The Point
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Independence and the Economy: Time for the front foot...




Independence: Time for the front foot on the economy says Stevie Arnott


The battle to win a YES vote is now firmly in its second stage. Polls in January indicating that momentum was firmly with YES, and that the gap created by Project Fear was closing, brought forth an onslaught from the NO camp that was as incessant as it was hysterical and contradictory.

Far from it all being over except to 'bayonet the wounded' - as Labour Unionist MP Ian Davidson so charmingly put it – it was clear that there was everything to play for, and despite the advantage of a supine and, frankly, biased media, the YES movement was having some success in challenging and dispelling the constant negative tropes of the NO campaign. A full spring offensive by the NO campaign was launched.

First we were love-bombed by the PM we didn't vote for from the safety of Wembley. But that was only the precursor to a campaign of dive-bombing negativity, as First Minister Alex Salmond put it. The 'Dambusters Strategy' was to be a sustained attempt to breach the rising walls of Scots incredulity over the 'too wee, too poor, too stupid' claims; the negative and increasingly repetitive mantras that in essence make up 'the positive case for the Union'. (A case that is constantly trumpeted as existing by NO, but rarely actually made.)

Everything was thrown at us. At time it felt as if ballistic kitchen sinks were being launched and raining upon us from some fastness beyond Hadrian's Wall. And yet the latest polls continue to indicate movement towards YES. The NO campaign still has the lead but it is a much reduced one since the height of Ian Davidson's premature triumphalism of last year. One in ten Scots coming over to YES between now and referendum day would see the Scottish people exert sovereignty over their own destiny through independence, not for the first time three hundred years, but for the first time ever. UKOK's spring offensive had failed.

As Iain McWhirter of the Sunday Herald put it:

"...there are worried brows in Whitehall. The Unionists threw everything at Fearful February, yet the polls did not move in the right direction.

It may seem surprising that so many Scots still support independence after being told, day after day, in the Scottish press that mortgages will rise, pensions fall apart, food prices rise, the banks will leave, the oil will run out and debt levels will soar as Scotland becomes a basket case thrown out of the European Union. Short of threatening to kill the first born, there's not much more stick that the UK can apply."

McWhirter goes on to conclude that that is why the emphasis is now moving from stick to carrot, with Labour and Tory leaders and spokespersons queuing up to redefine 'devo max' – understood these past few years to mean full fiscal powers and autonomy over everything, including oil and gas revenues, with only defence and foreign affairs reserved to Westminster – as a few vague promises to maybe increase the amount of income tax the Scottish Government can collect. We'll return to this poisoned chalice later, but for now it's enough to know that despite everything they haven't killed YES off.

Indeed, now the daily negativity of NO headlines is to be met head on by a mass bill-boarding and advertising campaign between now and referendum day, battle at last is truly joined.

Momentum is everything, in politics, as in sport and war. What is crucial is that every facet of the YES campaign now needs to step up its game, particularly on winning the economic argument with more voters.

And that means so much more than just winning a 'business' case, or winning a numbers contest between YES supporting business leaders and loyal Tory corporate placemen. It means convincing ordinary working class men and women that an independent Scotland will mean a better life for them.

To that end, I want to concentrate on three key economic arguments in this article that I believe we should be shouting from the rooftops between now and September 18th.


Oil and Gas

On the 24th February the UK Cabinet travelled to Scotland for only the second time in its history (the last time was in the nineteenth century and times to coincide with the deer stalking season). Cue David Cameron in a hard hat on an oil rig conceding that, Yes, there was plenty of oil and gas left in Scottish waters (he could do little else since since the UK Government's own commissioned report by Sir Ian Wood had just concluded there were an extra £200 billion worth of assets in the North Sea that were up for grabs. Catch was, you see, a tiny nation like Scotland (don't mention Norway) could never get all that oil out on its own (don't mention Norway!). It required the 'broad shoulders' of the UK to make sure the oil could benefit 'all of us' (don't mention Norway!!...and cut to picture of grinning Tory/Liberal cabinet)

This was surely the silliest and most disreputable claim by a British Prime Minister since Tony Blair told porkies about WMD in Iraq.



(Or the silliest headline in a long list from the Unionist Hootsman?)

Let's have some clarity. The Wood report suggests it's possible to extract an extra 4 billion barrels of oil from the North Sea over the next 40 years worth a net £200 billion (at today's prices). This is on top of the 11.4 billion barrels of untapped oil already identified as being present for development and extraction. The current dip in oil revenues is due not to a fall in the global price of Brent Crude (just over $102 dollars at today's price and predicted to rise by 50% over the next decade or two) but because of high levels of investment currently opening new fields seeing huge tax discounts to the operators. Once that investment comes on stream and the new oil and gas is flowing, everyone - including the UK's own advisers –agrees that revenues will rise.

Let's leave aside for now the perfectly legitimate questions about a state owned oil and/or energy companies under independence, or how we use what we take from the North Sea to invest long term in renewables, social infrastructure and high tech industries. Taxation on profit per barrel at the current rates of taxation (62%) could conservatively be estimated to produce tax revenue of £25 for each barrel over the next 40 years.

With an independent Scottish Government building up two oil funds - one to secure against short term volatility, and the second a sovereign oil fund based on the Norwegian model, this amounts to a total average annual revenue potential in an independent Scotland of...well, you do the maths. 15.4 billion barrels times £25 divided by 40 years.

The answer is potential average tax revenues of just over £9.2 billion per annum for 40 or so years in an independent Scotland. Given that Scotland's GDP without oil and gas is comparable to the current UK as a whole, this represents a massive independence bonus worth £1770 for every man, woman and child in Scotland over a period of the next two generations.

Assuming a comparable figure if we remain in the UK, our 8.6% population share would see that reduced to about £152 per head per annum. Again do the math - that's an independence bonus of £1618 per head per annum compared to voting NO and staying in the UK.

Cameron's ludicrous 'broad shoulders' claim - in reality a you're 'too wee, too poor, too stupid' claim - that only the UK can survive market volatility is shot down in flames when these basic facts are examined. The other argument, that only the UK can afford the tax concessions necessary to kick start these higher levels of investment is economically illiterate on a number of grounds. Let's list them

a) Norway managed it and managed far better than the UK has done
b) It pretends current UK tax discounts are an expenditure problem for a post 2016 independent Scotland
c) It counts tax breaks as expenditure rather than investment in future revenue
d) It takes no account of a range of possible state interventions in an independent Scotland.

Westminster and the British State lied in the seventies about the wealth an independent Scotland could have from oil, we know this from Denis Healey's admission and the suppressed McCrone report. They wasted the first oil boom on mass unemployment in the eighties to turn Britain into a service sector led low wage economy.

Fellow Scots, over half the oil (in value, not in volume) is still to be extracted from our waters. Will you trust the same Westminster government to manage it on your behalf and give you back a wee drop pocket money? Or will you manage it yourselves, to the maximum benefit of you and your families, through your democratically elected Scottish Parliament, in an independent Scotland?



Is there a Plan A plus..? And could there be a debt free Scotland?

It's apparently perfectly all right, according to our biased media, for Scots to be told they can't have a share of UK assets if they vote for independence, but it's just not 'damned rugger' if the Bolshie Jocks then suggest the UK can keep all the liabilities as well.

From day one the Scottish Government and the broad YES campaign have taken the view that independence should mean an amicable divorce, with both parties taking a fair share of the former UK's assets and liabilities. NO on the other hand have thrown up every single possible obstacle they can think of to the self-determination of the Scottish people, and threatened to with-hold joint assets at every opportunity.

Is it time for a change/development of strategy?


Alex Salmond and his able Deputy Nicola Sturgeon have repeatedly pointed out that the fiscal commission outlined a number of options, call them plans B, C, D, E and F, but that Plan A, a currency union, is the preferred option of the Scottish Government, even if not the uniformly preferred option of everyone involved in YES

Here's one possibility I'd like to explore. Let's call it Plan A plus.

The Scottish Government gives the UK government one month to commit unequivocally to a fair share of joint UK assets if Scotland votes YES - this includes sterling, the BBC, etc etc. In return, we accept our population share of UK debt.

If this offer is rejected, the Scottish Government proceeds on the following basis:-

1) Scotland will keep the pound in an informal currency union on independence by tying a Scottish pound to Sterling in the first instance, while leaving the door open for rUK to approach an independent Scotland for a formal currency union.

2) In the third year of the first Parliament of an independent Scotland a review should take place if there is no formal currency union by that time, with a view to putting forward all viable currency alternatives to the Scottish people in a single transferable vote referendum to be held in the final year of that Parliament.

3) Meantime, as Westminster will have forfeited the right to expect an independent Scotland to pay a share of the debt run up by the UK. This means not only that Scotland begins debt free, but that monies a Scottish Treasury would have to have set aside for deficit reduction and repayment are now freed up for more constructive purposes. Depending on interest rates, repayment schedules and so forth this figure would be between a couple of billion and several billion pounds per annum.

Basically, austerity ends in Scotland on this scenario.

But how to constructively spend that couple of billion quid a year saved under No Shared Assets/No Shared Liability independence? Why not commit it to the payment of an annual citizenship bonus for every adult resident of an independent Scotland of £500 per annum (linked to inflation), payable on Independence Day, every March?

The offer we could then make to the Scottish people on independence would be this:
"Vote YES and either a) you will get a currency union, the pound, the BBC and a fair share of all other assets OR b) you'll have the pound in an informal currency union, with a later referendum where you decide the permanent currency option you prefer, AND you'll receive an annual £500 citizenship bonus - which we can afford by virtue of Scotland starting debt free."

Project Fear torpedoed below the waterline.

Game over. Referendum won.

Worth thinking about?


GERS (and the mysterious case of the missing revenue)


And no, this isn't a headline from the back pages of a tabloid about your author's favourite team. The GERS report (General Expenditure and Revenue, Scotland) is an annual government report drawn up by impartial economists and civil servants and it does exactly what it says on the tin. It draws up a balance sheet between total government expenditure in Scotland (Scottish and UK government expenditure) and the total revenue raised from taxation in Scotland, including oil and gas.

Last year YES was able to make significant political capital from the 2011-12 report which showed Scotland in a relative surplus compared to the rest of the UK. Better Together seized on this year's report (2012-13) because it showed a £3 billion drop in oil and gas revenues.

Two points need to be made, though. Firstly, over two-thirds of that drop were due to tax incentives (discounts) given to oil companies to develop more difficult fields. As explained above, that revenue will come on stream over the next few years ensuring that oil and gas revenue is a tremendous bonus to an independent Scotland for decades to come. Secondly, it remains the case that, when averaged out over the past thirty years, Scotland has contributed significantly more annually to the UK tax take than it has received in expenditure.

More intriguingly, however, there is a third argument (detailed by Paul Kavanagh in Wings over Scotland in November that GERS does not take account of large amounts of retail VAT and other hidden taxes that are raised in Scotland (and would accrue to an independent Scotland) that are not accounted for in the GERS report, because large companies pay those taxes through their headquarters account and – more often than not – those headquarters are elsewhere in the UK.

Consequently, it is counted as UK, not Scottish, revenue.

This is obviously an anomaly that leads to the potential revenue available to an independent Scotland through VAT in particular - but not solely VAT – being hugely underestimated.

As Kavanagh points out (and I quote him at length):

"...realistically, the total due in VAT alone to an independent Scottish Treasury from Tesco operations in Scotland would be similar to the Irish figure, probably greater than £78.6 million annually.
Since the total in other taxes paid by Tesco to the UK Government is greater than our deliberately low estimates for VAT, the true figure for the taxes Tesco would pay in an independent Scotland is certainly well over the £140 million mark. At the moment, Scotland is not credited with a penny of this amount.

Remember, this is the hidden Scottish revenue from just one supermarket chain. What applies to Tesco applies equally to Morrisons, Asda and all the rest. It also applies to M&S, Top Shop, John Lewis, and the other retail chains on our high streets and in our shopping centres. Together these companies make sales in Scotland worth billions of pounds annually, and the billions they generate for the UK Treasury are filed in tax returns from their head offices, which are usually in London.
There are other ways in which Scottish revenues are invisible in the official statistics. Much of the alcohol duty paid by our whisky industry is not counted as revenue from Scotland. Alcohol produced in the UK which is exported abroad becomes subject to UK alcohol duty at the point of export, and a large proportion of Scotland's multibillion whisky exports gets shipped out from ports in England. The UK Treasury counts the duty levied on this whisky as income from the tax region in which the port is situated.
Billions of pounds of Scottish revenue is magicked away in the official statistics, and doesn't count as Scottish revenue. It masquerades as revenue from other parts of the UK, most commonly as revenue from London. In total, the extra revenues which don't currently figure in the GERS stats, but would accrue to an independent Scottish Treasury, would likely be larger than the entire annual income from the North Sea."




So there you have it. Three arguments that can be taken up on the doorstep, in the workplace, in the street, online, in the letters pages and in the television and radio studios that demonstrate logically and factually that Scotland as a country will be better off economically with independence, but why the vast majority of Scots will also find themselves and their families personally better off.

The argument about the Citizen's Bonus that would be possible in a debt free Scotland is speculative, to be sure. And it isn't Scottish government policy. You won't find it in Scotland's Future. But it would be perfectly possible to do in a Scotland that started debt free. It's an indication of the kind of red-sky thinking that would become possible in an independent and energised new Scotland.

And all of this from essentially a standing start, before we have even begun to think of a fairer more accountable tax and benefits system, the living wage, the hi-tech reindustrialisation of Scotland, greater levels of public ownership and increased sustainable growth.

And so we return to the beginning of this piece. Project Fear is failing. The gap in the polls is narrowing. Momentum is with YES.

Now let's get out and win this thing.


Steve Arnott March 2013

External links:

Bella Caledonia

Bright Green

George Monbiot

Green Left


The Jimmy Reid Foundation

Richard Dawkins

Scottish Left Review

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