives to say.
There would also be a problem with new national debt. With a fiscally independent Scotland neither England nor Scotland would wish to run up new UK National Debt. After Devomax Scotland would have to take sole responsibility for any new finance raised by the Scottish government, while the rest of the UK would assume responsibility for any new post Devomax debt it incurred. There is the risk of Scotland being unwilling to cut its public financial cloth much closer because it has become substantially poorer and running up unsustainable Scottish debt.
It is only to easy to imagine Scotland getting into the same mess that the Republic of Ireland and Iceland got into by a mixture of reckless spending and a failure to control credit or risky financial operations generally. The rest of the UK (essentially England for reasons already given) would either have to bail out the Scots or see Scotland go effectively bust with the dire effect that would have on the Pound and the UK international financial and political credibility. The latter would also bring large numbers of Scots to England after jobs, housing, schools and welfare which their own government could no longer afford. Which option would a UK government take? Almost certainly the bailing out of Scotland with English money because of the damage anything else might do. This might be done as a supposed loan, but there would be no guarantee that it would be repaid.
The best that could be hoped for from Devomax from an English perspective would be that Scotland would not be reckless and would pay their share of UK projects such as defence. But along with that would come a perpetual uneasiness and clashing of democratic wills. It would be, as mentioned previously, akin to the situation we have with the coalition government with no clear position on anything. Unlike the coalition government there would be no end to it. If Scotland is to leave the UK, it must be as a fully independent state asking no favours from England.