Scottish Separation

Graeme Morrice Excerpts

Tuesday 10th July 2012 Westminster Hall

[Graeme Morrice (Livingston) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Roger. I am delighted that I have been able to secure this Westminster Hall debate on a vital issue to the future of Scotland and its people, in view of the pending referendum.

Before I move to the substantive part of my contribution, I should like to say a few words about the referendum campaign so far. I congratulate those responsible on the recent launch of the cross-party Better Together campaign, which will lead the debate on the positive economic and social case for Scotland’s remaining an integral part of the United Kingdom. In stark contrast to the vacuous and celebrity-driven launch a few weeks earlier of the campaign by those who advocate separation, the Better Together launch, ably fronted by my right hon. Friend the Member for Edinburgh South West (Mr Darling), drew on the experiences of real Scots the length and breadth of the country who spoke passionately about why they believe we are stronger within the UK. This grounded campaign is based on hard facts and figures, exploring the many positive benefits of being part of the UK and exposing the deficiencies in the separatist plan to end this highly successful political, social and economic union.

On the other side of the debate, the Scottish National party and the Trotskyist fringe parties had, somewhat predictably, fallen out among themselves even before Alan Cumming had had time to board the plane to return to his New York home. The splits quickly became even wider when the recently appointed head of the so-called yes campaign ruled out a second referendum question on devo-max, an option Alex Salmond and the SNP are desperately clinging to as they face up to the fact that they cannot win the first question. Even the well-respected senior Scottish nationalist, Margo Macdonald, called at the weekend for a single, simple question on separation and criticised the yes campaign for refusing to spell out the details of what independence would mean.

[Lindsay Roy (Glenrothes) (Lab)]

It is a pleasure to serve under your chairmanship, Sir Roger. I congratulate my hon. Friend the Member for Livingston (Graeme Morrice) on securing this vital debate. Can he explain why he believes that a referendum should be based around a single question? What are the problems with multi-option referendums?

[Graeme Morrice]

I am grateful to my hon. Friend for his intervention. As I continue with my contribution, I will come to that point and develop an argument accordingly.

According to reports yesterday, it now looks like the Greens could soon follow Margo Macdonald’s lead, potentially leaving the SNP in the ludicrous position of being the only party supporting a multi-question referendum on the issue that it has spent its entire existence campaigning for.

[Mr Mike Weir (Angus) (SNP)]

The hon. Gentleman is talking nonsense. The SNP position is and always has been that it is in favour of independence. As the First Minister has made clear, if there were a demand from civic Scotland for a second question, it would be considered. To go on about this is nonsensical. Perhaps the hon. Gentleman would like to get to the meat of this debate.

[Graeme Morrice]

I note the hon. Gentleman’s intervention. I am surprised that, although for its entire existence the raison d’être of the Scottish National party has been independence, it wants to get sidelined on the issue of devo-max or devo-plus, without the questions being defined.

[The Parliamentary Under-Secretary of State for Scotland (David Mundell)]

Does the hon. Gentleman agree that, if the SNP truly wanted to get to the meat of the debate on separation, it would press ahead, agree the process—the referendum, the single question—and get on with it? Alex Salmond and the SNP are prevaricating over process.

[Graeme Morrice]

I could not agree more. I will certainly develop that theme as I progress in my contribution.

Sadly, the other predictable aspect of the campaign so far is the level of vitriol already displayed by the so-called cyber-nats—small-minded people who seem to glory in spewing forth hatred about their opponents on every available website and online forum. The contributions of these people, who often hide behind online anonymity, only serves to harm the debate on Scotland’s future, not to mention our nation’s reputation as a welcoming and tolerant place. Although I am willing to accept that some of these extreme nationalists have nothing officially to do with the SNP or the yes campaign, it would be refreshing if more senior SNP figures condemned and disowned their extremist bile. Any interventions?

[Mr Weir]

Yes, some horrible things are said on Twitter, but there are also, if people want to use such terms, cyber-Brits, who make equally vicious attacks on nationalists. It is terrible that the hon. Gentleman is being so one-sided. This is supposed to be a debate about the economic arguments, but we have heard nothing about that, which is typical of the no campaign so far.

[Graeme Morrice]

I am coming on to the meat of the debate. The hon. Gentleman doth protest too much.

I shall now move on to the meat of this morning’s debate—the economic consequences of Scottish separation. Some Scots regard the potential economic consequences of breaking away from the UK as neither here nor there. So important to them is the dogma of Scotland going its own way that even if every shred of available evidence demonstrated beyond any doubt whatever that Scotland would be worse off outside the UK, they would still not hesitate to break up Britain. To most Scots, that stance—call it the “Braveheart” factor, or whatever—is simply not credible. Although the debate is and should be about more than economics, there is little doubt that at its crux are the economic consequences of separation. The vast majority of our fellow citizens are interested in what will improve their lives and those of their families and the communities in which they live.

It is hard to deny that, in these turbulent economic times, the size, strength and stability of the UK economy gives Scotland’s businesses a huge advantage over their competitors on the continent and elsewhere. Scotland’s biggest market is the rest of the UK and it has undoubtedly benefited from being an integral part of the world’s oldest and most successful single market. I believe that most people in Scotland already recognise and embrace this. A survey conducted by the Scottish social attitudes survey at the end of last year showed that fewer than one in three Scots back separation, which was roughly the same figure as in 2005. Hon. Members will also have noted the results of the latest opinion poll on separation, conducted by TNS BMRB after both campaign launches, which puts those opposed to separation on 50% and those in favour on just 30%. The latter figure is the lowest received in favour of separation in five years of surveys by the Edinburgh-based pollster and means that in just six months a deficit of nine points for those backing separation has more than doubled. Judging by these figures, even the most ardent nationalist would struggle to argue that the yes campaign had got off to a good start.

Putting opinion polls aside and accepting the premise that, to coin the well-known phrase from American politics, “it’s the economy, stupid” that will determine the outcome of the referendum, let us turn to the available evidence on the key economic questions. Some of the most interesting expert contributions to the debate so far have come from Professor John Kay, a former economic adviser to Alex Salmond. Writing for The Scotsman shortly after the Scottish Parliament elections in May last year, Professor Kay said:

“Independence, if achieved, would bring complications—both political and economic. The reality is that Scotland would gain little by full independence. In the modern world, economic sovereignty for small nations is inescapably limited, and political sovereignty is largely symbolic.”

More recently, while speaking at The Scotsman’s “Economics of Independence” conference, Professor Kay spoke of his belief that Scotland faces five years of economic uncertainty if it opts to separate from the UK.

The potential economic damage ensuing from a long period of transition to a separate Scotland was highlighted at the same conference by oil expert Professor Alex Kemp of Aberdeen university. Professor Kemp said that the complex process of transferring responsibilities from UK Departments to a separatist Scottish Government would involve

“negotiations extending over a considerable time”.

Such fears about the potential impact of a vote for separation, and the instability and uncertainty inflicted on Scotland’s economy, have been voiced by many other academic and business leaders over the past few months. Even one of the SNP’s highest-profile supporters and financial backers, the highly successful businessman Sir Tom Farmer, does not support its separation plans. He stated in a recent BBC interview:

“I’ve never seen or heard anything yet that’s convinced me independence is the right way forward for Scotland. It’s not just about money, but, if it ended up that the country was going to be in dire poverty because of independence, I don’t think anybody wants that.”

For my part, I have drawn on the best available evidence for the likeliest economic impact on Scotland of separating from the UK. I want to focus on three aspects of the economic debate: oil and gas revenues; the share of the UK’s public debt that Scotland would assume if it were to separate from the UK; and a separate currency in Scotland.

Those three vital economic and financial questions were among several highlighted in the excellent Select Committee on Scottish Affairs report on “The Referendum on Separation for Scotland: Unanswered Questions”, published in February this year. I take the opportunity to pay tribute to the Committee’s excellent work. Under the skilled chairmanship of my hon. Friend the Member for Glasgow South West (Mr Davidson), it has embarked on a forensic investigation of the many unanswered questions that hang over the separation debate. My hon. Friend and his colleagues—I see one present today—deserve the thanks of all Members of this House for the detailed and meticulous way in which they are examining so many important points worthy of further detailed consideration, not least the economic matters on which I will now focus.

[Lindsay Roy]

Of the many unanswered questions, which one gives my hon. Friend the greatest cause for concern?

[Graeme Morrice]

That question begs the question: many questions give me concern—not least, defence.

I now move on to North sea oil, which has long been regarded by the supporters of separation as the jewel in the crown of a Scotland outwith the UK. The Library standard note on “Scotland’s economy: current situation and issues related to independence”, published in April this year, highlights three key issues when considering this critical question—the division of the UK continental shelf and, therefore, of the oil reserves; future production levels; and the price of oil.

The argument has always been that a separate Scotland should be due the lion’s share of the North sea’s oil, and that the tax revenue from the fields would therefore accrue to Scotland. The suggestion that a separate Scotland would be due most of the North sea’s oilfields, however, is very much open to debate, and most experts agree that nothing concrete could be concluded before the negotiations on separation. Furthermore, the boundary issue aside, the reality is that oil and gas can simply no longer be relied upon in the way that the SNP has always suggested, because of the production and price questions.

Fossil fuels are a declining resource, and the trend of reduced production is now clear. Oil and gas production is falling rapidly; in 2011 it was down by 19% on the previous year, and recent Department of Energy and Climate Change figures show that oil production fell by 13% in the first quarter of this year and gas production by 14%. Future projections suggest that many North sea fields will have ceased production by the 2020s, while the cost of extraction is increasing year on year.

Oil also has a history of price volatility. The Library note shows that it has varied in recent years from a low of nearly $9 a barrel in November 1998 to a peak of almost $150 a barrel in July 2008. The price of oil is closely linked to production, with a low oil price making it less economical to invest in hydrocarbon extraction. In terms of tax revenues from oil, the 2008 Kemp and Stephen paper referenced in the Library note stated:

“It should be stressed that the projections of tax revenues are subject to much uncertainty. Thus oil prices have been very volatile and this should remain the case over the next few years.”

Oil and gas of course remain an important part of the Scottish and UK economies, and will do so for many years, but to bet Scotland’s economic future on the sector is naive at best and foolhardy at worst. Those latest figures highlight the importance of a balanced economy that is not over-reliant on one industry. They also demonstrate one of the many benefits of Scotland being part of the UK economy: we are able to work together in partnership to share the risks and rewards involved in harnessing our energy resources.

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

My hon. Friend is making an important point on energy. Does he agree that the current support regime for renewable energy is levied on consumers throughout the whole of Britain and, because Scotland is where the resource is, that support goes disproportionately to Scottish generators? Does he realise that about 10% of consumers are in Scotland, but that about 30% of the support goes to generators in Scotland? Is that not another example of us working well together and getting the most benefit from a renewables future?

[Graeme Morrice]

I entirely agree with what my hon. Friend says, and it is a further argument.

[Mr Weir]

Why is Scotland, of all countries, incapable of having a regime to support renewable energy? Countries such as Norway, Lithuania and Ireland can all do it. Also, if we are talking about the cost of energy, why does a generator in the north of Scotland have to pay £21.96 to feed into the grid, while a generator in London receives a payment of £13.35? The existing system is hardly fair.

[Graeme Morrice]

I certainly agree that Scotland is capable of sustaining a renewable energy industry, but we will do better together within the United Kingdom.

I now want to move on to the share of the UK public debt burden that should be assumed by a separate Scotland. That a breakaway Scotland would have to shoulder some of the UK’s public debt is beyond question. What is certainly open to debate, however, is how the debt to be assumed should be calculated and what factors would contribute to those calculations, including the share of the debt accrued through the bank bail-out. Members are aware of a number of recent studies to have explored this critical question.

February’s National Institute of Economic and Social Research report on the economy of a separate Scotland explored the difference between apportioning debt per capita or pro rata, concluding that there is only marginal difference between the two. The report stated:

“With a pro rata transfer of existing UK public debt, Scotland would enter independence heavily indebted with no insurance from fiscal risk sharing or fiscal transfer mechanism with the rest of the UK.”

The Institute of Economic Affairs report published just last month suggested that a separate Scotland could be saddled with an eye-watering £110 billion national debt. The report highlighted that, with the UK’s debt having recently topped £1 trillion and the expectation that it will rise even further by 2015, Scotland’s share could be even greater than £110 billion. The report’s author, Dr Richard Wellings, suggested that that high debt, which would be comparable to Portugal’s at present, coupled with decreasing oil revenues, as already referenced, would almost certainly require urgent cuts to public spending. Even calculating the public debt on the basis of population size, a proposal described as reasonable by a spokesperson for the First Minister, the report made Scotland’s share of the debt around £93 billion—still a significant burden for a small nation—and around three times greater that the Scottish Government’s current budget.

[Mr William Bain (Glasgow North East) (Lab)]

My hon. Friend is making a compelling argument for Scotland staying part of the United Kingdom. Does he think that it is unbelievable arrogance by those who want Scotland to leave the United Kingdom that they have not yet devised a debt target for a separate state? How on earth can the public be informed in a referendum if they deny people that information?

[Graeme Morrice]

My hon. Friend makes a valid point. The SNP’s argument seems to be predicated on contesting the robust figures provided by the experts in support of Scotland remaining part of the UK. Despite the differences in some of the figures that have been suggested, there is absolutely no doubt that, as the David Hume Institute report that was published in March indicated, the figures reached

“will be determined as much, if not more, by politics as by statistics”.

The undeniable point is that a separate Scotland would have to take on considerable and currently unknown public debt. Regardless of what the exact figure might be in the hypothetical scenario of a yes vote—clearly, we would not know that until negotiations on Scotland’s secession from the UK were complete—that debt, coupled with a relatively volatile tax revenue base, is likely to have a significant effect on future public expenditure, so why take the risk in the first place? Furthermore, a whole raft of additional costs that a separate Scotland would incur in setting up embassies, collecting taxes, creating new institutions to replace those broken up by separation and establishing a welfare system and armed forces, and so on, would add further to that uncertainly.

The currency to be adopted by a separate Scotland is arguably the question on which the SNP and those who advocate separation have undergone most contortions in recent times, and that is saying something. Until recently, most nationalists were strongly in favour of joining the euro, and lukewarm, at best, about the pound. As the influential SNP MEP Alyn Smith said at the party’s 2009 conference:

“We are a Nordic, European country, currently part of a debt-laden sub-prime toxic assent currency…we don’t want to be part of and which is not serving our interests well.”

At the same conference, the Scottish Government Finance Minister, John Swinney, declared that he was in favour of joining the euro, but that the final decision to join should be determined by a referendum. In January 2009, Alex Salmond said:

“I think there is a strong argument for the euro, and I think as sterling declines even further that argument is being made very strongly.”

Now, even they have realised that that is not such a sensible idea, and they have become converts to retaining sterling, although without bothering to have any discussion whatever with the UK Government. That is an astonishingly cavalier approach to such a vital question.

Between the SNP’s enthusiasm for the euro and its recent conversion to keeping the pound, it has debated options for introducing an entirely separate Scots currency. Veteran nationalist, Jim Sillars—a former key ally of Alex Salmond—even proposed last year that a separate Scotland should adopt a Scottish dollar, although I understand that no one from the Scottish Government has written to Barack Obama about it yet.

It is widely accepted that a separate Scottish currency would be a serious disadvantage to business. Although the commitment to a separate Scotland retaining sterling may sound more credible, as the recent article on the high price of separation in The Economist highlighted, it would be a monetary union without fiscal union, which has proved disastrous for the eurozone. It would, of course, be fraught with well documented problems, especially on fiscal responsibility and the lender of last resort, which were highlighted in the Library’s standard note on Scotland’s economy, which I referred to earlier.

Under formal monetary union with the UK, as has been widely highlighted, the Bank of England would continue to form monetary policy for both the remaining UK and the separate Scotland, so removing a key aspect of economic independence from the tools available to a Scotland operating outside the UK. Even if no formal monetary policy was agreed, the Library note states that

“in such a scenario, Scotland’s monetary policy would be determined by the Bank of England which would only be considering the interests of the rest of the UK.”

[Mr Bain]

My hon. Friend is being generous in giving way. Is the situation not even worse? The economic madness of separating fiscal and monetary policy would be detrimental to Scotland’s economy, and a democratic deficit would be created. As Members of Parliament, we can scrutinise what the Chancellor does on defining financial stability and regulating the banking sector. Which of Scotland’s parliamentarians would have democratic accountability in the proposals that Alex Salmond has come up with?

[Graeme Morrice]

None of them. That is clearly a problem, and a step backwards.

[Mr Weir]

My understanding is that when Gordon Brown—perhaps I should still call him the right hon. Member for Kirkcaldy and Cowdenbeath—was Chancellor, his greatest boast was that he had made the Bank of England independent. How does Scotland have any influence on it at the moment?

[Graeme Morrice]

In terms of setting interest rates and so on. The Chancellor still has a role in that regard —a role that a separate Scottish Government in an independent Scotland would not have. There would be no accountability, no influence and no say in that, and the UK Government have confirmed that officially.

Whichever way one looks at the matter, the SNP’s policy of retaining the pound sterling as a separate currency for Scotland is a proposal engulfed by uncertainty. At the same time, the SNP insists that a separate Scotland would be entitled to automatic membership of the European Union—a position that is in serious doubt, as highlighted by last year’s well documented Library standard note on “Scotland, independence and the EU”, which states:

“There is no precedent for a devolved part of an EU member state becoming independent and having to determine its membership of the EU as a separate entity, and the question has given rise to widely different views.”

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

Even assuming good will on both sides of the argument for an independent Scotland trying to renegotiate terms with the EU—I do not believe that there is any reason to assume hostility from other EU member states—the fact is that the EU is not, to put it kindly, the swiftest-moving institution. Is it not likely that even with the best will in the world the new arrangements would take a long time—years—to finalise, yet again leading to the continued uncertainty about which we heard earlier?

[Graeme Morrice]

I certainly agree with that proposition. Going back to the 1992 general election campaign, I recall that the SNP talked about independence within Europe. I note that it is not banging on about that now.

For the sake of argument, let us assume, although it is unlikely, that a separate Scotland would be permitted to join the EU immediately. We know with some certainty that such a position would require Scotland to commit to joining the euro at some point in the future, taking the nationalists back to the same risky and unpopular position that they have tried desperately to abandon. Again, it seems to be beyond doubt that the unknown risks posed by breaking up Britain are significant and that the uncertainty about which currency the country would use could not possibly be good for business or families in a separate Scotland.

I have tried to focus on a few of the numerous essential economic consequences of separation. I could have looked at many others, including whether the tax base of a separate Scotland could sustain a separate Scottish economy and what personal and business taxation rates would have to be levied, whether the Scottish Government could meet existing UK Government state and public sector pensions commitments, what the impact would be of turning our biggest trading partner into our biggest competitor, what the cost would be to our economy of losing UK Government shipbuilding contracts and what a separate Scottish Government could borrow. I am sure that other Members will want to address those and other questions in the time that remains.

I would like to go back to where I started and the wider debate on this subject. It has been fascinating to watch the twists and turns of the SNP over the past few months. It has demonstrably failed to answer a series of critical questions about the consequences of its plans to separate Scotland from the UK, despite that having been its raison d’être for more than 75 years. Those in the SNP leadership must wonder where they can go next, as they face up to the prospect of support for separation flatlining, no matter how far into the future they push the referendum.

Many in nationalist circles must also be asking themselves how their leaders have managed to squander the considerable political capital that they enjoyed just over one year ago. What remains clear is that the economic dimension to the separation debate is crucial, and there is an absolute responsibility on the UK and Scottish Governments to publish the best available information and projections of the potential economic consequences of breaking up the UK, as debate on that crucial question continues and intensifies. Ultimately, as long as economic evidence continues to show that Scottish families will be better off remaining in the UK, coupled with the wider social, cultural and political strength derived from our interdependence with the rest of the UK, Scotland’s place as an essential part of a strong United Kingdom will be secure for many years to come.

[Sir Roger Gale (in the Chair)]

Order. I do not propose to impose a formal time limit on speeches, but I imagine that John Robertson, who will follow me in the Chair, will wish to call the Front-Bench speakers at about five past 12. Five Members have written in advance to express a desire to speak, and I shall call them in this order: Dr Whiteford, Mark Lazarowicz, Mike Weir, Anas Sarwar and Jim Shannon. Other Members may wish to intervene in the knowledge that they are unlikely to get called in the time that we have available.

--- Later in debate ---

[Dr Whiteford]

I will not give way just at the moment, although I will in a bit. The problem of inequality is particularly frustrating because, in spite of a period of unprecedented growth in the global economy, the previous UK Government missed a genuine opportunity to deliver a more prosperous and fairer society. It is hard not to reach the conclusion that those opportunities for growth were squandered by an unsustainable boom that had too few beneficiaries.

[Graeme Morrice]

I am listening intently to the economics of the hon. Lady’s argument. She will be aware that a lot of these things are currently within the gift of the SNP Administration of the Scottish Government. Is she also aware that before 2007, when the Labour-led Scottish Executive were in power for eight years, growth in Scotland was above the UK average? Since 2007, however, growth levels in Scotland have been below average for the UK.

[Dr Whiteford]

I thank the hon. Gentleman for his intervention, but I am slightly confused. My understanding is that according to almost every indicator—whether unemployment, employment or foreign direct investment—the Scottish economy is outperforming the UK economy. It would behove the hon. Gentleman well not to make too much play of the previous Administration’s record. Even in recent weeks, we have seen the debts that have been stacked up through poor private finance initiative investments. The Labour party took on the mantle of its Tory predecessors, and stacked up £31 billion in PFI debt. The chickens have fairly come home to roost in the past few weeks, and we are seeing NHS trusts starting to go bankrupt. Those choices left us sharply exposed to the worst financial crisis for a generation, and now the present Government’s austerity measures are strangling recovery and pushing more of our citizens below the breadline.

The failure of successive Westminster Governments to make economic policy decisions for Scotland that help our economy grow and resonate with the values of the people of Scotland has convinced me that we need the opportunity to bring decision-making powers home to Scotland so that we can set better priorities and maximise our economic potential.