Is separation of Scotland from Britain achievable? Friday, 13 January 2012 01:54

By Matt Falloon

LONDON: An independent Scotland, the dream of generations of nationalists, would boast a cash-rich economy buoyed by North Sea oil and Edinburgh finance, but would create another small state on the edge of Europe vulnerable to global shocks.

Nationalists argue that Scotland, an independent kingdom until 1707, is Europe’s next energy-rich Norway. Sceptics see another bailout candidate, an Ireland-in-waiting.

“Its economy is performing quite reasonably,” said Brian Ashcroft, an economics professor at Scotland’s University of Strathclyde.

“It stands very well compared to the rest of the United Kingdom. It would be quite a rich state,” said Ashcroft, before injecting a note of caution. “Oil revenues are very volatile — it’s very dangerous to predicate your planned future spending on oil revenues.”

“I suspect that they would have to introduce tax rises or spending cuts and seek to bank the oil revenues.”

Scotland, a nation of more than five million, kept its own legal system after union with England in 1707, and has had a devolved government since 1999, with control over health, education and prisons. Proponents of independence feel the southeast of England, notably London, has enjoyed economic and social benefits at the expense of those ‘north of the border.’

Led by the shrewd Alex Salmond, the pro-independence Scottish National Party shocked the British political establishment by winning an outright majority in the devolved parliament last May and promised a referendum on independence by 2016.

Opinion polls show support for independence has been slowly increasing, with about a third of Scots backing a breakaway and around half wanting to remain in the union.

Salmond is locked in a standoff with British Prime Minister David Cameron over the terms and timing of a vote, with Cameron pressing for an

early poll to remove economic uncertainty and Salmond wanting

to wait until 2014 to build

support.

Salmond is recognised as one of Britain’s most able politicians.

His rhetoric conjures images of Scotland’s granite cities and sparkling rivers, but he is also a pragmatist who sells the country as a great place to do business on trips overseas.

He wants Scotland to get rid of British nuclear submarines based close to Glasgow and be producing all of its energy from renewable sources by 2020. Unlike an independent Ireland, Salmond would keep Queen Elizabeth as head

of state.

However, Scotland, a nation similar in population size to Norway or Denmark with just over 5.2 million inhabitants, would face an acrimonious divorce from its long-term partner.

The SNP wants 90 percent of North Sea oil revenues, estimated at around 13 billion pounds this year, and eight percent of Britain’s debt, in line with its population share.

London is likely to argue that North Sea oil is a resource that should be shared by the whole of the UK and perhaps even demand it is therefore divided by population.

As for debt, London could point out that it pumped billions of pounds into Scotland’s banks during the credit crisis, ending up with an 83 percent stake in Royal Bank of Scotland

TRIPLE A RATING?

Opinion is divided on whether Scotland would enjoy a triple-A credit rating, and depending too heavily on oil to boost the coffers is not something that analysts advise.

“It seems to me that bond rates would be reasonable but probably a little higher than the UK in the initial phase until the Scottish government built up a reputation for fiscal prudence,” Ashcroft said.

The prospect of higher taxes or spending cuts and higher government borrowing costs would prove a drag on growth in a fledgling country which already has some catching up to do.

It might also mean an end to the free university tuition and prescriptions that have many English people looking enviously north of the border.

For the three decades to 2007, according to official figures, Scotland’s average growth rate of about two percent lagged Britain’s 2.4 percent rate and was well below Norway’s annual growth of more than three percent.

Investors may, therefore, look warily at another small European economy entering the fray.

Jim Leaviss, a fund manager at M&G Investments, estimates that the combined assets of RBS and HBOS, another Scottish bank rescued in the credit crunch, amount to about 1,400 percent of the Scottish economy, pointing out that Iceland’s bank assets peaked at 1,100 percent of GDP in 2008.

REUTERS