The Economic Implications for the United Kingdom of Scottish Independence

Earl of Caithness Excerpts

Wednesday 26th June 2013 Lords Chamber

[The Earl of Caithness]

My Lords, I was not fortunate enough to be a member of the committee chaired by my noble friend Lord MacGregor, but I thank it very much for its work and its very readable report.

I will follow on from what the noble Lord, Lord Shipley, said, right at the end. Independence is a misnomer for what is proposed. There is no way that Scotland is going to become an independent country. It could become a separate country and exist as one— although to what extent that is possible and how successful it would be is not yet known—but it would certainly not become an independent country. If it wants a sterling area, it will be subject to the Bank of England, and if it is to have its own currency—which I will come on to—and wants to join Europe, it will be subject to all the rules and regulations of Europe. Even if it stays out of Europe, it will be in the same position as Norway, with most of its laws having to abide by those decided in Europe, over which it would have no input.

With the situation as it is at the moment, I believe that we are in potential danger of sleepwalking into a disaster, because there is a stand-off between Edinburgh and Westminster. Mr Salmond has set out his stall very clearly, saying:

“The plan is to do what is appropriate and in the best interests of Scotland”.

He wants to negotiate on a number of issues and the UK Government have said that they will not. That worries me, because we do not have the information to make a decision, and the longer that goes on, the more chance there is of a yes vote. In the event of a yes vote, it will certainly be no velvet divorce—it will be a very nasty situation. I do not think that a no vote is by any means certain, given the latest opinion polls. I have detected a feeling that separation is better than the status quo, but they do not know what separation is. At a time when the SNP has made a number of changes of position on fundamental issues as it struggles to find a coherent set of positions prior to the vote, the opinion polls are not really moving to reflect that. There has certainly been little change in people’s perception about the economy but Mr Salmond’s plans for corporation tax have been condemned as,

“an excruciatingly awful piece of work”.

Perhaps that is not surprising since Mr Salmond not only signed a letter in support of Mr Goodwin when he was RBS chief executive and bidding for ABN AMRO, but signed it, “Yours, Scotland”.

Let us please have some answers from the Government. What will be the position with regard to the Scottish banks—RBS and HBOS—considering that they were bailed out by the UK taxpayer? Can my noble and learned friend give a definitive statement that there will be no formal sterling area? The Chancellor, my right honourable friend Mr Osborne, has hinted that he does not think it is in the interests of either Scotland or the UK, but there needs to be a stronger statement than that. Mr Salmond has, on a number of occasions, made his demand for a sterling area a prerequisite for a settlement on the disposition of assets and liabilities. We need to be absolutely clear whether the Government will negotiate on a sterling area or not. Of course, if there is no formal sterling area, Scotland could retain sterling, but all analysis has shown that this would be bad for the country and it would probably be better for it to opt for its own currency. If it does so—indeed, it might be sensible to do so—it will have to have all the necessary financial institutions, including its own central bank. If it wants to join the EU, it will have to have its own currency up and working for at least two years to meet the requirements imposed for new EU membership.

It is well known that a separate Scotland would want to join the EU. Can my noble friend say whether it will be a net contributor or beneficiary of the EU budget, and, if so, by how much? Can my noble friend confirm that the UK’s abatement will stay with the rest of the UK and not with Scotland? These are some of the fundamental questions.

To me, the most critical question is how one settles the matter of assets and liabilities. Will the assets—in particular, oil and gas—be apportioned on a geographical basis, as recommended in the report? What would be the situation should Orkney and Shetland decisively vote no to a separate Scotland and negotiate with the Scottish Government to have a separation? How would that affect the geographical assets?

As for liabilities, it is crucial that we know what the plans are for the public sector debt. Will it be apportioned on a population basis, as suggested in paragraphs 86 to 89 of the report? Paragraph 87 states that by 2016 the public sector debt would go up to £185 billion, based on current figures, if you add pensions and other such costs. Indeed, the public sector debt will increase, so the figure will be somewhere between £185 billion and £213 billion, in round figures. Whatever the figure, it is a colossal sum of money, and Scotland does not have that amount of money.

How will it be financed? Will the Government accept an IOU, and, if so, on what terms? If there are no appropriate guarantees and securities, it would be similar to losing 10% of your economy while retaining all your debt. That is a hugely worrying situation. Not only do we, who are going to vote on separation in September next year, need to know that information; more importantly, the markets need to know it. If the markets do not know it and begin to sense that there might be a yes vote, I fear very much that speculators will cause havoc in the markets with the pound sterling. The Government will then be in an infinitely more difficult situation in which to negotiate any deal with the Scottish Government. That scenario is extremely worrying and can be avoided.

I thought that the letter accompanying the Government’s reply to the report was contradictory. On the one hand, the Chief Secretary says that he wants as much information as possible and that all of us in Scotland who are going to vote should know all the facts. He then goes on to say that he is not making any plans for Scottish separation in the UK and is not going to negotiate. That is a totally contradictory position and, I say to my noble friend on the Front Bench, a very unhelpful one.