Cost of Scottish Independence

6th June 2017

New research conducted on behalf of the Scottish Research Society (SRS) by Walbrook Economics concludes that the cost of Scottish independence has risen from a minimum of £850 for the average Scot in 2014 to at least £2000 in 2017.

The evidence is revealed in a new report "Saving Scotland from Financial Meltdown" published by the SRS, which is an update of its previous report "Much cost - Little benefit" published in advance of the independence referendum of 2014.

The large rise in cost is explained by the dramatic fall in oil revenues that an independent Scotland could be expected to receive (from £6660 million in 2014 to £60 million in 2016) and the poorer performance of the Scottish economy - which is on the brink of a recession - relative to the UK economy, which is the fastest growing in the top seven economies of the World (G7).

Commenting on the report its chairman, Cameron Buchanan, said:"Despite the 'once in a generation' claims of the SNP government we are facing the prospect of a second independence referendum. Ewen Stewart, who wrote the acclaimed paper "Much sot - Little benefit" in 2014 was again commissioned by us to look at the economic impact and has written cogently about the risks and weaknesses an independent Scotland would face.

"Saving Scotland from financial meltdown is a factual and tightly argued research paper that lays bare the financial black hole that Scotland's public finances would face and how this would now cost every Scot at least £2000 per person per year - that could only be found by raising taxes and cutting public services."

The Scottish Research Society is a pro-Union, non-Party aligned body that seeks to get to the core of current issues that affect the whole of Scotland.

What would the cost of separation be?

In the paper of 2014 they argued that separation made no sense and would make the average Scot worse off by between £850-1400 per annum. Since then Scotland's economic position has deteriorated significantly in three principle areas.

The price of oil has collapsed from over $120 a barrel to $51 today. This has cut North Sea Petroleum Tax revenues from £6.66bn in 2014 (peak £12bn in 2009) to £60m today. That is a ‘hit' from the 2014 level of £1200 a head.

Scottish GDP has continued to underperform UK GDP as a whole, thus widening the Scottish scale deficit relative to the rest of the UK. This lack of growth threatens long term prosperity and services. Poor policy choices and a fixation on constant constitutional uncertainty from the SNP are largely to blame they say.

The decline in educational standards is starting to bite. While this may not greatly impact prosperity in the short term the relative decline of educational standards, compared with the rest of the UK and globally, creates longer term challenges and, if allowed to continue, will impair long term growth. The group maintain there is failure to address this.

The case for separation was weak in 2014. It is even weaker today. We estimate the cost, per head now would be a bare minimum of £2000 a head, very nearly equivalent to the entire expenditure of the NHS in Scotland and very probably substantially more, given the austerity a new Scottish Government would be forced to impose to balance the books, such would be the scale of the spending/ tax revenue imbalance.

The SRS website can be found HERE

The paper can be read HERE

In a Statement Ewen Stewart said,"The SNP has been in power in Holyrood since 2007. Over that period its politicians have fixated on one thing - independence - while the economy underperforms and education sinks. Despite losing its ‘once in a generation' referendum the SNP has, however, refused to accept the result. The case for independence was very weak in 2014. To separate now would literally be catastrophic for since 2014 Scotland's economic position has weakened in three key areas, undermining further the case for leaving the UK."

"Firstly it is well understood the price of oil has collapsed from $120 a barrel to $51 today. This has cut revenues to the Exchequer from £6,600 million to just £60m. That is a hit of £1200 a head for all Scots, equivalent to more than the education and police budgets combined."

"While oil prices are beyond the control of any government, the SNP is culpable for the mismanagement of the economy. This has caused the Scottish economy to materially under-perform compared to the rest of the UK. This is nothing to do with BREXIT, as the UK economy has been the fastest growing in the G7, since 2010. It is to do with the uncertainty the SNP is causing with its fixation on breaking up the UK and its poor tax and spending choices domestically. Who would invest with such deep uncertainty? If the Scottish economy had grown in line with the rest of the UK, since 2010, it would be a staggering £10bn bigger today. That is almost equivalent to the size of NHS Scotland."

"Third, Scotland rightly used to pride itself on a world class education system. Not anymore. Scotland is falling down the international league tables very rapidly. Despite spending per pupil materially above the rest of the UK we now perform less well on core skills including reading, maths and science. Even our best pupils are outperformed by the UK's best. Over time this will further impact our growth potential."

"We estimate that breaking up the UK would cost the average Scot £2,000 every year, as a bare minimum."

"Scotland has much to offer the UK and similarly we benefit from being part of Britain. Our public spending is 16% per head higher than the rest of the UK and the £15bn spending gap between taxes raised and Scottish spending is only possible from using the UK's credit card. If separated our deficit would be the largest, per capita in the EU and OECD. More than Greece. It would be unaffordable and the SNP would find out the meaning of real austerity with enforced massive public spending cuts and damaging tax rises."

About Ewen Stewart

Ewen Stewart has worked in the City for more than a quarter of a century with several major investment banks including Dresdner Kleinwort Benson and ABN AMRO before setting up Walbrook Economics. In 2014 he wrote the Scottish Research Society paper ‘Much Cost Little Benefit' outlining the economic impact that would have resulted if Scotland had voted to leave the UK.

For another viewpoint see -

Scotland's Fiscal Position assessment - https://www.ifs.org.uk/publications/8218

https://www.theguardian.com/politics/2017/mar/13/scottish-economy-independence-referendum-oil-price