Economy

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Don’t we need the UK for financial support?

No. The truth about Scotland’s economy has been hidden from us for many years.

John Jappy was a civil servant in London involved in budget preparation. Like many people in the UK he accepted that Scotland would not be able to survive on its own. He now says:

“When in 1968 I was able to examine the so-called “books” for the first time, I was shocked to find that the position was exactly the opposite and that Scotland contributed much more to the UK economy than its other partners. This was, of course, before the oil boom.”

The Scotsman recently ran a story about an Englishman who used to think “Scotland was a basket case.”

Had an independence referendum been on the agenda when Englishman Andy Lythgoe moved to Scotland 25 years ago, he would have voted No. When he first moved to Glasgow in 1989, Lythgoe was of the view that Scottish independence did not make economic sense:

“We had all been… for many, many years told that Scotland couldn’t survive on its own, couldn’t afford it and are versions of a subsidy junkie,” After a while, when you hear something for so long for so often, you simply believe it to be true,” he said.

In his job as head of the valuation department in the Scottish office of a major commercial property firm, Lythgoe had to dig into the economics of the Scottish commercial property market.

His company’s research department in London did the research, and as Andy says:

“They confessed to having to look at the figures a second time, because they didn’t believe them the first time.”

“They said, you are not going to believe this but Scotland provides a relative subsidy to the rest of the UK. That came as a surprise, because I had grown up thinking Scotland was a basket case.”

Would we have been able to bail out the Scottish banks?

If we had been independent at the time of the crash, the amount that Scotland would have needed is only about 10% of the total bailout.

This is because the bulk of the losses were not made by the banks IN Scotland but in London and New York and the rules say that the losses stay where they were made.

“The real point here, and this is the real point, is 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, and therefore it’s shared between several countries.”

Andrew Hughes Hallett, Professor of Economics at St Andrew’s University

Further Reading:

How much would we save if we left the UK?

According to Business for Scotland, we could “save £3 to £4 billion over a parliament” or £600 to 800 million per year.

The main savings are on nuclear weapons and defence, the London civil service, border services, tax administration, security services, the House of Commons and the House of Lords.

Not included is our share of the interest on the £1.3 Trillion (£1,300,000,000) of UK debt. The interest on the debt is £1billion/week.

Our allocated share of the interest on a debt we don’t need is about £5 billion/year…and rising.  The debt was £800 billion when the Conservative-Lib Dem coalition took office in 2010 and could be £1.6 trillion when they leave office in 2015. Due to the huge and growing level of UK debt, the UK now pays a higher rate of interest on that debt than other developed countries, for example Ireland.

We also pay a share (about 10%) of UK National Expenditure. For example, on projects such as:

  • The Channel Tunnel: £10 billion
  • The London Olympics: £9 billion
  • Two aircraft carriers Queen Elizabeth and its sister ship: over £6 Billion
  • Cancellation costs of Nimrod aircraft: £4 billion
  • Iraq and Afghanistan war: at least £30 billion (one estimate for Afghanistan alone was £37 billion)
  • London Crossrail: £16 Billion

Planned projects we can look forward to sharing if we don’t vote Yes:

  • Fighter jets for the new aircraft carriers: £60 million – each
  • High speed rail from London to Birmingham: £50 billion
  • Thames Tideway scheme: London super sewer £5 billion
  • Palace of Westminster restoration: £1 billion
  • Trident replacement: £100 Billion

Given that the start-up costs of setting up an entirely new Scotland are now estimated to be only around £200 million it’s quite clear that substantial savings can be made by the Scottish taxpayer by leaving the Union.

Will we have to take a share of the National Debt?

Like many other issues, whether we take a share or not will be part of the post referendum negotiations between Scotland and the remainder of the UK.

When George Osborne declared that Scotland would not be allowed to use the pound, the Scottish Government said that if we could not share the assets then we would not take a share of the debts. An understandable position, especially when you factor in that the debt we would face would be 8.4% of about £1.5 trillion (£1,500,000,0000).

Christine Bell, Professor of Constitutional Law at the University of Edinburgh said:

“Legally under international law the position is clear: if the remainder UK keeps the name and status of the UK under international law, it keeps its liabilities for the debt. The UK took out the debt, and legally it owes the money. Scotland cannot therefore ‘default’.”

So it looks like the debt and use of the pound sterling will be linked in post referendum discussions. Some experts take the view that we should use the pound without a UK Government agreement and start from day one with no debt, huge resources and massive income.

During negotiations Scotland will argue that since we have contributed more into the UK than we received back for 33 years, then essentially the UK borrowed money that Scotland did not need. If the surplus is credited back to us then our share of the £1.67 trillion predicted national debt would be reduced substantially, probably (at 2017 prices) from £127 billion to £57 billion.

It could be assumed that our over-contribution only applies to the ‘oil’ years but looking all the way back to the period between 1900 and 1920 only one third of our contributions were spent in Scotland.

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Some companies have said that they will leave Scotland, will they?

Few, if any, of the companies widely quoted by the media have actually said that they WILL leave Scotland. The message usually is that after independence they will consider their position, once they understand the business climate they will be operating in.

In other words they are planning to do what every good business in the world does; assess how things are working and what profits they make. IF they are not happy, they would consider the costs and disruption to their business that leaving would entail.

A financial business in Edinburgh would have to convince their staff to move to London; a MAJOR decision at any time with all of the issues that any family faces;

  • New schools for the children
  • Moving further away from friends and relatives
  • Spouses would need to find employment in London
  • Moving their household 400 miles

The company would have to pay all of the relocation costs and on top of that the employees would need a 42% pay rise to cover the additional cost of living in London.

Numbeo is the world’s largest database of user contributed data about cities and countries worldwide. They estimate that: “You would need around £4,166.99 in London to maintain the same standard of life that you can have with £2,900.00 in Edinburgh (assuming you rent in both cities)”.

The company would need to relocate its operations without disrupting the business. That could be a logistical nightmare and for many simply impossible.

The company would need to:

  • Find new premises at massively increased rent and rates, that is IF they could find anything suitable in London’s financial district
  • Set up IT systems in London and run in parallel with Edinburgh until the transition is completed
  • Recruit new staff at London wages to replace those who wanted to stay in Edinburgh
  • Train new staff

A final point – what sensible company would leave Scotland and risk losing access to the EU market if Westminster has its in/out referendum?

The Emerging Risk Management section of the Standard Life’s Annual Report says: “We continue to monitor developments and prepare for possible outcomes from the referendum on Scottish independence in 2014 and any potential referendum on UK membership of the European Union.”

That single sentence is the only reference to the Scottish Referendum. In the entire body of the Annual Report.

What is the economics case for independence?

International businessman Ivan McKee has worked in manufacturing for 30 years; he currently has interests in manufacturing businesses in Scotland, England and Eastern Europe and runs his own manufacturing turnaround and consultancy company. His work has taken him across the globe, including periods working in Scandinavia and Eastern Europe.

He is one of 2200 business people who have joined Business for Scotland.

According to Ivan:

“All the financial data clearly shows that Scotland as a stand-alone economy would be more prosperous than at present. The primary focus of the UK economy is the City of London and the banking sector, manufacturing as a consequence is often overlooked.”

My global experience has shown me how dynamic, responsive and successful smaller countries can be, when given the scope to focus on what is important for their economies and businesses”.

Watch Ivan’s economic case for independence here:

Would businesses invest in an independent Scotland?

Scotland already has the best record of any part of the UK – after London – in landing jobs from inward investment.

In June, Ernst & Young reported that foreign investment into Scotland has reached its highest level for 16 years. This at a time when the No campaign were claiming that uncertainty caused by the referendum would damage our international reputation and stop inward investment.

With the additional economic powers of independence, we can do even better. In recent years, Samsung, Taqa, Avaloq, FMC Technologies, Amazon, Aker, Ineos, PetroChina, Dell, Gamesa, BillionY Mellon, State Street, Hewlett-Packard and Mitsubishi Powers Systems have all announced investment in Scotland to the tune of £400 million.

With independence we can create a business climate that encourages even more businesses to invest in Scotland.

What would happen to Scottish employees employed by UK companies ?

The jobs those people are doing now will still need to be done in Scotland after independence. There is no reason to think that their employment would not continue.

Today, around 16% of Scotland’s private sector employees work for enterprises that are owned outside the UK – with no problems.