Economic Implications for the United Kingdom of Scottish Independence - Economic Affairs Committee Contents

Chapter 6: Scottish independence and defence: the economic impact

122.  We do not set out to make recommendations about the defence policy of an independent Scotland or of the rest of the UK. Instead we try to tease out the economic implications in the defence field of Scottish independence.

123.  A "Yes" vote in the referendum on Scottish independence would raise complex defence-related questions. In the view of Professor Iain McLean currency issues and nuclear weapons are "the two issues that are likely to be the most crucial in post-referendum negotiations".[145] But Professor Jim Gallagher thought:

    "The biggest defence question by far, however, is not the economic effect of Faslane and Coulport but the defence effect. What can we do with this kit? Is it at all possible to move it? Would it be possible to negotiate its retention? If one accepts the view of the present devolved Scottish Government, it is clear that that would be unacceptable to them. It might well be something in the process of negotiation on independence, were that to take place, where the UK would come to the table saying, 'You want things from us. Well, actually, we have something that we want from you.'"[146]

After a "Yes" vote defence and currency-related issues would be main strands in negotiations between Scotland and the rest of the UK on the terms of Scotland's secession. The outcome could have significant economic implications for the rest of the UK as well as Scotland. Some of the main issues which we think would arise are set out below. Because MoD Ministers declined to give oral evidence to our inquiry we were unable to question them directly.


124.  The four Vanguard class strategic nuclear missile submarines (SSBNs), which with their Trident missiles constitute the UK's nuclear deterrent, are based on the Clyde at Faslane and Coulport. The Government also plans to base the successor generation of SSBNs there. The SNP's commitment to removing nuclear weapons from Scottish territory is incompatible with retaining a nuclear base on the Clyde. If an independent Scottish government insisted on its removal, how would the rest of the UK maintain its nuclear deterrent force? Is there an alternative base outside Scotland? If so, what might it cost?

Other UK defence installations in Scotland

125.  There are many other UK defence installations in Scotland, ranging from air defence bases to military and Royal Marine barracks to training grounds, some of which offer facilities to NATO allies. Their continued use by the armed forces of the rest of the UK would be in doubt. How would this uncertainty be resolved? What would be the costs of removal to the rest of the UK? What would be the job implications in Scotland?

UK armed forces personnel

126.  As well as Scottish regiments in the British Army, there are Scottish personnel in other Army units and in the Royal Navy and RAF. Independence for Scotland would raise questions over how many would remain in the armed forces of the rest of the UK and how the rest of the UK's forces would make up the shortfall. Would there be an impact on the UK's commitments to NATO?

Armed forces' equipment

127.  After a "Yes" vote on independence, Scotland would claim a share of equipment such as ships, planes, vehicles and weapons. What would be the impact of reduced inventory on the operational efficiency of the rest of the UK's armed forces? What would be the budgetary implications for the rest of the UK of replacing equipment ceded to an independent Scotland?

Defence procurement

128.  Many suppliers of defence equipment to the UK's armed forces are in Scotland, including the warship yards on the Clyde. Would the rest of the UK still buy equipment from an independent Scotland? If not, what are the alternatives and would they imply extra costs?

The rest of the UK's defence posture post-Scottish independence

129.  If Scotland became independent, the present United Kingdom would lose about one third of its territory, rather less than one tenth of its population and a similar share of its GDP (a fuller comparison is in Appendix 5). The rest of the UK's size and standing would be diminished accordingly. Would defence spending in the rest of the UK be reduced in proportion? Or would the rest of the UK keep armed forces with the same scale, reach and capabilities as now? What would be the costs and the economic implications for the rest of the UK?

130.  A "Yes" vote in the referendum on Scottish independence would raise many complex issues of defence policy for the rest of the UK. We believe the Government and Ministry of Defence should be assessing the implications, economic as well as strategic, and planning in the event that Scotland becomes independent, and communicating these implications to Scottish voters and to the rest of the UK as clearly as national security considerations permit.

Engaging with the Ministry of Defence

131.  We looked forward to questioning Defence Ministers about the challenges a "Yes" vote in Scotland would pose. We invited Defence Ministers repeatedly to attend one of our hearings and answer our questions. They declined on the grounds that they would have little to add to statements already made by Defence Ministers:

The Secretary of State for Defence said on 4 July 2012:

    "The UK Government position is clear: Scotland benefits from being part of the UK and the UK benefits from having Scotland within it. The UK Government are not making plans for independence as we are confident that people in Scotland will continue to support Scotland remaining within the UK in any referendum.

    "In the run-up to the referendum the UK Government will produce detailed evidence and analysis to assess the benefits that Scotland gains from being part of the UK and the contribution that Scotland makes to the UK. As one of the major reserved areas, Defence will feature significantly in this work …

    "No work has been undertaken to estimate the cost of replicating the facilities at Faslane and Coulport at another site in the UK. It is clear from first principles, however, that the cost of relocating such facilities from Scotland would be extremely high.

    "I am withholding information relating to contingency planning arrangements should Her Majesty's Naval Base (HMNB) Clyde become inoperable for the purpose of safeguarding national security."[147]

    The then Minister of State for the Armed Forces also told the Scottish Affairs Committee of the House of Commons that replicating the Clyde facilities elsewhere in the UK would "cost a gargantuan sum of money" dwarfing the £3.5bn spent on upgrading the Clyde base.[148]

    The Secretary of State for Defence, writing later to reaffirm his unwillingness to give us oral evidence, added: "Any alternative solution would come at huge cost … Any replication of … facilities would cost at least that much and probably more [than the recent £3.5 bn investment programme at HMNB Clyde in 2011-12]."[149]

    The MoD later wrote to the Scottish Affairs Committee: "As the UK Government has no plans to unilaterally disarm, there would inevitably be time and cost implications if an independent Scottish Government demanded the withdrawal of the UK deterrent. The UK Government will not pre-negotiate the departure of Scotland from the UK. Therefore scenarios mentioned in the [Scottish Affairs] Committee's report under which the UK may negotiate a basing agreement for the deterrent with an independent Scottish Government will not be discussed prior to the outcome of the referendum."[150]

132.  We were disappointed by Defence Ministers' refusal to attend a hearing and answer our questions. In defence, as in other areas, facts are lacking to help Scottish voters make an informed decision, and the rest of the UK to understand the implications. The Government should take every chance to make things clearer. Its acknowledgment of time and cost implications if an independent Scotland demanded the withdrawal of the UK deterrent is a step in the right direction. But there is a long way to go.

133.  We welcome the Government's intention that defence should feature significantly in the evidence and analysis it plans to produce of the benefits of maintaining the United Kingdom. The Government should be much more active in making the whole UK aware of the defence-related economic implications of next year's referendum in Scotland.

Other views of the defence issues for the rest of the UK and their economic implications

134.  We sought the views of other knowledgeable witnesses on the issues about which we would have wished to question Defence Ministers.

Nuclear Planning

135.  We asked Lord West of Spithead, a former Chief of the Naval Staff, about the Defence Secretary's position that the UK Government is not planning for Scottish independence. Lord West said:

    "I am also concerned … that our Government say they are not doing any contingency planning, because they say separation will not happen. If that is really so—that they are not doing any—I think it is a dereliction of duty. There are huge implications for the United Kingdom. … were I the First Sea Lord today, I would turn a Nelsonic blind eye to such instructions from the Secretary of State for Defence and I would set up a black team to work out all of the options and possibilities for, for example, our nuclear deterrent. These are issues that are much too important, I believe, to suddenly do at the last moment on the back of a cigarette packet."[151]

136.  Mr Francis Tusa, editor of "Defence Analysis", agreed:

    "Practically any other … navy … would be setting up a risk committee to run through every single aspect of this problem, to make sure that they did not have just plan B, but plan C and plan D."[152] He added: "If people are not planning now, it will be a nightmare, and it will become an expensive nightmare … if you have an independence vote and that results in being told 'You must move these from Scotland', waving hands in the air and saying it is too difficult is not an option."[153] He later stated: "All the comments from the Navy are about the total lack of contingency planning."[154]

137.  We note the MoD's unwillingness for national security reasons to disclose contingency planning arrangements in relation to the Clyde naval base. But we would welcome assurances that plans are in place in case the outcome of next year's referendum results in the UK's nuclear deterrent force no longer being based in Scotland.

138.  Given the SNP's firm commitment to removal of nuclear weapons from an independent Scotland, it is clear that a "Yes" vote in the referendum would raise a major issue for the Government of the rest of the UK to consider in order to find a workable and affordable solution. We urge the Ministry of Defence, building on its response to the report on Trident of the Scottish Affairs Committee of the House of Commons, and without compromising national security, to release more information about the cost and employment implications of a decision by an independent Scotland to require their removal.

Non-nuclear defence implications for the rest of the UK

139.  Post-referendum negotiations between a prospectively-independent Scotland and the rest of the UK could be expected to include sharing of defence assets including bases, personnel and equipment. Since bases cannot be moved, a newly independent Scotland would naturally acquire those on its territory. Lord West estimated that Scotland might seek some Type 23 frigates and other naval vessels as well as some helicopters and fast jets. As a result, "there would be a diminution in our defence capability greater than just the fact that Scotland had withdrawn".[155] Lord West also doubted that Scottish regiments or Scottish personnel in other units would all wish to join new Scottish forces. He said: "A lot of Scottish military people would prefer to be in a military that … had scope for doing proper sailoring and soldiering and airmanship than in something that was rather less."[156] We invite the Ministry of Defence to publish its estimates of the overall cost implications for the rest of the UK of a division of conventional military assets with Scotland on the lines suggested by Lord West.

The employment implications in the defence field for Scotland of independence

140.  Mr Paul Ingram of the British-American Security Information Council (BASIC) estimated that there are 12,000 service personnel based in Scotland and 6,000 civilian jobs as well as 12,500 jobs in the defence industry.[157] Rt Hon Michael Moore MP, Secretary of State for Scotland, put forward comparable figures of 15,000 MoD personnel in Scotland plus 3,000 volunteer reserves and 17,000 cadets as well as 12,000 people in the defence equipment industry.[158]

141.  Witnesses expected Scotland to lose defence jobs on independence as former UK defence installations were run down, UK procurement orders were switched away from Scotland and defence manufacturers shifted their activities elsewhere. Lord West said: "We would be talking 20,000 or 25,000 jobs gone."[159] This would be just under one in a hundred of all jobs in Scotland.[160] He also found it "inconceivable that the United Kingdom, separate from Scotland, would have its warships built in a Scottish yard".[161] Councillor Gordon Matheson, Leader of Glasgow City Council, feared that 4,000 jobs in Glasgow shipyards reliant on MoD contracts would be lost.[162] Mr John Swinney MSP pointed out that many factors affected the number of defence jobs in Scotland besides independence. He said MoD civilian jobs had already fallen 28% in Scotland from 2000-2011.[163] Mr Tusa said:

    "If you have a like-for-like Scottish defence procurement budget of somewhere … between £300million and £500million and the equivalent British defence [procurement] budget of £6billion … to £7billion, where do you site your factories?"[164]

142.  On the other hand, Mr Swinney argued:

    "If you look at the marketplace now in defence orders, you see an increasing pattern of defence procurement being undertaken cross-border. There are numerous examples of that now taking their course. I would be confident that the strength and the capability of Scottish yards would be able to operate in that context … There has been an example of a case in South Korea where the MoD has named Daewoo as the preferred bidder on a £452 million contract for refuelling tankers for the Royal Navy fleet."[165]

143.  Job losses in Scotland might be offset to some extent by employment in an independent Scotland's armed forces and defence installations. We have not seen much evidence about an independent Scotland's defence budget or the scale and capabilities of its armed forces. But Lord West gave us an estimate of the defence equipment newly-independent Scotland might acquire, and "probably end up with about 10,000 regular service troops".[166] Answering questions about how he would respond to any defence job losses Mr Swinney said: "We are developing as part of our wider economic strategy investments in new industries, whether that is in renewables, the development of life sciences activity or whatever the sectors happen to be. We see an active role for government in taking forward such an approach to ensure that, where there is a negative economic impact on the country, we can take steps to remedy it."[167]

144.  Lord West suggested to us that defence-related job losses in an independent Scotland could range up to 25,000. If they were realised, they would represent an unwelcome transitional effect of independence.

NATO and Scotland's defence

145.  Within the United Kingdom Scotland is part of the North Atlantic alliance and benefits from its mutual defence guarantee and the commitment of British armed forces to NATO's integrated military structure, designed to enable the alliance to meet its mutual defence obligations effectively. It was until recently SNP policy that an independent Scotland should withdraw from NATO. This long-standing policy was controversially changed at the SNP's conference in 2012, although the commitment to removing nuclear weapons was maintained. In Mr Tusa's view, the SNP, "in return for a vote in favour of joining NATO … had gone slightly even more hard line on the nuclear issue".[168] In Mr Paul Ingram's view, the SNP's policy that an independent Scotland in NATO would not take part in out-of-area operations without UN endorsement is a valid position within NATO rules.[169]

146.  An independent Scotland would be responsible for its own defence. It would need to devise a new national defence policy, making its own assessment of possible threats to national security and setting defence priorities. As well as negotiating with the rest of the UK a division of assets and liabilities in defence as in other areas, it would need to decide whether to apply to join NATO and what resources in money, personnel and equipment to devote to defence. In addition to their strategic importance, these decisions would make a significant impact on employment and on the wider economy in Scotland.

147.  Professor Gallagher told us:

    "An independent Scotland would have a different set of defence requirements from those of the rest of the UK. You could be very unkind and say that those would be very small—that there would be a kind of Home Guard approach. Or you could say that they might more resemble those of Ireland than, say, Denmark, to take two slightly contrasting examples. Whatever they were, they could not conceivably be an attempt to project power on a scale or at the distance that the rest of the UK currently does."[170]

148.  Professor Malcolm Chalmers, Research Director at the Royal United Services Institute, wrote:

    "An independent Scotland's annual defence budget … seems unlikely to exceed 1.4% of GDP, or around £2 billion (at 2011/12 prices). It may even be significantly less, were Scotland to follow the low-spending route followed by Ireland, which is similarly protected by geography from external military threats, or newly-created states (such as Lithuania and Latvia) which have sought to create armed forces from scratch. These three countries spend, respectively, 0.6%, 0.8% and 1.0% of their GDP on defence." [171]

149.  Professor Chalmers also wrote:

    "If … the rest of the UK were to seek to maintain a defence capability comparable to that of the UK, it would be likely to want significantly more than the 91.6% of total assets which strict population share would suggest. It would, moreover, want to keep almost all existing inventory of major high-value equipment … If Scotland were to take only 5% of total MoD net assets, it could argue that it was entitled to financial compensation (amounting to some £3.6 billion) in return for receiving less than its population share. Demands for such compensation would have to be part of a wider, and complex, negotiation on the division of UK assets and liabilities. Scotland's reduced share in defence assets could, for example, provide it with a bargaining chip if it decided to seek a reduction in its share of the inherited national debt.

    "The rest of the UK could argue, for its part, that it would be entitled to compensation for any additional defence spending which it had to incur as a result of a separation that it did not seek … If Scotland were to insist on these units [submarines and military aircraft still part of the rest of the UK's armed forces] being relocated to the rest of the UK, the rest of the UK could argue that the costs of such a move should be funded by Scotland …

    "By contrast, if most Royal Navy and RAF units based in Scotland were to remain there under the rest of the UK control, the rest of the UK could not reasonably claim compensation. Were their bases now to become the property of the Scottish Government, the latter might feel entitled to charge an economic rent for the property being used. Alternatively, the two parties might prefer to keep these facilities (including the infrastructure at Faslane and Coulport that supports the UK nuclear force) under the rest of the UK ownership. Were this to be the arrangement, Scotland's compensation might instead be subsumed within the wider calculus of how UK assets and liabilities are divided."[172]

150.  Professor Chalmers also provided an illustrative table:


Possible outcome of Separation on Defence Budgets and Assets
(based on 2011/12 levels)
2011/12 Actual UK Notional Scotland Notional the rest of the UK
Defence Spending: Population share £38 billion£3.2 billion £34.8 billion
Defence Spending: Estimated Defence Requirements[173] £38 billion£2 billion £38 billion
Defence Assets: Population Share[174] £107 billion £8.9 billion£98.1 billion
Defence Assets: Estimated Defence Requirements[175] £107 billion £5.3 billion£101.7 billion

Source: Professor Chalmers written evidence

  1. There is not enough information about the defence policy of an independent Scotland to enable Scottish voters to make an informed judgment in next year's referendum. We recommend that the Scottish Government should make a sustained effort to clarify the issues before the vote, giving an indication of its expected defence budget, military establishment, scale of procurement and impact on Scotland's workforce skills base, as well as indicating the terms of Scotland's application to join NATO. This would help Scottish voters assess the employment and economic as well the security implications of an independent defence policy.

145   Q 447 Back

146   Q 632 Back

147   Hansard, 4 July 2012, cols. 680W-681W Back

148   Scottish Affairs Committee: The Referendum on Separation for Scotland: Session 2012-13, oral and written evidence (HC Paper 139-I), Q 326 Back

149   Letter of 22 November 2012 to Lord Tugendhat from Rt Hon Philip Hammond MP  Back

150   The Referendum on Separation for Scotland: Terminating Trident - Days or Decades?: Government Response, published 9 January 2013 (HC Paper 861) Back

151   Q 844 Back

152   Q 728 Back

153   Q 734 Back

154   Q 754 Back

155   Q 857 Back

156   Q 861 Back

157   Q 435 Back

158   Q 914 Back

159   Q 850 Back

160   Calculated from data in ONS, JOBS05: Workforce jobs by region and industry, 12 December 2012 Back

161   Q 852 Back

162   Q 713/Q 718 Back

163   Q 879 Back

164   Q 743 Back

165   Q 880 Back

166   Q 855 Back

167   Q 879 Back

168   Q 738 Back

169   Q 446 Back

170   Q 632 Back

171   Malcolm Chalmers, RUSI  Back

172   Malcolm Chalmers, RUSI  Back

173   This assumes that the rest of the UK seeks to maintain the current UK level of defence spending, and that Scotland spends around the same proportion of GDP on defence as Denmark and Norway. Under this scenario, the total amount spent on defence in the two states therefore exceeds the amount that would have been spent if the UK had remained as a single state. Back

174   Assets as of 31 March 2011. UK Ministry of Defence Annual Report and Accounts 2010-11, July 2011, p. 105 Back

175   Assets divided in proportion to post-separation defence budgets Back

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