Chapter 7: Summary of Conclusions and
recommendations
Chapter 1
152. Voters in Scotland deserve the best evidence-based
assessment of the likely economic consequences of independence.
We have sought to collect and assess that evidence as part of
our analysis of the economic implications for the whole United
Kingdom. (Paragraph 5)
153. This report does not make a case either
for or against independence. We hope to inform the debate both
in Scotland and in the rest of the UK in the run-up to the referendum.
(Paragraph 6)
154. The economic implications of Scottish independence
for Scotland and for the rest of the United Kingdom are not symmetrical.
Broadly Scotland's GDP is around one-tenth of that of the rest
of the UK. The impact on the rest of the UK might still be important
in certain circumstances: for example if significant financial
institutions based in Scotland and active in the rest of the UK
were to fail, that might hit the rest of the UK as well as Scotland.
There would be economic as well as strategic implications for
the rest of the UK in defence. The main economic effects of independence
would be felt in Scotland. An early, transitional problem would
be assuming its share, perhaps £93bn, of the UK's public
sector debt. The impact on defence strategy of Scottish independence
could have significant economic implications for the rest of the
UK; so also could the adoption of sterling as the currency of
an independent Scotland in monetary union with the rest of the
UK, as proposed by the Scottish Government. (Paragraph 9)
155. Scotland needs and deserves a fully-informed
debate, based on fact and free from rancour, well before the referendum
vote. To help bring it about the Scottish and British Governments
should be more open about how they see the outcome of negotiations
after a "Yes" vote; each should indicate the "red
lines" of its negotiating stance on such crucial issues as
currency, defence, division of assets and debts and negotiations
with the EU before the referendum so that voters can make
an informed choice. (Paragraph 12)
156. We aim in this report to set out the economic
facts and the arguments to help the people of Scotland make their
once-in-a-generation decision. (Paragraph 16)
Chapter 2
157. The UK's single market brings economic benefits
to Scotland and the rest of the UK. If it fragmented after Scottish
independence, Scotland's smaller economy would be disproportionately
affected. (Paragraph 21)
158. A single market is not simply a matter of
free trade and investment. Its cohesion can also be weakened by
divergences over currencies, regulation and taxation. The severity
of the threat to the UK single market would depend to a large
extent on the decisions of the Governments of an independent Scotland
and of the rest of the UK. (Paragraph 25)
159. A post-independence Scottish Government
and its counterpart in the rest of the UK should try to preserve,
as far as possible, the single UK market, which brings economic
benefits to both. (Paragraph 29)
160. Any reduction in intra-British trade and
investment following erosion of the single market would be felt
in the rest of the UK as well as in Scotland. Given the disparity
in size between the Scottish economy and the rest of the UK economy,
the effect on the rest of the UK as a whole would be much smaller
than that on Scotland. (Paragraph 33)
161. As a starting point, the division of UK
physical assets should be on a geographical basis. Financial assets
and liabilities should be divided by share of population. (Paragraph
36)
162. North Sea oil decommissioning costs will
be very substantial. The oil companies will want to offset them
against future tax due, which would reduce an independent Scottish
Government's revenues. How these matters are resolved will have
an important bearing on the value to Scotland's economy of oil.
(Paragraph 41)
163. It remains the case that the Scottish economy
would be likely to gain from North Sea Oil revenues. The scale
of that gain is much more uncertain as is how long it will last.
So is its value to the underlying health of the rest of the Scottish
economy, especially given the very real possibility of volatility
in output and revenues. Oil alone will not ensure that an independent
Scotland is a prosperous Scotland. (Paragraph 43)
164. After a "Yes" vote in the referendum,
the Scottish Government would need to make timely arrangements
to levy its own taxes on independence. Even if an independent
Scotland's oil revenues broadly made up for the loss of the Barnett
formula's effect on the block grant, they would be a less predictable
source of revenue than transfers from the British Treasury. (Paragraph
44)
165. Negotiations on division of assets are likely
to be intricate and lengthy, leading to uncertainty until successor
systems and institutions prove themselves in Scotland and the
rest of the UK. (Paragraph 45)
166. Added together, an independent Scotland's
share of the UK's public sector debt and its share of the UK's
known future liabilities, based on relative size of population,
would be around 123% of GDP. (Paragraph 46)
An independent Scotland would need to service its
own sovereign debt and to manage its spending, borrowing and taxation
in such a way as to win and retain the confidence of global lenders
that its debt burden is manageable. (Paragraph 46)
167. It is for the Scottish Government to explain
to voters well ahead of the referendum how it intends to take
over its share of the UK's public sector debt. (Paragraph 47)
168. There can be no definitive answer to the
question of whether an independent Scotland would be more prosperous,
less prosperous or as prosperous as Scotland is now. Our report
identifies clear threats to Scotland's prosperity under independence;
while the upside is uncertain. (Paragraph 53)
Chapter 3
169. The choice of currency is perhaps the most
important economic decision an independent Scottish Government
would face. What may seem like a dry and technical issue is, as
Professor Gavin McCrone reminded us, "of the greatest
importance for those of us living in Scotland". (Paragraph
54)
170. The position of both the UK and Scottish
Governments on how an independent Scotland could retain sterling
as its currency and what it would entail needs to be made clear.
Both Governments have a duty to inform Scottish voters ahead of
the referendum. (Paragraph 58)
171. Effective governance of monetary policy
requires the Monetary Policy Committee (MPC) of the Bank of England
to continue to consist of experts. It would be unacceptable for
the MPC to have members representing the interests of a separate
country. (Paragraph 62)
172. For the Bank of England to provide central
bank services to substantial financial institutions operating
in an independent Scotland and regulated by a body reporting to
an independent Scottish Government implies that the Bank would
accept risks over which it had little control, which seems implausible.
(Paragraph 67)
173. The Fiscal Commission's unprecedented proposal
for the Bank of England to be overseen by both the rest of the
UK and Scottish Governments would lead to significant governance
and accountability problems. We do not see why the UK Government
would agree to this proposal. (Paragraph 69)
174. A separate Scottish financial regulator
may be a requirement for an independent Scotland to join the EU
but it would be likely to add to compliance costs and complexity
for Scottish financial institutions with large cross-border businesses.
(Paragraph 71)
175. It is difficult to see how the UK Government
could extend central banking services to an independent Scotland
since the UK Government would lack control over the tax and spending
policies of an independent Scotland. (Paragraph 75)
176. Continued use of sterling by an independent
Scotland in monetary union with the rest of the UK is the stated
preference of the Scottish Government. But it would raise complex
problems of cross-border monetary policy, multiple financial regulators
and taxpayer exposure and could only come about, if at all, on
terms agreed by the UK Government. Arrangements should be clear
before the referendum. But the proposal for the Scottish Government
to exert some influence over the Bank of England, let alone the
rest of the UK exchequer, is devoid of precedent and entirely
fanciful. (Paragraph 77)
Chapter 4
177. An independent Scotland would benefit substantially
from tax revenues from a geographical share of North Sea oil and
gas reserves. But as the revenue from North Sea oil and gas would
be a much larger proportion of total tax revenue in an independent
Scotland than in the UK, its volatility would make it more difficult
to conduct economic policy. (Paragraph 85)
178. We recommend that existing UK public sector
debt should be apportioned between an independent Scotland and
the rest of the UK by share of population. We also recommend that
the UK's known future liabilities, such as public sector pensions
and private finance initiatives, should be apportioned on the
same population basis unless they can be clearly identified as
applying to a particular nation only. (Paragraph 89)
179. Transferring to an independent Scotland
its agreed share of UK liabilities would be fraught with difficulties.
Creditors might not agree to a straight transfer of public debt
from the UK to an independent Scotland on otherwise identical
terms. The Scottish Government should explain to voters before
the referendum how it would in practice take over its agreed share
of UK public sector debt and future liabilities on independence.
(Paragraph 91)
180. Lack of data on the tax base in Scotland
impedes full understanding of the economics of independence. Although
there can be no certainty we recommend that the Scottish Government
and HMRC work together to make the best possible estimate of the
tax base in Scotland. (Paragraph 95)
181. A monetary union as advocated by the Scottish
Government would require robust and credible limits on borrowing
and indebtedness by both member states. So far the Eurozone has
found this problem intractable. The Scottish and UK Governments
would need to reach agreement on detailed and credible fiscal
restraints, including sanctions for breaches, before the referendum
if Scottish voters are to make an informed choice. We believe
that it would be difficult for any such agreements to be made
binding in all circumstances. (Paragraph 104)
182. Dismantling the current fiscal union would
result in a loss of risk-sharing mechanisms between an independent
Scotland and the rest of the UK. This would be an adverse consequence
for the citizens of both states, but particularly for people in
Scotland given the relative size of the two countries. (Paragraph
106)
183. With no track record of issuing debt securities,
the difficult mechanics of taking on a share of the UK's public
sector debt, volatile tax revenue and the loss of risk-sharing
with the rest of the UK, an independent Scotland would face considerable
fiscal challenges. (Paragraph 107)
Chapter 5
184. The Scottish Government's commitment to
EU membership for an independent Scotland recognises the economic
importance of the single market and the need of Scottish business
to remain part of it. But it is not clear how Scotland would make
the transition from its current inclusion in an EU member state
to EU membership as a state in its own right, since there is no
precedent in EU history. (Paragraph 111)
185. Taking as authoritative the view on process
of the President of the European Commission, the European Treaties
would cease to apply to Scotland on independence. Scotland would
need to apply for membership of the European Union in its own
right and the outcome of negotiations on Scotland's admission
would need to be ratified by each EU member state. (Paragraph 114)
186. Negotiations after a "Yes" vote
for independent Scottish membership of the EU would most likely
be protracted and complex; Scotland, the rest of the UK and the
EU itself would have to navigate through EU procedures as well
as settle many intricate points of substance then win acceptance
of the outcome by all other EU member states. (Paragraph 117)
187. Separate Scottish representation in international
bodies might be seen as reducing the standing of the rest of the
UK, with possible adverse consequences for its voting strength
or shareholding in some international bodies. (Paragraph 118)
188. An independent Scotland would need to have
a double taxation agreement with the rest of the UK and to negotiate
tax treaties and similar agreements with a range of countries.
(Paragraph 121)
Chapter 6
189. 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. (Paragraph 122)
190. 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. (Paragraph 123)
191. 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. (Paragraph 130)
192. 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.
(Paragraph 132)
193. 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. (Paragraph 133)
194. 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. (Paragraph 137)
195. 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. (Paragraph 138)
196. 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. (Paragraph 139)
197. 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. (Paragraph 144)
198. 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. (Paragraph
151)
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