Opportunity or a Trap? The Economic Impact of Scottish Independence

The contention between Scotland and England is a historical issue and there have been calls for Scottish Independence for hundreds of years. In the past these views have been dismissed, but under Scottish Prime Minister Alex Salmond, Independence has taken a new seat in the headlines. While there are surely deep national and politic issues surrounding this topic, what would succession mean economically?

Independence for Scotland would offer a buffet of options that were not available say 60, or even 20 years ago. Unexhausted rich oil reserves along the Scottish coast are a hot topic when talking about potential Scottish wealth. Independence would allow the Scottish government to influence tax policy more effectively in Scottish interests. The ratio of working aged people to the retired is significantly smaller in Scotland than compared to the rest of the United Kingdom. Succession would also allow Scotland to control negotiations with the EU and pursue membership.  Going forward Scotland could choose to remain on the Pound, join the Euro, or create an entirely new currency. The options are interconnected and many.

However, there are drawbacks to all of these options. Oil is a volatile market and has been criticized as a factor of economic instability. Current Scottish policy has received criticism from the National Institute of Economic and Social Research for being unreliable as well.

“Scotland’s immediate fiscal position would be in a worse state than the rest of the UK, partly because government spending per person is significantly higher in Scotland, mainly because of higher spending on public services rather than benefits… The authors suggest that the only way to avoid a net loss of funding on independence would be if tax revenues on North Sea oil came in well above current expectations, probably as a result of above inflation rises in oil prices.”[1]

Dozens of organizations are weighing in, from politicians to special interest groups, and there is plenty of evidence for either side of the issue. There is even evidence, as stated in this article, that lack of independence will cause Scottish farmers to miss out on over a billion euros development funding. The economic debate remains a fiery one as the public vote for Scottish independence approaches.