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Scottish independence referendum: why the economic issues are quite different to 2014

Nicola Sturgeon in Holyrood with a glass of water
Let battle commence … Jane Barlow/PA

Independence has returned to the top of the agenda in Scotland after First Minister Nicola Sturgeon signalled that her Scottish National Party (SNP) will hold a consultative second referendum after the May election if there is a pro-indepedence majority in the Scottish parliament – regardless of whether Westminster gives its approval.

This shift towards threatening unilateral action has coincided with the 20th opinion poll in a row showing a majority in favour of Scotland leaving the union. The polls are also suggesting that the election will produce another pro-independence majority in Holyrood, or even an outright SNP majority.

If a second referendum takes place, economics will probably be at the forefront of the debate. This happened in the 2014 campaign, when voters became remarkably clued up on everything from the future of the currency to the finer points of imports and exports. But six years on, how have the economic arguments changed, and what will the key battlegrounds be?

Brexit and the new status quo

Many of the arguments will be familiar from last time. Independence supporters will argue that Scotland has comparable strengths to other small countries. Many will no doubt contrast their vision of a socially progressive independent Scotland within the EU, with a less favourable future in post-Brexit Britain.

Unionists will emphasise the risks and the costs of putting up barriers with the UK economy. They will argue that Holyrood already has substantial powers over key economic policy areas within skills and education, economic development and, since 2016, tax.

But in other ways, the debate has changed markedly. Back then, the choice was between independence and a relatively stable status quo – albeit with a pledge of “more powers” that was made in the days before the vote.

But Brexit makes the future much less certain for the UK and Scotland. Scotland’s economy will be worse off. “No” voters in 2014 who feared that Scotland might find itself outside the EU – even temporarily – might view the economic risks and opportunities very differently this time.

But leaving the EU has also highlighted the practical challenges of economic change. It has given us all a greater understanding of the complexities of unwinding shared economic institutions, the difficulties in negotiating new partnerships, and the costs of breaking apart trade and supply chains.

With Scottish exports to the rest of the UK worth over three times as much as those to the EU, for example, navigating a smooth transition will carry costs. Voters will ask challenging questions of politicians about how any transition will be managed, and what their “plan B” might be should things go awry.

Scotland’s pros and cons

Scotland has a successful economy, with strengths such as energy, financial services and tourism. It has a world-class university sector, is rich in natural resources, and can count on trusted institutions.

It has challenges as well, including longstanding inequalities, an ageing population and a business base that is often less dynamic than its competitors. Public spending is higher compared to the UK – by around 17% in the latest figures. This reflects greater needs in areas such as social security, and higher costs of delivering services, but also historical political choices on UK regional funding. This would have to be paid for under independence.

The overarching economic climate is undoubtedly more challenging than in 2014. For example, oil revenues were a key part of the economic case for independence last time around. In Scotland’s Future – the Scottish government’s 2013 independence white paper – annual oil revenues were forecast to be between £7 billion and £8 billion by 2016/17. Revenues ended up at virtually zero that year, and are forecast to remain no more than £1 billion for the foreseeable future.

Leaders of Yes side launching Scotland's Future white paper in 2014.
How they rolled it out last time. Danny Lawson/PA

Then there is COVID-19. Scotland’s economy has been badly hit, with a huge rebuilding task ahead. The SNP argues that independence is needed to help with that recovery. But launching a debate on Scotland’s future, let alone transitioning to independence, after the biggest economic shock in living memory will not be easy.

The economic model for independence

The economic model put forward by the independence campaign in 2014 was one of continuity. It proposed to retain sterling, keep the Bank of England, align financial regulation and have an open border with the UK underpinned by the EU single market.

But if a key argument for independence is that Scotland now needs to diverge from post-Brexit Britain, economic alignment with the UK is no longer applicable. The SNP’s 2018 Growth Commission outlined its refreshed model for independence. Yet many in the independence movement have called for a more radical approach, including a new currency.

Herein lies a trade-off. The weaker the alignment with the UK economic model, the greater the opportunity to “do things differently”, but the greater the short-term risk and upheaval.

One major unknown will be how the unionist parties respond to this set of circumstances. Will they concentrate on the risks of independence or will they offer a positive economic case for the union? How too will they respond to the criticism that the UK economy isn’t working for Scotland?

Keir Starmer with a mask on
How will Keir play it? Leon Neal/PA

Just before Christmas, Labour leader Keir Starmer promised to launch a “new phase of radical economic and political devolution” in the UK. But we’ve heard similar things before and it remains unclear what detail lies behind this ambition.

There is therefore much work to be done, by all sides, in setting out the economic case for and against independence – particularly when held up against the big debates on the future of our economy, from rebuilding after COVID, through to tackling inequalities and supporting the transition to net zero.

One certainty is that voters are all too aware of how quickly promises made – by all sides – during a referendum can evaporate when the campaign ends. Scotland has an engaged electorate who will demand facts and evidence, just as much as political persuasion.

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