Scotland’s Choices: update, 18 September 2013: one year to go Since the publication of Scotland’s Choices on 18 March 2013, the details of the referendum have been settled and the campaigns have got under way. Both the UK government and the devolved Scottish government have been heavily involved. The referendum itself (Chapter 1) The legislative and other arrangements for the referendum are now virtually complete. The necessary legislation is finishing its passage in the Scottish Parliament, which, as we recorded in Scotland’s Choices, was given the legislative power to do so by a Westminster Order under the Scotland Act 1998. After some to-ing and fro-ing about the wording, the question which has been agreed is a short and simple one: Should Scotland be an independent country? Legislation at Holyrood also determined who will be able to vote. The franchise will be based on the Scottish Parliament and local government election franchise, which comprises all residents on the electoral register, including citizens of other EU countries living in Scotland. The most significant change is that the Scottish government is extending the franchise to include young people over the age of sixteen (as opposed to eighteen at present). One item of controversy has been whether prisoners can vote. Convicted prisoners cannot vote in UK general elections, although this has been declared inconsistent with the European Convention on Human Rights by the Strasbourg Court. (The UK government, like its predecessor, has yet to deal with this.) However, this does not apply in relation to referendums and the Scottish government takes the firm view that prisoners should be forbidden from taking part in the referendum. This may be challenged in court, but the challenge seems unlikely to succeed. The referendum is being regulated by the Electoral Commission. They have already made recommendations on both the question wording and on spending limits for the campaigns and political parties (Electoral Commission 2013). On the question of wording, they tested out the formulation proposed by the Scottish government and suggested an amendment, which was accepted, resulting in the agreed question. They also set out spending limits, which will apply during the regulated period of the referendum (under the legislation this will be sixteen weeks before the vote). Each campaign can spend £1.5 million. The Scottish National Party can spend £1.3 million, and the Green Party £150,000. The three pro- union parties can spend about £1.4 million among them. The Commission also designated two umbrella campaign organisations: ‘Yes Scotland’ and ‘Better Together’. As we discussed in the book, the regulated period will be relatively short for a campaign which is effectively two years long, but the campaigns are making declarations of their donations voluntarily before then. All this means that the way is clear for a legally watertight and properly regulated referendum. 1 Independence (Chapter 2) Both sides have, as you would expect, focused principally on the case for and against independence. Much of the argument has been between the two governments, more than between the two campaigns. SNP ministers have been making the case in speeches and publications though they have not yet produced the White Paper on independence which will be the core of their case. It is now expected in the next couple of months. UK government ministers have similar been arguing for the union, and have produced several in a series of heavyweight ‘Scotland Analysis’ papers. More are expected. The constitutional argument A striking feature of the SNP campaign this summer has been the emphasis on interdependence rather than just independence. Indeed the First Minister has gone out of his way to talk about the ‘unions’ which independence will involve (see for example Johnson 2013). These include a continued shared monarchy, a shared currency and hence an economic union, a defence union (essentially continued membership of NATO) and a social union, whose terms are not well defined. We discuss the challenges to this approach in the book: essentially that the Scottish government is unable to commit others, notably the government of the rest of the UK, to these ‘unions’ on the terms the SNP describe. The Secretary of State for Scotland, for the UK government, dismissed this approach as simply politically motivated (see for example Carrell 2013). The government’s constitutional position was set out in the first of its Scotland Analysis papers, on devolution and the implications of Scottish independence (HM Government 2013e). It included a legal opinion to the effect that after Scottish independence, the UK would be the continuing state and Scotland would be a new one. This broadly accords with the analysis in Chapter 2 of Scotland’s Choices. Legal opinions, or their absence, featured heavily in the debate on Scotland’s potential position in the European Union. The Scottish government turned out not to have (as they had implied) legal advice that Scotland would remain an EU member state automatically. It seems likely that the White Paper will accept the view expressed by both the UK government and the President of the European Commission: that Scotland, as a new member state, would have to negotiate membership and its terms and conditions. The Scottish government would seek to complete these negotiations before independence, with the assistance of the UK government. The possibility however of a UK referendum on the EU membership became more salient as Conservative MPs pressed their party leader to provide for one, in a substantial rebellion over the contents of the Queen’s Speech. Although there does not appear to be a majority in the Westminster Parliament for such a referendum at present (Liberal Democrats are firmly opposed, and the Labour Party does not think the time right) an EU referendum in 2017 remains a distinct possibility. Some commentators have even suggested that this might be a reason for postponing the Scottish referendum, but this seems unlikely. However, the possibility does add a further uncertainty to the choice facing voters. 2 The economic arguments Much of the debate has been on the economic consequences of independence. The Scottish government argues that independence would make Scotland both richer and fairer (see for example Scottish Government 2013a). Their position is that an independent Scotland would become the eight richest country in the OECD (because the economic activity in the North Sea would be added to Scotland’s GDP; as we note in Chapter 2, this is just an arithmetical fact – no one would as a result be a penny better off than today). They argue that Scotland is already well off but is held back by membership of an over-centralised UK, and have proposed to promote economic growth under independence by having a corporation tax rate 3% lower that the UK. Scottish government modelling suggests that a 3% cut in corporation tax could increase the level of output by 1.4%, boost overall employment in Scotland by up to 27,000 jobs and raise overall investment in the Scottish economy by 1.9% after twenty years. The Scottish government has argued strongly that Scotland enjoys a stronger fiscal position (a ‘relative surplus’). Because of North Sea oil revenues Scotland has higher per capita tax income than the UK and this more than offsets the cost of higher public spending. This makes independence readily achievable, and independence would promote growth and increase tax income. Opponents seized on a leaked Cabinet paper by John Swinney which appeared to be planning for much less optimistic public finances than the public position (Jones 2013). What currency an independent Scotland should use has been controversial. Scottish ministers accepted the advice of a group drawn from their panel of economic advisers, which contains some very distinguished economists. They said that maintaining a sterling currency union would be right for an independent Scotland; and that the Bank of England should serve both countries, with governance arrangements including joint control over monetary policy and a fiscal pact between the countries, so that the currency would not be undermined by excessive public borrowing (Scottish Government 2013b and 2013c). In their view such an arrangement would be in the interests of both the UK and Scotland. The UK government takes a different view. The second of the papers in the Scotland Analysis series (HM Government 2013a) deals with the currency options for an independent Scotland. The options are essentially the same as in our Chapter 2: a sterling currency union, the unilateral use of sterling, a Euro currency union, or an independent Scottish currency. The paper argues that for an independent small country, there is a trade-off between being able to exercise monetary levers and having a stable exchange rate so as to reduce transaction costs for trade. It draws attention to the swift collapse of Czech–Slovak monetary union in the early 1990s (see Scotland’s Choices, Chapter 2). Monetary union, it suggests, works in the UK because there is a fiscal union and a political union to support and oversee it. The Chancellor of the Exchequer strongly hinted that continued monetary union after independence would not be in the UK’s interests for these reasons. Independent observers have been sceptical of the Scottish government’s plans. Professor Ronald McDonald, for example, described it as not a ‘credible option’ (McDonald 2013). In a paper for the David Hume Institute, Prof Brian Quinn argued that the complex 3 governance arrangements proposed for monetary stability would not enable a swift response to be made to any financial crisis (Quinn 2013). Perhaps in response, the First Minister choose to restate his commitment to a formal monetary union on a visit to the Isle of Man, perhaps thus hinting that the option followed there, which is a form of unilateral use of sterling (‘sterlingisation’) would be an alternative.