The Economic Implications for the United Kingdom of Scottish Independence

Lord Maclennan of Rogart Excerpts

Wednesday 26th June 2013 Lords Chamber

[Lord Maclennan of Rogart]

My Lords, I should like to thank the Economic Affairs Select Committee for having produced a report that raises many questions that need to be answered, some by the Scottish Government and some by the United Kingdom Government. However, some are not entirely answerable because they depend for their answers on global issues that are not necessarily predictable.

There seems to be an optimistic assumption in certain quarters of Scotland that North Sea oil will provide a base for macroeconomic management of the economy. That seems to me wishful thinking of a kind to which we should not give any sustenance. The global price of oil could fluctuate considerably. As the noble Lord, Lord McFall, remarked, the costs of decommissioning will also have to be borne in mind. It is not entirely clear how much oil there is.

There are many other uncertainties that need to be addressed. An overarching one must be the relationship between Scotland, if it becomes independent, and the European Union. The United Kingdom cannot resolve that of itself. It seems quite likely that, this being the first time that a member country has split up since the European Union was formed, there must be a certain amount of fear on the part of other countries, such as Spain, that we could be paving the way to a disintegration of the Union.

Other issues that raise problems that cannot be foreseen, although their outcome can be discussed, are the effect of independence on the financial services industry, which is of such importance to Scotland. Some 7% of employment in Scotland depends on those services. I cannot comfortably predict that companies such as Standard Life would necessarily remain in Scotland if Scotland were controlling the domestic economy when Standard Life’s services would mostly be provided outside Scotland.

That raises another issue that has been addressed by the committee, which is the attitude to currency. We have heard, even from those who are not necessarily favourably disposed towards the European Union, that the eurozone needs to have greater regulatory authority, fiscal uniformity and acceptance of centralisation of the management of the economy. That has some lessons for those who are thinking in terms of a separation of Scotland from the United Kingdom. I do not see how the First Minister can proclaim his desire to be part of the United Kingdom currency and have some kind of currency union without accepting that we will have to have monetary policy controlled by the Bank of England. The report raises the question of whether the Bank of England could readily accept that role or a regulatory role if it does not have control over the direction of the economy and taxation. Frankly, these questions are not answerable in terms of the prediction of policy, but they are important issues that ought to be discussed by those who are considering what the future might bring.

It is disturbing that yesterday, in its main front page article, the Scotsman revealed that 60% of the members of the Scottish Chambers of Commerce have no sense of how this would all come together. That opinion exists despite the fact that the Government have brought out some very useful papers. We have to consider carefully how to get these messages across so that opinion-formers in Scotland can influence the way the debate is concluded. We also have to consider the division of debt between the two successor nations. That would weigh heavily on the independent nation of Scotland if it were formulated.

The overarching question is whether Scotland, with a population of just over 5 million, would have any influence in global governance. I think it highly improbable. The fact that it would have very little say on trade matters, particularly if it were excluded from the European Union, would seem to bear down very heavily on Scotland’s prospects. The Government have to consider how best to get their messages across. Although I am very grateful for the three policy papers that have been analytically presented, they will not be given headlines in the organs of opinion or the media in Scotland. They will provide ammunition for individual speakers, but will not get through to the electorate. We need to have conferences in Scotland at which these issues are discussed. Such conferences would need to be directed towards those who will have some forward thinking about the prosperity of their own companies, and towards interest groups that will also be affected.

I take the point made by the noble Lord about identity being one of the issues, but hope and fear will play a major part in the debate. We have to project a sense of hope about the British part in the improvement of the condition of the people of Scotland. It is not too difficult—we have a remarkable record. We are not unique in having this national debate about how to manage the economy at the moment; it would exist in Scotland if it were seeking macroeconomically to manage itself. However, the prosperity of the country is at grave risk if we do not resist these arguments about identity. We can—and in the modern world we should—have multiple identities.

I was very surprised to read in the report produced by the Scottish Government’s Fiscal Commission Working Group, published in February of this year:

“Under independence, the Scottish Government would be responsible for the design and implementation of its own macroeconomic framework”.

That is an impossibilist view—for a small country such as Scotland to manage its macroeconomic future by itself without acknowledgement of the influence and importance of the integration of the domestic market in the United Kingdom, the possibility of greater integration in the European Union and the possibility of having more influence on the direction of the global economy.

I beg the Government to think about how they can get their very wise messages across to the people of Scotland. If we leave it too late, arguments from identity could prevail, which would be potentially disastrous.