The Economic Implications for the United Kingdom of Scottish Independence

Lord Lipsey Excerpts

Wednesday 26th June 2013 Lords Chamber

[Lord Lipsey]

My Lords, I join in thanking the noble Lord, Lord MacGregor, for his brilliant chairmanship of this committee. It was a bit like climbing Ben Nevis in slippers while hoping that the view from the summit repays the labours that have gone before. Indeed, the response to the report has been fair and favourable. I think the reason is that we were very objective in our approach. Some on the committee have, you might say, form on this issue—the noble Lord, Lord Forsyth, will not mind me mentioning him in this context. However, others—and I count myself—have no form on it at all. I had not thought about the issues since I was one of those advising the Callaghan Government on their rather ill-fated attempt at devolution. From that position, we as a committee took evidence, learnt, pondered and, unanimously, concluded.

As an Englishman who lives in Wales, I do not have a vote in the referendum in 2014, and if I did I would have mixed feelings about how I would cast it. On the one hand, I am very aware of how much Scotland, over three centuries, has brought to the national table culturally, intellectually and economically. I am also aware, as a loyal member of the Labour Party, how much it has brought to my party. It has been traditionally strong in Scotland, and Scotland has given it some of its greatest leaders, from Keir Hardie on. However, wearing another hat, as a taxpayer, I feel very differently. I hate paying for the extravagances of the Scottish Government. It weighs particularly heavily on me that the Scottish people have free care for the elderly, which was a recommendation of a UK royal commission chaired by a distinguished Scot, the noble Lord, Lord Sutherland, to which I appended a note of dissent on this point. I do not mind them doing that if that is what they want to do—although I think it is daft—but I object to my pocket being tapped to pay for it. As I said, I do not have a vote, but if I were a Scot, and if I had read, marked and inwardly digested the report in front of us, what then? I would pay a piper to escort me to the polls to the ancient Scottish reel, “Will ye no, no, no to independence”.

I will not go over in detail all the arguments in our report and which the noble Lord, Lord MacGregor, and other noble Lords have so eloquently laid before the House this afternoon. However, as we took evidence, it struck me that there is a very strong asymmetry between the economic arguments for independence and those against independence. One of the arguments for independence is that it will of itself set loose Scottish entrepreneurial spirits and result in a huge economic boom. These arguments are nebulous and theoretical. They are hopes and dreams and have no substance, and no economist will tell you that these things will happen. In contrast, the arguments against independence are concrete and powerful, and, if I were a Scot, they would frighten me half to death.

I will cite some examples. As regards North Sea oil, if the price of oil goes up, the Scottish people will get a wee bit more revenue. However, if it goes down, they will not get a wee bit less revenue because, quite close to the present price, you get to a stage where it is not worth getting the damn stuff out of the ground, so they get no revenues. Furthermore, that loss of revenue will not be shared over an entire United Kingdom, with many taxpayers taking the burden. It will fall entirely on the Scottish taxpayer.

As for national debt, Scotland cannot simply take over a share of Britain's national debt, as that debt has been legally incurred by Britain as a whole. It would have to fund its share by issuing its own bonds. It is by no means obvious that international markets will be racing to buy them, from an untested Government in a brand-new country, whose economic viability has yet to be proven.

A related issue is monetary policy. None of Scotland’s choices of currency is very attractive, is it? SNP policy used to favour the euro but recent events have led it to drop that. There is the pound sterling but the dangers are palpable for an independent Scotland in having a currency run by the Bank of England whose duty is to run it in the interests of England. There is the groat but will investors want a groat-denominated Scotland bond? I do not think the queues will be very long down the streets of Glasgow and Edinburgh.

Then there is European Union membership. If Scotland goes independent it will, ipso facto, not be a member of the EU—despite the protestations of John Swinney, among others. The rules are perfectly clear and have been clarified by the British Government as well as by the president of the Commission. Scotland can apply for membership and no doubt it will, but many existing members will be very pleased to block it, if only to scare their own local separatist movements. As the noble Lord, Lord Kerr, made clear, the chances of Scotland getting a rebate would make a snowball’s lifetime in hell seem, in comparison, a long one. Then, is a county the size of Scotland outside the EU likely to remain, as Scotland has hitherto been, a first choice of headquarters for major companies and financial institutions? I doubt it.

In my heart, I have some sympathy with those Scots who want independence. I love the country very much. I was up there only recently and its beauty and the character of its people commend it to us all. I can quite see that if I were a Scot, I would find it a bit much to be part of a larger country that still hankers after great power status when I want it to be a decent little social democracy going about its business. Those things will weigh but the Scots are a canny people. When the referendum comes, they will weigh the arguments and come to understand that they are faced, in independence, with a huge threat that could ruin the remaining prosperity that exists with them. I cannot help but believe—and from their viewpoint, hope—that they will stick with auld acquaintances for the sake of auld lang syne.