SCOTLAND CANNOT afford independence, yet it was the talk of the SNP conference this weekend, so rest assured a costly road lies ahead.

Nicola Sturgeon knows only too well if she doesn’t throw some meat to her core Yes vote that she could swiftly lose support.

Do I believe she truly wants an independence referendum right now? I do not. She has been warned by her own counsellors that it would be an economically volatile move to make, especially during the years of recovery ahead. But she really had no choice.

The First Minister has been a strong leader during the pandemic and despite several incompetent decisions by the Government early on, I didn’t envy her position and doubt many others would have been able to cope with such a task.

Scotland needs a strong leader in the years of recovery ahead and in many ways Nicola Sturgeon offers stable and competent leadership but by storming ahead with an independence referendum will only seek to divide our nation at a time where communities need to pull together in support of one another.

In her own speech at the conference, she said that as an independent country, “co-operation between Scotland and our friends across the rest of the UK will continue, but it will be on a better basis: Scotland will be an equal partner.”

It is unfair to mislead voters in to thinking the future relationship with Scotland and the rest of the UK would be better after a break-up. Let’s not kid ourselves that the separation would not be a messy, difficult process, which like many bad divorce settlements, drag on for longer than all parties would like, leaving a bad taste in everyone’s mouths and a legacy of resentment for many years to come. Just look at Brexit!

It is somewhat of a fairy-tale to suggest that independence would be an economically savvy move. One of the first challenges would be the issue around debt. Although the exact size of Scotland’s debt upon separation from the UK is unclear, the figure is likely to be significant given the backdrop of Scotland’s current underlying structural deficit of 22% of GDP – ballooning from the already high 8.6% figure in 2019-20 due to lower oil revenues and increased spending and falling tax revenues during Covid-19. This is significantly higher than the 14.2% for the rest of the UK.

An independent Scotland’s path to EU membership would be an excruciatingly painful one in order to meet the EU’s rules for accession that require a fiscal deficit sustainably below 3% - placing Scotland bottom of the pile of a list of nations aspiring for membership. The EU may loosen their rules if spending is directed at high-multiplier investments, but not if it is spent on social transfer programmes – a hard steer for the current SNP government to take.

Bringing the fiscal deficit under control would require a newly independent Scotland to either enter a long-term programme of austerity, at a length and pace that would make even George Osborne blush, or hefty tax rises. The SNP’s rejection of austerity goes against the fiscal policy recommendations from its own Sustainable Growth Commission – tasked with setting out recommendations for Scotland’s economic route to and beyond independence – who opted for spending restraints over tax rises in bringing the deficit down.

If an independent Scotland were to re-join the EU, this would mean a hard border with the rest of the UK and given 60% of Scottish exports are destined south of the border, this would have severe economic repercussions. A study by the London School of Economics in February estimated the economic hit would be two to three times greater than the impact of Brexit. Even Prof Mark Blyth, newly appointed to the First Minister’s economic advisory council, has warned that unwinding “300 years of deep economic integration” would “hurt a lot”.


However, arguably the biggest and most controversial area centres around the position on what currency an independent Scotland would adopt – it is still the party’s Achille’s heel in this whole debate.

The Sustainable Growth Commission recommended back in 2018 that Scotland should proceed with a ‘sterlingisation’ regime upon becoming independent. This is a situation where Scotland would continue to use the sterling for a (unspecified) period of time, but with no formal currency union with the UK, and only when a number of economic tests are met would Scotland move on to its own new currency.

Scotland would lose out on the benefits of being in a formal monetary union: no access to fiscal transfers from the UK or to the range of economic levers and liquidity services from the Bank of England – who also wouldn’t consider Scotland’s economic circumstances in its decisions. Scotland would have to amass a huge war chest of sterling reserves to ensure a functioning banking system and credibility to bond markets – obtained by further austerity and/or borrowing from financial markets.

An independent Scotland would also start with a large deficit of its current account (essentially the nation's earnings and spendings abroad) of around 10% - likely higher if taking into account current covid-19 spending. A deficit of this size would mean an outflow of at least £16bn sterling from the Scottish banking system each year.

To fund these large twin deficits, and with no access to the Bank of England, Scotland would need to borrow sterling on international markets at high enough rates of interest to attract the substantial quantities of sterling needed. Such a situation is unsustainable as with no central bank to provide monetary stimulus and lender of last resort services, investors would demand ever higher interest payments, which would lead to a worsening of Scotland’s financial position. The sterlingisation regime would inevitably collapse and a new, weaker Scottish currency would be created out of necessity – a painful adjustment for the Scottish people.

Scotland cannot afford to sleepwalk into another independence referendum without fully taking stock of the economic repercussions such a move would have on the people and businesses of this country.