With enemies like the Better Together campaign who needs friends?

Iain MacWhirter

Columnist

Sunday 10 March 2013

INDEPENDENCE has its costs.

Finance Secretary John Swinney

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By Iain Macwhirter

Things aren't looking good. "The public finances are likely to come under pressure over the longer term primarily as a result of the ageing population ... the Government would end up having to spend more as a share of national income on age-related items such as pensions and healthcare ... non-demographic trends are likely to reduce revenue from sources such as North Sea oil."

Oh, well. That's it – we're stuffed. Why weren't we told this before? Actually, we were. That quote above is not from John Swinney's leaked report to the Scottish Government. It is from the report by the Office For Budget Responsibility's Fiscal Sustainability Report, presented to the UK Coalition Government in July 2012 – and the country it refers to is the UK. These affordability issues are the same north and south of the Border – actually, they are less of a problem in Scotland. Swinney's "bombshell report" wasn't about "cutting pensions" as some parts of the press claimed, it was about how much Scotland could reasonably put into an oil fund for the future given its social-spending commitments. Choices have to be made. You can't expect an independent Scotland to be immune from economic uncertainty, immune to the ageing population, immune to recession and fluctuating oil prices. But no credible economist seriously argues today that Scotland could not survive as an independent small nation like Norway, Denmark or Finland.Actually, in an age of economic uncertainty, John Swinney is a useful guy to have around. He is ultra-cautious, often to the despair of his Cabinet colleagues. But this Finance Secretary has achieved a remarkable feat over the last six years in managing to afford all of Alex Salmond's giveaway policies – abolition of student fees, free prescriptions, free bus passes, free personal care – within a static budget that has been squeezed in real terms. Commentators like me kept saying it couldn't be done, that the SNP Government would find it impossible to balance the books without cutting spending on health. We were wrong. SO, the fact that cautious John was trying to rein in his high-spending Cabinet colleagues by telling them a few home truths is no bad thing. The fact it was leaked last week will, I think, be to the Yes campaign's long-term benefit, provided they don't retreat into a defensive shell, snarling about the "Unionist press". The press coverage was over the top, economically illiterate and rather childish. But you don't get to choose the press and this is the same media that will be covering the independence campaign next year. The SNP will have to find ways of addressing Scotland's fears if it wants to get this anxious, risk-averse nation to step into the unknown. This is the downside of basing the case for independence on economics alone. It's not called the dismal science for nothing. Even the most benign economic picture can look bleak if you focus on risk. Better Together leaked Swinney's "secret files" to coincide with publication of the latest Government Expenditure and Revenue Scotland (Gers) figures, an annual statement showing the balance between spending and tax revenues. This year it confirmed Scotland's deficit would be 5% of GDP – but that is substantially less than the UK deficit of 8%.In other words, Scotland is in a much better place financially right now than the rest of the UK. Did no-one notice that the UK lost its AAA rating the other week? And remember that if Scotland were independent, the UK would not be able to rely on the £11 billion a year from the North Sea, so its deficit would rise.This is important. It means Scotland is in no danger of becoming another Greece, or Ireland – unable to pay its way and suffering a sovereign debt crisis and internal devaluation. This is not exclusively because of the £1.5 trillion of oil in the North Sea. Scotland has five of the world's leading universities, one-quarter of Europe's offshore wind and wave energy, one of the most valuable tourist brands in the world and luxury exports such as whisky, which brings in £4bn a year. We might even be capable of making things if we had any industry left. But there is nothing certain in economics, and the job of a finance minister is not to tell people what they want to hear. Oil revenues are volatile. Ten years ago, the price of a barrel was less than half what it is today. It would be unwise for an independent Scotland to rely on natural resources alone, and a proper industrial strategy would have to be introduced to diversify the Scottish economy. But an independent Scotland would be less dependent on oil income than Norway, which has the world's highest standard of living.We have an ageing population, a situation marginally worse in Scotland than in England. I say "worse" – in fact, people living longer is a very good thing. But it does mean you need lots of young workers to pay the taxes to look after them. Ten years ago, everyone believed Scotland's population was going to decline below five million. In fact, it has risen to 5.3 million: its highest level ever. All those young Polish workers coming here are having large families, which has turned the situation round. But with the UK imposing ever tighter immigration restrictions, this may be choked off if Scotland stays in the UK.Meanwhile, Scotland exports many of its graduates and skilled workers because we don't have jobs for them here. When I was rector of Edinburgh University, I was acutely aware this world-class institution was churning out large numbers of brilliant graduates who would never find work in Scotland. They take their learning south or abroad, which is what Scots have been doing for the past 200 years. Now, an independent Scotland might make this worse; there is no guarantee of anything. But I am finding it increasingly hard to see how Scotland's problems can be addressed without substantially greater economic powers and investment. Scotland's industry has long gone; the start-up rate for new businesses is dismal; the financial sector – look at RBS – is in crisis. Scotland is falling off the economic map in a UK dominated by the city state of London. It's the HS2 factor: Scotland pays, through taxes and oil revenues, to build a high-speed rail network which starts in London and stops at Manchester. Last week, we learned that 6000 troops which were supposed to come to Scotland will go to Salisbury and Northern Ireland. Even Lord Heseltine says that the greatest problem facing he UK is over-centralisation of economic life in London and the southeast. Devolution has begun to address the "democratic deficit" in Scotland, but what the Scottish Parliament lacks is power to address very deep-seated economic problems. It isn't only Nationalists who are concerned about this. As I pointed out last week, the Labour shadow foreign secretary, Douglas Alexander, is proposing a national convention, to look at ways of preventing a No in the referendum leading to a decade of despair in Scotland. If Scotland votes No, there will be no Union dividend to fall back on. Living on handouts from Westminster is no longer an option. Debilitating dependency will only turn Scotland into the introverted, negative and depressed little country that is presented to us every week in much of the Scottish press. That is the true message of Swinney's secret bombshell. The SNP should start leaking these bombshell reports on a monthly basis.

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