Economics of Scottish independence put under expert gaze

The economics of the independence referendum are put under the spotlight by a new book published today by the Scottish Economic Society and co-edited by University of Stirling economists.

The book features contributions from a range of economists and covers a wide spectrum of economic issues that are central to the debate.

Co-Editor David Bell, Professor of Economics at the University of Stirling, said: “The referendum debate has been supported by a wide range of economic research that has often not been accessible to non-specialists. With this book, we seek to fill this gap.”

Featuring contributions on currency choice, division of debt, energy, business attitudes, immigration and tax and spend policies, the new book provides a balanced overview of the economic debate.

“This book makes a valuable contribution to the independence debate for those with an interest in the finer detail of the economic arguments,” said Anne Gasteen, President of the Scottish Economic Society.

The publication of the e-book has been supported by funding from the Economic and Social Research Council as part of its Future of the UK and Scotland activities to inform the referendum debate.

Klaus Beckmann, Past-President of the Scottish Economic Society said: “There is widespread interest in the economics of Scottish independence across Europe. This book will provide this wider audience with an understanding of the key issues.”

Key excerpts from the book

• The Economic Consequences of Scottish Independence features several chapters dealing with the merits of the various currency options facing Scotland. Contributors argue the case both for and against a currency union.  For example:

“The crucial arguments about a negotiated currency union are these: that it would be in rUK’s interest only if there were severe constraints on Scottish fiscal policy, and only if adequate arrangements were put in place to safeguard financial stability; but if these constraints and arrangements were accepted it is not clear whether Scotland would still be really independent.”   Professor David Cobham, Professor of Economics at Heriot-Watt University.

“Facing a tight general election in 2015, it is hard to believe the UK government would choose to deny a currency union when the consequences would make their own supporters worse off, but Scotland better off.”  Professor Andrew Hughes-Hallett, Professor of Economics at the University of St Andrews.

• The currency question depends in part on the level of debt that an independent Scotland would take on. Here too, contributors explain the rationale for a number of different methodologies for splitting the UK’s debt. Professor Angus Armstrong and Monique Ebell from the National Institute for Economic and Social Research explain options around the definition of debt, how it could be split, and how it might be transferred to an independent Scotland.

• The Economic Consequences of Scottish Independence considers the implications of the latest academic research on ‘border effects’ for the Scottish independence debate.  Dr David Comerford at the University of Stirling argues that free-trade agreements have reduced the advantages of large country size over time, and that independence would shift Scotland’s trade patterns over the longer term: trade with the rest of the UK is likely to fall, but businesses who trade internationally may see opportunities.

• Dr Nicola McEwan at the University of Edinburgh evaluates the prospects of market integration and energy partnership after independence. She concludes that, even if an energy partnership were formed,

‘It is not clear how a Scottish government would be able to exert sufficient influence in overseeing the electricity market to enable it to address the perceived failings of the current system”.

• The Economic Consequences of Scottish Independence also confronts the constitutional choices and options that might be available to Scotland should there be a ‘no’ vote at the referendum:

“Some of the fiscal devolution proposals, if fully implemented, would result  in Scotland becoming  one of the most fiscally autonomous regional governments among developed countries (with the exceptions of Quebec in Canada and Basque or Navarre in Spain).”  David Bell and David Eiser, University of Stirling

• Recent releases from the Scottish and UK Government have provided widely different estimates of the fiscal outlook facing Scotland in the short-run. The Economic Consequences of Scottish Independence contains an explanatory analysis of this debate, and considers which assumptions are responsible for driving the large differences between the two governments’ estimates:

“The difference  between  the  UK  and  Scottish  Government  central  forecasts  for  North Sea  revenues  alone  accounts  for  a  difference  in  deficit  of  up  to  £700  per person,  while  differences  in  assumptions  about  debt  levels  and  borrowing rates also have substantial effects.”  David Eiser and Mike McGoldrick, University of Stirling

• Pensions form a key part of the contingent debt facing an independent Scotland, and The Economic Consequences of Scottish Independence considers the implications of this for Scotland’s fiscal position:

“The main long-run pension challenge is their affordability as the population ages. This is a challenge regardless of the constitutional position, although it is slightly more acute in Scotland than in the rest of the UK.”  Professor David Bell, and David Eiser, University of Stirling

• The Economic Consequences of Scottish Independence also includes chapters on energy markets, migration, business attitudes, inequality, and lessons from independence debates elsewhere.