Scotland: Independence Referendum

Lord Shipley Excerpts

Thursday 30th January 2014 Lords Chamber

[Lord Shipley (LD)]

My Lords, like the noble Lords, Lord MacGregor of Pulham Market and Lord Forsyth of Drumlean, I was a member of the Economic Affairs Committee, which reported last year on the economic impact on the UK of Scottish independence. When we debated the report in this House in June, we said that it was important that voters understood the implications of their vote before they cast it. We said that voters should reasonably expect to know whether membership of the EU would be secure, how long the process of applying might take, what the implications for taxation—both personal and corporate—would be, what the implications for public spending might be, which currency would be used, which fiscal policies would be put in place and what regulatory policies might be different in Scotland from the rest of the UK.

Some of these issues, particularly around banking and fiscal union, have been clearly explained this week by the Governor of the Bank of England. However, there are uncertainties around entitlement to Scottish citizenship, as well as other uncertainties around tuition fees and whether they would or would not be free at Scottish universities for students from England, Wales and Northern Ireland.

Another key issue is the Barnett formula because, if Scotland became independent, the extra 15% of public spending per head would cease. Oil revenues might make up the difference, but such oil tax revenues would inevitably be uncertain because they would fluctuate according to the market price. It is true that, on the basis that 90% of oil reserves would be in Scottish waters, the tax gain from that could make up for the loss of the Barnett formula, but it seems very clear that there would not be any more money available overall for public spending if Scotland was independent.

A further key issue is UK debt, which now stands at £1.38 trillion and rising. Scotland would have to take its share of that debt, but it is generally recognised that bond rates would be higher in Scotland after independence than they are now. The UK can borrow at very low rates but Scotland on its own could well have to borrow at two percentage points higher. What would be the impact on Scottish mortgages, bank loans and inflation?

Another key issue is the nature and benefits of our integrated domestic market. Dividing it into two separate fiscal, regulatory and consumer protection regimes could create serious difficulties for the private sector and increased costs for households and businesses in areas such as pensions and insurance.

I have been, and remain, a firm advocate of increased devolution in the UK, but I also believe that the full independence of any part of it would dislocate the whole of the UK, making it much more unbalanced. It would reduce our international influence, endanger a single labour market and put into doubt the existence of UK-wide communications systems. It would also prevent our sharing of investment and risk across the United Kingdom.

Living in the north-east of England, I strongly support closer working between Scotland and north-east institutions—something that I am very keen to see enhanced, whatever the outcome of the referendum. I was particularly pleased to see the work on the border lands produced by four authors from Northumbria University, Durham University and IPPR North, which examines possible scenarios for the north-east of England and Cumbria if Scotland becomes independent or has maximum devolution within a UK framework. I welcome initiatives such as this because we need a debate in England and the rest of the UK rather than only in Scotland.

I want the United Kingdom to remain united but, equally, I hope for greater devolution to the UK’s constituent parts. I think Scotland will find greater flexibility inside the UK than it would outside because of the constraints that would be imposed on an independent Scotland in areas such as higher borrowing costs. However, I acknowledge that this is a decision for the people of Scotland to take. However, I make a plea to the media based in England. England needs to understand better what Scotland is thinking, on both sides of the independence debate. Too often what I read and hear in English newspapers is an English commentary by an English commentator. UK newspapers, for example, may have Scottish editions with specific pages on Scottish news, but those newspapers do not get sold in England. Over the next few months it would be helpful if newspapers printed in England carried much more Scottish news and articles on the independence debate so that we develop a better understanding of what people are thinking. I should acknowledge at this point that the BBC has started to do this and I welcome that.

A historic opportunity is on the horizon for the United Kingdom. If Scotland votes yes, the consequence would be a new constitutional settlement with the rest of the UK. If Scotland votes no, there will be a debate on devo-max and what further powers could be devolved; I anticipate that. Either way, we shall have the opportunity to undertake a new constitutional settlement across the UK, spear-headed by the debate and the vote in Scotland.

We should start here at Westminster, with English issues being reserved matters for English MPs only. I am not a supporter of a separate English parliament, because it would cover too big and diverse an area and too big a population. Rather, I favour gradual devolution of greater powers to combinations of local authorities with coterminous boundaries with local enterprise partnerships, thus encouraging and securing joint working between the two. There is rising demand across England now for devolved powers from Whitehall, for a place-based system of finance through a single pot covering all relevant Whitehall departments. The recent London Finance Commission report Raising the Capital looked closely at this, but cities across England are now calling for a suite of fiscal reforms including devolution of property tax revenue streams—council tax, stamp duty, land tax and business rates—with the ability to reform those taxes while retaining prudential rules for borrowing.

The debate in Scotland will provoke a great opportunity. I welcome that, but I welcome too one potential consequence: that we will actually have a debate in the rest of the UK on what a new constitutional settlement across the UK might look like.