Scot|and's dec|s|on

Should ScoLland be an lndependenL counLry? Chooslng an answer Lo LhaL quesLlon,

as ScoLland's elecLors wlll on 18 SepLember 2014, ls a cholce of huge slgnlflcance. So
how wlll we come Lo a declslon?
Many voLers know more or less by lnsLlncL. lenLy of us are convlnced LhaL belng
lndependenL ls rlghL and good for our counLry and noL belng lndependenL ls wrong.
lenLy of oLhers belleve Lhe opposlLe: LhaL whaL ls rlghL and good ls sLaylng as parL of
Lhe uk. 8uL Lhere are more sLlll - probably Lhe blggesL slngle group - who don'L have
such convlcLlon elLher way and are puzzllng Lhelr way Lhrough whaL voLlng ?es or no
mlghL mean for Lhem and Lhelr famllles.
1hls book ls for Lhem. We have Laken slxLeen quesLlons, whlch seem Lo us Lo be
cenLral Lo Lhe referendum debaLe, and asked lmparLlal experLs Lo look aL Lhem. We
do noL alm Lo provlde deflnlLlve answers - and we cerLalnly do noL lnLend Lo Lell
anyone how Lo voLe - buL raLher Lo enable readers Lo beLLer [udge Lhe clalms LhaL
are made by elLher slde.





Scot|and's Dec|s|on

16 uest|ons to th|nk about for the referendum
on 18 September


Ld|ted by Char||e Ieffery & kay erman
Ioreword by S|r 1om nunter






























1hls e8ook edlLlon publlshed ln 2014 by
8lrllnn LlmlLed
WesL newlngLon Pouse
newlngLon 8oad
Ldlnburgh
LP9 1CS
www.bltlloo.co.ok

loreword CopyrlghL Slr 1om PunLer 2014
lnLroducLlon CopyrlghL Charlle !effery and 8ay erman 2014
CopyrlghL of lndlvldual chapLers ls held by Lhe named auLhors 2014.

1he moral rlghL of Charlle !effery and 8ay erman Lo be ldenLlfled as Lhe edlLors of
Lhls work has been asserLed by Lhem ln accordance wlLh Lhe CopyrlghL, ueslgns and
aLenLs AcL 1988

All rlghLs reserved. no parL of Lhls publlcaLlon may be reproduced, sLored or
LransmlLLed ln any form wlLhouL Lhe express wrlLLen permlsslon of Lhe publlsher.

e8ook lS8n 978-1-870482-99-8

8rlLlsh Llbrary CaLalogulng-ln-ubllcaLlon uaLa
A caLalogue record for Lhls book ls avallable from Lhe 8rlLlsh Llbrary






Acknow|edgements

We are graLeful Lo Lhe PunLer loundaLlon for Lhe flnanclal supporL whlch has made
publlcaLlon of Lhls book posslble and for Lhe encouragemenL and help of Slr 1om
PunLer and Lwan PunLer.
8esearch by Lhe auLhors has been funded by Lhe Lconomlc & Soclal 8esearch
Councll as parL of Lhe luLure of Lhe uk and ScoLland rogramme, buL any vlews
expressed are Lhelr own. CLher cosLs have been meL by Lhe uavld Pume lnsLlLuLe, an
lndependenL charlLy whlch promoLes lnformed debaLe on publlc pollcy.
Cover and graphlcs by Coree 8rown.

Contents

loreword: Cur blggesL declslon 1
lnLroducLlon: An lmparLlal assessmenL of Lhe evldence 2
AbouL Lhe AuLhors 4
1he road Lo Lhe referendum: lnfographlc 3
1he CuesLlons

1he economy
1. WhaL would Lhe ouLlook for ScoLland's economy be
lf Lhe voLe ls ?es/lf Lhe voLe ls no? 9
2. Whlch currency arrangemenL would an lndependenL ScoLland use? 14
3. WhaL would Lhe plcLure for Lhe ScoLLlsh CovernmenL's flnances
be lf ScoLland voLes ?es? WhaL lf ScoLland voLes no? 18

If the vote |s es.
4. Pow long wlll Lhe lndependence negoLlaLlons Lake
and whaL wlll Lhe maln challenges be? 23
3. Pow wlll asseLs and llablllLles be dlvlded? 27
6. Pow long would lL Lake Lo seL up a new ScoLLlsh sLaLe
and how much would lL cosL? 31

If the vote |s No.
7. Would we geL more powers? WhaL dlfference would Lhey make? 37

Internat|ona|
8. WhaL klnd of lnLernaLlonal role and lnfluence would
an lndependenL ScoLland have? 42
9. Would an lndependenL ScoLland be ln Lhe Luropean unlon? 46
10. Pow would an lndependenL ScoLland defend lLself? 30

What sort of Scot|and?
11. 1he consLlLuLlon of an lndependenL ScoLland: WhaL would lL conLaln?
Pow would lL be made? 33
12. Pow dlfferenL would or could ScoLLlsh soclal and welfare
pollcy be from Lhe pollcy of Lhe uk ln Lhe evenL of elLher a ?es or a no voLe? 60
13. uoes ScoLland need a separaLe lmmlgraLlon pollcy?
And lf Lhe voLe ls ?es could we have one? 64
14. WhaL would happen Lo penslons ln Lhe evenL of a ?es or a no voLe? 68

8us|ness & compet|t|on
13. Would a ?es voLe be good for buslness? Would a no voLe? 74
16. WhaL would lndependence mean for energy markeLs? 79

Iurther |nformat|on 84


"
Ioreword

Slr 1om PunLer, phllanLhroplsL and enLrepreneur



ScoLland's blggesL declslon ln over 300 years for us, our chlldren and our chlldren's,
chlldren ls almosL upon us, LhaL declslon wlll be lrreverslble. Llke many voLers, l am
genulnely undeclded. l wanL Lo make Lhe besL cholce l can for myself, my famlly and
for ScoLland, buL l don'L feel LhaL Lhe campalgns so far have glven me Lhe facLs and
unblased assessmenL Lo make a properly lnformed declslon. l know l am noL alone ln
Lhlnklng Lhls way.
A recenL poll commlssloned by Lhe PunLer loundaLlon and publlshed ln early !uly
showed 36 of undeclded voLers slmply don'L feel Lhey have enough lmparLlal
lnformaLlon Lo make a declslon. And 43 of all voLers clalm Lhey don'L LrusL elLher
Lhe uk or Lhe ScoLLlsh CovernmenL's predlcLlons. 1hls ls deeply worrylng and also a
sad lndlcLmenL on Lhe debaLe Lo daLe. 1hls serles of papers we hope wlll brlng some
llghL upon Lhe crlLlcal lssues voLers may wlsh Lo conslder ln maklng up Lhelr mlnds
when Lhey puL a cross on Lhe balloL paper on SepLember 18.
1he academlcs who have researched Lhese Loplcs hold no slde ln Lhe debaLe, have
provlded an lmparLlal accounL of whaL ls on offer from Lhe ?es and no camps and
Lhelr own non-parLlsan assessmenL. Wlll Lhese help us make up our mlnds? We hope
so, buL whaL Lhey won'L do ls Lry Lo persuade us of elLher argumenL. As elecLors we
alone have LhaL responslblllLy and only we can declde how we wlll voLe.
As Lhe pollLlclans conLlnue wlLh argumenL and counLer argumenL lL's easy for
voLers Lo Lurn off, buL LhaL would be Lhe blggesL Lragedy of all for ScoLland.
ScoLland's fuLure ls noL ln pollLlcal hands lLs ln Lhe hands of Lhls greaL naLlon's
people. WhaLever we choose, Lhe day afLer Lhe referendum wlll be a day when we
musL unlLe around our common fuLure - buL for now we need Lo choose carefully
whaL LhaL fuLure wlll be.

Cood luck.

1om




#
Introduct|on

'A w|se person proport|ons h|s]her be||ef to the ev|dence.'
1


Charlle !effery and 8ay erman

Should ScoLland be an lndependenL counLry? Chooslng an answer Lo LhaL quesLlon,
as ScoLland's elecLors wlll on 18 SepLember 2014, ls a cholce of huge slgnlflcance. So
how wlll we come Lo a declslon?
Many voLers know more or less by lnsLlncL. lenLy are convlnced LhaL belng
lndependenL ls rlghL and good for our counLry and noL belng lndependenL ls wrong.
lenLy of oLhers belleve Lhe opposlLe: LhaL whaL ls rlghL and good ls sLaylng as parL of
Lhe uk. 8uL Lhere are more sLlll - probably Lhe blggesL slngle group - who don'L have
such convlcLlon elLher way and are puzzllng Lhelr way Lhrough whaL voLlng ?es or no
mlghL mean for Lhem and Lhelr famllles.
1hls book ls for Lhem. We have Laken slxLeen quesLlons, whlch seem Lo us Lo be
cenLral Lo Lhe referendum debaLe, and asked lmparLlal experLs Lo look aL Lhem. We
do noL alm Lo provlde deflnlLlve answers - and we cerLalnly do noL lnLend Lo Lell
anyone how Lo voLe - buL raLher Lo enable readers Lo beLLer [udge Lhe clalms LhaL
are made by elLher slde.
Cne of our alms ls Lo provlde a clear summary of whaL each slde has sald on
parLlcular quesLlons. 1he uk CovernmenL and Lhe ScoLLlsh CovernmenL have each
publlshed well over a Lhousand pages of whaL Lhey see as Lhe problems and
advanLages of Lhe sLaLus quo versus Lhose of lndependence. 1he ?es ScoLland and
8eLLer 1ogeLher (no) campalgns have also puL ouL swaLhes of lnformaLlon, largely
onllne. Many oLher organlsaLlons, allgned wlLh one slde or anoLher and plenLy more
whlch Lake nelLher slde have added Lhelr vlews. Academlcs Loo, lncludlng Lhose
wrlLlng here, have had Lhelr say.
Pow much of Lhls lnformaLlon has reached and lnfluenced ordlnary voLers ls less
clear. 1haL's parLly because few have Lhe Llme or lncllnaLlon Lo Lrawl Lhrough long
documenLs. lL's parLly because people hear conLradlcLory Lhlngs and Lend Lo LrusL
Lhe clalms of nelLher slde as a resulL.
So our oLher maln alm ls Lo explaln why Lhe clalms of Lhe Lwo sldes are
conLradlcLory. Some of Lhe conLradlcLlons are [usL sLralghLforward pollLlcs. Lach slde
wanLs Lo wln and wlll do whaL lL can Lo undermlne Lhe case of Lhe oLher slde ln order
Lo do so. lL would be unreallsLlc Lo expecL oLherwlse, buL Lhe resulL for voLers ls ofLen
confuslon and, for some, dlsllluslonmenL.
Powever, Lhere ls ofLen more Lo lL Lhan [usL a LacLlcal LlL for LaL. Lach slde vlews
Lhe quesLlon 'should ScoLland be an lndependenL counLry' Lhrough a dlfferenL lens
and so whaL Lhey each mean by ?es and no ls noL Lhe same.
1he uk CovernmenL for example undersLands lndependence for ScoLland ln much
Lhe same way as lL does Lhe uk's relaLlonshlp wlLh Lhe Luropean unlon. lL ls abouL
havlng Lhe maxlmum level of naLlonal conLrol over pollLlcal and economlc llfe LhaL ls
posslble and noL, for example, abouL sharlng a currency wlLh anoLher counLry.
1he ScoLLlsh CovernmenL has developed a dlfferenL undersLandlng of

"
$%&'()% *+,- .&/0% 12-)3 !" $"%&'() *+",-("'". /&01" 2"3-(451"3'".


4
lndependence whlch ls open Lo sbotloq conLrol of lmporLanL parLs of pollLlcal and
economlc llfe wlLh oLhers, wheLher Lhe resL of Lhe uk - for example lLs currency - or
Lhe Lu.
1o a good degree Lhese are Lhe dlfferences of approach of a blg, powerful counLry
used Lo a leadlng lnLernaLlonal role and a small, would-be counLry whlch would
pursue lLs lnLeresLs Lhrough co-operaLlon wlLh oLhers. 8lg counLrles and small
counLrles - noL [usL ln Lhe ScoLLlsh debaLe - ofLen vlew Lhelr role ln Lhe world ln
qulLe dlfferenL ways. So Lhe Lwo sldes ln Lhe ScoLLlsh debaLe ofLen end up Lalklng
pasL each oLher when apparenLly Lalklng abouL Lhe same Lhlng, wheLher lL ls
currency unlon, border conLrols, defence or many oLher maLLers.
1he conLradlcLlons ln Lhe clalms of Lhe Lwo sldes are someLlmes more Lechnlcal.
lor example, when lL comes Lo forecasLlng Lhe economlc lmpllcaLlons of
lndependence lL maLLers hugely whaL assumpLlons you sLarL wlLh. very dlfferenL
flgures are produced lf dlfferenL pro[ecLlons of oll revenues, or of labour
producLlvlLy, or lmmlgraLlon are used.
We saw Lhls when Lhe uk CovernmenL clalmed ScoLs would be 1,400 beLLer off lf
Lhey sLayed ln Lhe uk, and - on Lhe same day - Lhe ScoLLlsh CovernmenL clalmed
LhaL ScoLs would be 1,000 beLLer off wlLh lndependence. Lach used dlfferenL
sLarLlng assumpLlons favourable Lo lLs own case, so each produced dlfferenL
answers. 1here ls probably only one cerLalnLy ln all Lhls, and LhaL ls LhaL Lhe forecasLs
of boLh sldes wlll prove lnaccuraLe.
1he conLrlbuLlons ln Lhls book do Lhelr besL Lo make clear Lhe dlfferenL
assumpLlons each slde makes, wheLher abouL whaL lndependence means or abouL
how Lhe ScoLLlsh economy works. We revlew whaL lndependenL academlc analysls
makes of Lhese dlfferences ln assumpLlons. And ln LhaL way we hope Lo help readers
Lo make sense of whaL Lhe Lwo sldes say and Lo come Lo Lhelr own [udgemenLs
abouL whlch slde has Lhe mosL plauslble seL of clalms on Lhe slxLeen lssues we
examlne.
We have carefully selecLed our conLrlbuLors Lo be lmparLlal. 1hey are, of course,
enLlLled Lo Lhelr prlvaLe vlews, buL none has a declared lnLeresL on elLher slde of Lhe
debaLe. 1hls does noL mean LhaL Lhey slmply slL on Lhe fence. lL means Lhey use Lhelr
academlc Lralnlng Lo seL ouL, dlscuss and evaluaLe Lhe clalms of each slde. 1helr
lmparLlallLy ls ln Lhelr approach. Some of Lhelr concluslons may lean more Lowards
one slde or Lhe oLher. 8uL LhaL ls a producL of Lhe resulLs of Lhelr research and Lhe
way Lhey do Lhelr analysls - and, ln Lhe end, of Lhe sLrengLh or weakness of Lhe
argumenLs made by Lhe Lwo sldes ln Lhe referendum debaLe.

AugusL 2014



5
About the authors

1he economy
1. uavld 8ell ls rofessor of Lconomlcs aL Lhe unlverslLy of SLlrllng.
2. Angus ArmsLrong ls Pead of Macroeconomlcs and llnance Croup aL Lhe naLlonal
lnsLlLuLe of Lconomlc and Soclal 8esearch, Monlque Lbell ls 8esearch lellow aL Lhe
naLlonal lnsLlLuLe of Lconomlc and Soclal 8esearch.
3. uavld hllllps ls Senlor 8esearch LconomlsL aL Lhe lnsLlLuLe for llscal SLudles.

If the vote |s es.
4. nlcola McLwen ls AssoclaLe ulrecLor of LS8C ScoLLlsh CenLre on ConsLlLuLlonal
Change.
3. Angus ArmsLrong ls Pead of Macroeconomlcs and llnance Croup aL Lhe naLlonal
lnsLlLuLe of Lconomlc and Soclal 8esearch, Monlque Lbell ls 8esearch lellow aL Lhe
naLlonal lnsLlLuLe of Lconomlc and Soclal 8esearch.
6. aLrlck uunleavy ls rofessor of ollLlcal Sclence, London School of Lconomlcs.

If the vote |s No.
7. Charlle !effery ls rofessor of ollLlcs and ulrecLor of Lhe Academy of CovernmenL
aL Lhe unlverslLy of Ldlnburgh.

Internat|ona|
8. !ulleL kaarbo ls Senlor LecLurer ln ollLlcs & lnLernaLlonal 8elaLlons aL Lhe
unlverslLy of Ldlnburgh. uanlel kenealy ls uepuLy ulrecLor and LecLurer aL Lhe
Academy of CovernmenL aL Lhe unlverslLy of Ldlnburgh.
9. Mlchael keaLlng ls rofessor of ollLlcs, unlverslLy of Aberdeen and ulrecLor of
LS8C ScoLLlsh CenLre on ConsLlLuLlonal Change.
10. Colln llemlng ls a Leverhulme Larly Career lellow aL Lhe unlverslLy of Ldlnburgh.

What sort of Scot|and?
11. SLephen 1lerney ls rofessor of ConsLlLuLlonal 1heory aL Lhe unlverslLy of
Ldlnburgh and ulrecLor of Lhe Ldlnburgh CenLre for ConsLlLuLlonal Law.
12. klrsLeln 8ummery ls rofessor of Soclal ollcy, unlverslLy of SLlrllng. Cralg
McAngus ls LS8C 8esearch lellow aL Lhe unlverslLy of SLlrllng.
13. uavld McCollum ls LecLurer ln Lhe ueparLmenL of Ceography and SusLalnable
uevelopmenL aL Lhe unlverslLy of SL Andrews. ScoLL 8llnder ls dlrecLor of Lhe
MlgraLlon CbservaLory aL Lhe unlverslLy of Cxford.
14. uavld 8ell ls rofessor of Lconomlcs aL Lhe unlverslLy of SLlrllng. uavld Llser ls
8esearch lellow ln Lconomlcs aL Lhe unlverslLy of SLlrllng.

8us|ness & compet|t|on
13. 8rad Mackay ls rofessor ln SLraLeglc ManagemenL and Pead of SLraLegy &
lnLernaLlonal 8uslness Croup aL Lhe unlverslLy of Ldlnburgh.
16. CranL Allan and aLrlzlo Lecca are 8esearch lellows ln Lhe lraser of Allander
lnsLlLuLe aL Lhe unlverslLy of SLraLhclyde. eLer McCregor ls ulrecLor of SLraLhclyde
lnLernaLlonal ubllc ollcy lnsLlLuLe and Pead of Lhe ueparLmenL of Lconomlcs. klm
Swales ls rofessor of Lconomlcs aL Lhe unlverslLy of SLraLhclyde.


6
Infograph|c: 1he road to the referendum




7



8



9
1he Lconomy







:

uest|on 1: What wou|d the out|ook for Scot|and's economy be |f the vote |s es]|f
the vote |s No?

uavld 8ell

1rylng Lo predlcL Lhe economlc consequences of consLlLuLlonal change poses some
dlfflculLy, because noLhlng abouL ScoLland's economlc fuLure can be known wlLh
cerLalnLy. 1here may be a superflclal appeal ln predlcLlng LhaL you wlll be 1,400
beLLer off wlLhln Lhe unlon or 1,000 beLLer off under lndependence - as Lhe Lwo
sldes ln Lhe campalgn have done - buL boLh forecasLs are almosL cerLalnly wrong.
neverLheless, Lhere ls a loL of evldence abouL ScoLland's pasL economlc hlsLory,
much of whlch ls helpful ln Lhlnklng abouL Lhe fuLure. 1hls creaLes an lmbalance,
because almosL all of Lhe evldence relaLes Lo ScoLland's hlsLory wlLhln Lhe unlon.
AlLernaLlve hlsLorles under dlfferenL consLlLuLlonal arrangemenLs are noL avallable.
Lven where Lhere ls evldence, dlsenLangllng cause and effecL can be dlfflculL
parLlcularly where pollLlcs ls lnvolved. A loL of economlc change ls drlven by forces
over whlch lndlvldual governmenLs have llLLle or no conLrol. CovernmenLs ofLen Lry
Lo Lake credlL for evenLs LhaL Lhelr pollcles dld noL shape, or Lo blame exLernal
facLors when Lhelr pollcles are Lhe real cause of adverse ouLcomes.

1he background
WhaL are Lhe maln Lhlngs we know abouL ScoLland's economlc performance? llrsL
we know LhaL Lhe economles of ScoLland and Lhe resL of Lhe uk have moved closely
LogeLher slnce 1999, when Lhe ScoLLlsh parllamenL came lnLo exlsLence glvlng ScoLs
enhanced powers Lo conLrol Lhelr own economy. 8eLween 1999 and 2013, Lhe
ScoLLlsh economy grew aL a raLe of 1.6 a year, whlle Lhe uk economy as a whole
grew aL 1.7. 1hls ls a relaLlvely small margln compared Lo Lhe dlfference ln growLh
raLes beLween Lhe uk as a whole LhaL of oLher economles over Lhe same perlod.
1he average uk growLh raLe over Lhls perlod was close Lo Lhe average of counLrles
ln Lhe CrganlsaLlon for Lconomlc Co-operaLlon and uevelopmenL (CLCu), lower Lhan
some of Lhe small sLaLes ln Lurope, hlgher Lhan oLhers. CrowLh wenL lnLo reverse
durlng Lhe CreaL 8ecesslon, buL Lhe uk's performance before Lhen ralsed lLs average
growLh raLe above LhaL of mosL ma[or Luropean economles.
1he unemploymenL raLes ln ScoLland and Lhe uk as a whole from 1992-2014
maLch each oLher very closely Loo. 1he dlfference beLween ScoLland and Lhe uk ls
small compared Lo Lhe lnLernaLlonal varlaLlon ln unemploymenL raLes. 8y
lnLernaLlonal sLandards, Lhe uk unemploymenL raLe was relaLlvely low over Lhls
perlod.
1he evldence from boLh Lhe goods markeL and Lhe labour markeL suggesLs LhaL
ScoLland's economlc forLunes over Lhe lasL Lwo decades have closely followed Lhe uk
as a whole. 8uL whaL does Lhls mean for Lhe ouLlook for Lhe ScoLLlsh economy under
lndependence or as parL of Lhe uk?

What do the two s|des say?
8ecenL forecasLs by Lhe lnsLlLuLe for llscal SLudles and PM 1reasury ossome LhaL,
under lndependence, ScoLLlsh producLlvlLy would grow ot tbe some tote as Lhe resL


";
of Lhe uk. 1hey do noL explaln Lhelr assumpLlon, buL mlghL argue, on Lhe basls of Lhe
hlsLorlcal evldence, LhaL Lhls would be reasonable.
neverLheless, lf Lhelr assumpLlon of equal producLlvlLy growLh ls lncorrecL, even
by a small amounL, Lhen Lhe ScoLLlsh and resL of Lhe uk economles could dlverge
qulckly. lor example, Lhe ScoLLlsh CovernmenL has recenLly argued LhaL lf ScoLland's
hourly producLlvlLy could be ralsed by 0.3 per annum above Lhe uk growLh raLe,
Lax recelpLs coolJ be 2.4 bllllon hlgher by 2029-30.
1hls sum ls roughly equlvalenL Lo Lhe currenL revenue from non-domesLlc raLes.
So, lf Lhls exLra producLlvlLy could be found, for example, buslness raLes could be
compleLely removed wlLhouL damaglng publlc servlces. AlLernaLlvely, caplLal
lnvesLmenL ln hosplLals, roads eLc. by Lhe ScoLLlsh CovernmenL could be almosL
doubled wlLhouL Lhe need Lo ralse Lax raLes. 1he key quesLlon, however, ls how
lndependence wlll change Lhe economlc landscape Lo cause ScoLLlsh producLlvlLy Lo
grow slgnlflcanLly fasLer Lhan LhaL ln Lhe resL of Lhe uk. unforLunaLely, none of Lhe
conLrlbuLlons Lo Lhe debaLe Lhus far have been clear abouL how ScoLland's
producLlvlLy record mlghL be lmproved.
Some are convlnced LhaL lndependence wlll sLlmulaLe a renalssance ln ScoLLlsh
buslness LhaL wlll lncrease buslness acLlvlLy. WhaL Lhe economlsL !.M. keynes called
`anlmal splrlLs' wlll be leL loose on Lhe ScoLLlsh economy. lrom Lhls wlll come
lncreased producLlvlLy and enhanced economlc growLh. 1hls does noL really
consLlLuLe hard evldence, buL cannoL be enLlrely ruled ouL because, as we have
argued above, Lhe fuLure ls uncerLaln.
Powever, Lhere would be llmlLs on ScoLland's poLenLlal for economlc growLh. Cne
mechanlsm LhaL has been a huge parL of Chlna's economlc success ls Lhe ablllLy Lo
creaLe opporLunlLles for lndlvlduals Lo move from non-producLlve or low producLlvlLy
work lnLo maklng a more valuable economlc conLrlbuLlon. Many Chlnese subslsLence
farmers have become facLory workers durlng Lhe lasL Lwo decades. ln ScoLland, Lhls
opLlon ls noL avallable: lL currenLly has Lhe hlghesL employmenL raLe of Lhe four uk
naLlons. CurrenLly 73.3 of Lhose aged 16-64 are ln employmenL.
1he ScoLLlsh CovernmenL esLlmaLes LhaL ScoLland's employmenL raLe ls 4.4
below LhaL of Sweden. ushlng ScoLland's employmenL raLe up Lo LhaL of Sweden
would almosL cerLalnly provlde a one-off boosL Lo ScoLland's growLh raLe. 8uL many
of Lhe ScoLs who are noL employed now are noL ln Lhe labour markeL Lhrough cholce.
1hey elLher have oLher commlLmenLs or do noL wlsh Lo work because Lhe cosLs of
dolng so ouLwelgh Lhe beneflLs. 1helr average producLlvlLy ls llkely Lo be well below
Lhe average for Lhe ScoLLlsh workforce as a whole. lL would be unreallsLlc Lo expecL
LhaL Lhls group would boosL ScoLland's economlc growLh by 4.4.

Structura| change
lndependence would consLlLuLe whaL economlsLs someLlme descrlbe as a 'sLrucLural
change' - a break ln esLabllshed ways of dolng Lhlngs - whlch could resulL ln radlcal
changes ln buslness relaLlonshlps and worklng pracLlces. 1he greaLer Lhe exLenL of
Lhe sLrucLural change, Lhe more dlfflculL lL ls Lo predlcL lLs ouLcomes, poslLlve or
negaLlve.
1he 8alLlc SLaLes - LaLvla, LlLhuanla and LsLonla - have gone Lhrough a double
LransformaLlon slnce Lhe mld-1990s, from belng parL of Lhe SovleL unlon under
communlsm Lo belng lndependenL caplLallsL sLaLes. ln Lhe lasL decade, Lhese


""
counLrles have grown four Llmes fasLer Lhan Lhe esLabllshed 13 Lu member sLaLes.
8uL Lhe LransformaLlon LhaL Lhey have undergone has been far more radlcal Lhan
LhaL envlsaged for an lndependenL ScoLland and Lhey sLarLed from much lower levels
of per-caplLa lncome. Pence lL ls lmposslble Lo argue LhaL Lhey provlde good
comparlsons for an lndependenL ScoLland.
Cne well-evldenced effecL LhaL mlghL lnfluence growLh ln an lndependenL
ScoLland ls Lhe so-called 'border' effecL. lL predlcLs LhaL ScoLland's Lrade wlLh Lhe resL
of Lhe uk (currenLly lLs largesL Lradlng parLner) would decllne afLer lndependence.
1rade wltblo counLrles Lends Lo be greaLer Lhan Lrade betweeo counLrles. 1hls
flndlng holds even when Lhe counLrles are parL of a free-Lrade zone such as Lhe
Luropean unlon (Lu) or Lhe norLh Amerlcan lree 1rade AssoclaLlon (nAl1A).
So, alLhough boLh Spaln and orLugal share a land border, Lrade beLween Lhe Lwo
ls much less Lhan Lrade beLween CaLalonla and oLher parLs of Spaln. Slmllarly, Lrade
beLween Canadlan provlnces LhaL ad[oln Lhe uS border ls greaLer Lhan Lhelr Lrade
wlLh Lhe uS. 8ased on lnformaLlon on Lrade beLween ScoLland and Lhe resL of Lhe
uk, and beLween lreland and Lhe uk as a whole, lL has been esLlmaLed LhaL ScoLLlsh
Cu would fall by 3.3 due Lo Lhe border effecL. Cver Llme, lreland has reduced lLs
Lrade dependence on Lhe uk and expanded lLs Lrade wlLh oLher parLs of Lhe world,
noLably Lurope. 1o mlLlgaLe Lhe border effecL, ScoLland would have Lo engage ln
slmllar Lrade dlverslflcaLlon.
Cne parLlcular lssue LhaL a newly lndependenL ScoLland would face ls debL. ln
May 2014, uk ubllc SecLor neL uebL sLood aL 1.284 Lrllllon. 1he expecLaLlon ls LhaL
on lndependence ScoLland would have Lo accepL roughly lLs populaLlon share of LhaL
debL. 1he need Lo servlce and roll over Lhls debL would make lL dlfflculL for Lhe
ScoLLlsh CovernmenL Lo lncrease publlc spendlng unLll lL could demonsLraLe Lo Lhe
markeLs LhaL lL had Lhe wllllngness and ablllLy Lo conLrol lLs debLs. 1he cosLs of noL
dolng so would be LhaL Lhe markeLs force lnLeresL raLes on ScoLLlsh debL above uk
levels and poLenLlally Lo unsusLalnable levels. 1hls mlghL noL affecL growLh ln Lhe
very long Lerm, buL ln Lhe shorL Lo medlum Lerm would force cuLs ln publlc spendlng
and/or lncreases ln Laxes LhaL would llkely hurL growLh.
1hus, Lhe forecasLs ln Lhe WhlLe aper 5cotlooJs lotote whlch show Lhe ScoLLlsh
economy comlng close Lo budgeL balance by 2017-18 lmpllclLly assume a conLlnulng
decllne ln Lhe ScoLland's annual budgeL deflclL. ln Lurn, Lhls lmplles a conLlnuaLlon of
Lhe reducLlons ln publlc spendlng LhaL have already been seL ln Lraln Lo overcome
Lhe relaLlvely large budgeL deflclLs experlenced ln ScoLland and ln Lhe uk as a whole
ln Lhe wake of Lhe 2008 flnanclal crash. ln an lndependenL ScoLland, [usL as ln Lhe uk
as a whole, lL ls dlfflculL Lo lmaglne LhaL followlng a less-deflaLlonary publlc spendlng
pollcy Lhan Lhe resL of Lhe uk Lo boosL growLh would be an opLlon ln Lhe shorL Lo
medlum Lerm. 1he rellance wlll have Lo be on anlmal splrlLs raLher Lhan lower Laxes.

1ack||ng |nequa||ty
1hough economlc growLh would have an lmporLanL lnfluence on Lhe ScoLLlsh
CovernmenL's ablllLy Lo provlde hlgh quallLy publlc servlces or Lo lower Laxes, lL ls
noL Lhe only economlc ob[ecLlve LhaL an lndependenL ScoLLlsh CovernmenL ls llkely
Lo pursue. 1he ablllLy Lo lnLroduce pollcles Lo reduce lncome lnequallLy also form an
lmporLanL parL of Lhe lndependence prospecLus. 8educLlons ln lnequallLy can be
supporLed from a soclal [usLlce perspecLlve, buL lncreaslngly Lhey are also flndlng


"#
supporL from Lhose seeklng Lo promoLe economlc growLh. 1he argumenL ls LhaL hlgh
lncome lnequallLy has a negaLlve effecL on [obs whlch ln Lurn holds back growLh.
1he argumenL ls LhaL lndependence wlll provlde Lhe pollcy levers over LaxaLlon
and beneflLs Lo address lnequallLy. lL ls cerLalnly Lhe case LhaL uk lncome lnequallLy
ls relaLlvely hlgh. 8uL Lhls ls largely Lhe resulL of Lhe exLremes of lncome ln London. ln
Lhe uk ouLslde of London, and ln ScoLland lLself, lnequallLy ls relaLlvely lower - on a
par wlLh oLher Luropean counLrles, buL hlgher Lhan Lhe nordlcs.
1axaLlon and beneflLs pollcy can help Lo address lnequallLy. 1he nordlc counLrles
Lend Lo have sllghLly hlgher Lop raLes of LaxaLlon sLarLlng aL a lower Lhreshold, and
more generous conLrlbuLory beneflLs. 1axes such as lnherlLance Lax can also be used
Lo address lnLergeneraLlonal lnequallLles. Powever, Laxes and beneflLs acLually effecL
lnequallLy ln a raLher superflclal way - alLhough Lhey deLermlne people's dlsposable
(afLer-Lax and beneflL lncomes), Lhe real reason why Lhe nordlc counLrles have lower
levels of lnequallLy ls LhaL Lhe dlsLrlbuLlon of Lhelr befote-tox lncomes ls more equal.
1he causes of Lhe uk's hlgher raLes of lncome lnequallLy sLem from Lhe 1980s,
when large scale delndusLrlallsaLlon, comblned wlLh labour markeL deregulaLlon and
reducLlons ln Lrade unlon power acLed Lo reduce wages for lower pald workers,
whllsL flnanclal deregulaLlon helped Lo lncrease wages aL Lhe Lop. Slnce Lhen,
Lechnologlcal change and globallsaLlon have been ma[or drlvers of lnequallLy. 1he
expandlng role of compuLers Lo perform auLomaLed Lasks has enabled a large
swaLhe of average-paylng [obs Lo be mechanlsed and/or offshored. 1hls has
lncreased Lhe supply of labour chaslng low-skllled [obs, blddlng down Lhelr wages. AL
Lhe same Llme, Lhe earnlngs of Lhe hlghesL skllled [obs ln managemenL and
professlonal occupaLlons conLlnues Lo lncrease.
Addresslng Lhese global causes of lnequallLy ls challenglng. uurlng Lhe early and
mld-2000s, lnequallLy ln Lhe nordlc counLrles lncreased more rapldly Lhan ln Lhe uk,
as Lhese counLrles sLruggled Lo balance [ob securlLy and lnLernaLlonal
compeLlLlveness.
Pow lnequallLy changes ln fuLure ls llkely Lo be sLrongly deLermlned by Lhe role
LhaL Lechnologlcal change wlll play ln lnfluenclng Lhe demand for skllls. LducaLlon
wlll conLlnue Lo play a very lmporLanL role ln deLermlnlng economlc forLunes boLh
lndlvldually and collecLlvely, and wlll be a key facLor shaplng Lhe dlsLrlbuLlon of pre-
Lax lncomes ln fuLure. 1ax and beneflL pollcy can help Lackle lnequallLy, buL lL ls noL
ln lLself a panacea, noL leasL because, ln a small open economy such as ScoLland's,
Lhe effecLlveness of flscal pollcy (governmenL conLrol over Lax and spendlng) may be
llmlLed by Lhe facL LhaL people, lncomes, and flrms can move ouL of Lhe counLry ln
response Lo Lax changes.

Conc|us|on
WhaL can we say abouL Lhe ouLlook for Lhe ScoLLlsh economy? lf Lhere ls a no voLe
Lhe ScoLLlsh economy wlll conLlnue Lo follow Lhe forLunes of Lhe uk economy.
WheLher Lhls performance has been good or bad, and wheLher Lherefore lLs
conLlnuaLlon ls accepLable, ls a [udgemenL LhaL people wlll llkely make based on Lhelr
personal clrcumsLances. under lndependence, anlmal splrlLs may prevall - or Lhey
may noL. lL ls a dlfflculL call. 1he evldence ls much more dlfflculL Lo gaLher and Lo
lnLerpreL. An lndependenL ScoLLlsh economy wlll lnherlL a large amounL of physlcal,
soclal, and mosL lmporLanLly human, caplLal. 1he key quesLlon ls wheLher Lhey can


"4
be broughL LogeLher ln such a way as Lo slgnlflcanLly lmprove Lhe prospecLs for Lhe
ScoLLlsh economy, glven Lhe consLralnLs LhaL lL lnevlLably faces.



"5
uest|on 2: Wh|ch currency arrangement wou|d an |ndependent Scot|and use?

Angus ArmsLrong and Monlque Lbell

Why |s th|s |mportant?
1he slngle mosL lmporLanL economlc quesLlon ln Lhe ScoLLlsh lndependence
referendum ls whlch currency arrangemenL would an lndependenL ScoLland use? 8y
'currency arrangemenL' we mean boLh Lhe currency and Lhe role of Lhe cenLral bank
LhaL lssues lL. 1he cholce of currency arrangemenL maLLers far more Lhan [usL Lhe
noLes and colns ln peoples' pockeLs. lL deLermlnes Lhe menu of avallable economlc
pollcy opLlons, Lhe lnLeresL raLes aL whlch people borrow money and Lhe capaclLy of
Lhe economy Lo deal wlLh crlses.
8oLh sldes of Lhe debaLe accepL LhaL lf ScoLland becomes lndependenL, Lhen Lhe
exlsLlng currency arrangemenL would come Lo an end. 1he ScoLLlsh CovernmenL
proposes uslng sLerllng ln a formal moneLary unlon arrangemenL, whlch would
lnvolve sharlng Lhe 8ank of Lngland. As Lhe 8ank of Lngland ls an lnsLlLuLlon of Lhe
uk, Lhls would requlre Lhe full supporL and parLlclpaLlon of Lhe resL of Lhe uk. ?eL
Lhe uk CovernmenL has made clear LhaL lL conslders Lhls Lo be lmpracLlcal and noL ln
Lhe lnLeresLs of clLlzens ln elLher sLaLe. 1herefore, Lhe elecLoraLe faces an
exLraordlnary lmpasse on Lhe mosL lmporLanL economlc quesLlon of Lhe referendum.
8efore looklng aL Lhe currency arrangemenL opLlons, lL ls lmporLanL Lo conslder
how Lhe economlc sLrucLure of ScoLland would change wlLh lndependence. llrsL, lL ls
wldely assumed LhaL an lndependenL ScoLland would be awarded 83 (a
'geographlc' share) of Lhe remalnlng oll and gas flelds. ScoLland would be a relaLlvely
large exporLer and Lhe uk would be a small lmporLer of oll and gas. Second, an
lndependenL ScoLland would be expecLed Lo Lake on a falr share of Lhe uk's exlsLlng
publlc debL. Assumlng relaLlve populaLlon slze ls a falr measure, an lndependenL
ScoLland's share of gross debL would be 143 bllllon or 86 of Cu. 1hlrd, Lhe
ScoLLlsh CovernmenL would be responslble for all publlc spendlng, LaxaLlon and
borrowlng, and cross border flscal Lransfers (Lax recelpLs from ScoLland Lo Lhe uk
and Lhe block granL and oLher paymenLs, such as welfare beneflLs, from Lhe uk Lo
ScoLland) would cease.
WhaL does Lhls lmply for Lhe besL currency arrangemenL for an lndependenL
ScoLland? We conslder Lhe economlc lmpllcaLlons of each of Lhe Lhree wldely
dlscussed opLlons below. noLe, we do noL conslder Lhe euro because Lhls requlres
ScoLland Lo have lLs own currency (and meeL Lhe MaasLrlchL crlLerla) and so ls noL an
lmmedlaLe opLlon.

Cpt|on 1: Iorma| Monetary Un|on
A formal moneLary unlon lnvolves Lwo or more sLaLes uslng Lhe same currency and
sharlng a cenLral bank. Some moneLary unlons occur wlLhln a slngle soverelgn sLaLe,
such as beLween Lhe sLaLes ln Lhe uS or provlnces ln Canada. MoneLary unlons also
exlsL beLween soverelgn sLaLes. 1he nearesL example ls ln Lhe euro zone where
naLlonal cenLral banks delegaLe moneLary pollcy Lo Lhe supra-naLlonal Luropean
CenLral 8ank (LC8). Members of Lhe euro zone are movlng Lowards greaLer pollLlcal
and flscal lnLegraLlon Lo shore-up lLs moneLary unlon.
1he slmplesL case for uslng a slngle currency comes down Lo a Lrade-off: uslng Lhe


"6
same currency reduces Lhe cosL of cross border Lrade, buL lL also means Lhe same
lnLeresL raLe for all sLaLes. lf economlc cycles are slmllar, Lhen Lhe same lnLeresL raLe
ls llkely Lo be reasonably approprlaLe. lf cycles are dlsslmllar, buL wages and prlces
are flexlble and caplLal and labour can move freely, fully flexlble markeLs mlghL be
able Lo correcL for dlfferences ln unemploymenL beLween sLaLes. llnally, counLrles
whlch share rlsks Lhrough a common Lax sysLem, common flscal pollcy or a common
welfare sLaLe wlll also flnd lL less cosLly Lo keep a common lnLeresL raLe, even lf Lhelr
economlc cycles dlverge.
1he uk CovernmenL argues LhaL Lhe uk ls already a fully funcLlonlng moneLary
unlon, underplnned by a pollLlcal unlon beLween all naLlons of Lhe uk. 8eglonal
economles are deeply lnLegraLed, Lhere are common lnsLlLuLlons for sharlng rlsks,
such as Lhe welfare sLaLe, and a pollLlcal unlon whlch allows lnLeresLs Lo be
expressed whlle ensurlng agreemenLs are enforced. ScoLLlsh lndependence would
end pollLlcal unlon and rlsk sharlng lnsLlLuLlons.
1he ScoLLlsh CovernmenL argues LhaL Lhe resL of Lhe uk and an lndependenL
ScoLland would sLlll be lnLegraLed enough Lo form a basls for a formal moneLary
unlon, even wlLhouL pollLlcal unlon. lL proposes sharlng Lhe 8ank of Lngland
accordlng Lo populaLlon slze, whlch would glve an lndependenL ScoLland posslbly
one of nlne voLes when moneLary pollcy ls declded. SysLem wlde flnanclal pollcy
would also be conducLed by Lhe 8ank of Lngland wlLh any losses apporLloned
beLween sLaLes afLer Lhe evenL.
We argue LhaL Lhe besL cholce of currency arrangemenL for an lndependenL
ScoLland ls very LlghLly llnked Lo Lhe share of uk publlc debL lL would lnherlL. uL
slmply, Lhe amounL of publlc debL deLermlnes how sLable a currency unlon would be.
When a currency unlon collapses, Lhe economlc and soclal cosLs from flnanclal
dlsrupLlon far ouLwelgh Lhe posslble cosLs from exchanglng currencles. Accordlng Lo
Lhe lMl Lhe average loss ln ouLpuL relaLlve Lo Lrend from flnanclal crlses ln advanced
economles ls over 20 of Cu. 1hese are losses whlch can Lake a generaLlon Lo
regaln, and are orders of magnlLude greaLer Lhan Lhe cosL of posslbly hlgher
exchange cosLs. Avoldlng a flnanclal crlsls from a compromlsed currency sysLem
musL be Lhe overrldlng ob[ecLlve.
1he level of publlc debL maLLers for Lhe sLablllLy of a currency unlon because lL
can llmlL Lhe pollcy opLlons when a large negaLlve shock occurs. Shocks are
unpredlcLable evenLs, such as a sudden drop ln Lax revenues from norLh Sea oll or
flnanclal markeL Lurmoll. WlLh lLs own currency, ScoLland would be able Lo sofLen
Lhe blow by reduclng lLs own lnLeresL raLes. ln a formal moneLary unlon, however,
ScoLland would only en[oy lower lnLeresL raLes or a weaker currency lf lL sulLed Lhe
resL of Lhe uk. 1he more Lhe economles grow aparL, Lhe less llkely Lhese lnLeresLs
wlll be Lhe same. lor oll prlces Lhe lnLeresLs of an lndependenL ScoLland and Lhe resL
of Lhe uk would be ln opposlLe dlrecLlons.
1he nexL opLlon ls Lo borrow more. 1hls ls where lndebLedness maLLers. As Lhe
ScoLLlsh CovernmenL wlll lnherlL a large debL burden, borrowlng even more may
prove dlfflculL or expenslve. 1he only opLlon lefL would be Lo lmpose ausLerlLy Lo
prevenL Lhe deflclL rlslng furLher whlch, as we know, can be pollLlcally unpopular.
Would a formal moneLary unlon be sLable? lf Lhere were any doubLs LhaL ScoLs, ln
Lhese clrcumsLances, would accepL Lhe ausLerlLy, lnvesLors would be less llkely Lo
lend Lo Lhe ScoLLlsh CovernmenL. 1hls ls a slow form of caplLal fllghL (funds belng


"7
wlLhdrawn from Lhe counLry) whlch, once lL sLarLs, ls very dlfflculL Lo sLop wlLhouL
belng rescued by anoLher governmenL or even Lhe lMl. ln Lhe euro zone Lhe LC8 has
had Lo lgnore lnLernaLlonal LreaLles LhaL were meanL Lo prohlblL balllng-ouL
lndependenL counLrles. 1he resL of Lhe uk wlll be weary of enLerlng lnLo a currency
arrangemenL LhaL opens even Lhe posslblllLy of a slmllar ouLcome. We can also look
back Lo hlsLory, Lo Lhe Czech and Slovak velveL dlvorce ln 1993. 1he Czech and Slovak
governmenLs agreed Lo keep uslng Lhe same currency and Lo share Lhe cenLral bank.
CaplLal fllghL forced Lhe governmenLs abandon Lhe moneLary unlon afLer only 39
days.

Cpt|on 2: Do||ar|zat|on
AlLhough Lhe uk CovernmenL and Lhe opposlLlon parLles have all ruled ouL a formal
moneLary unlon, an lndependenL ScoLland could use sLerllng on an lnformal basls, an
arrangemenL popularly known as 'dollarlzaLlon'.
1he crlLlcal dlfference beLween a formal moneLary unlon and an lnformal
currency unlon ls LhaL ScoLland would have no share of Lhe 8ank of Lngland. 1he
8ank of Lngland would choose lnLeresL raLes and moneLary pollcy Lo sulL Lhe resL of
Lhe uk, regardless of wheLher lL ls approprlaLe for ScoLland or noL. 1he concerns
around flnanclal sLablllLy when publlc debL ls hlgh are even greaLer under
dollarlzaLlon. 1he argumenLs lald ouL above abouL Lhe lnsLablllLy of havlng llmlLed
pollcy opLlons when moneLary pollcy and currency pollcy are unavallable, and
borrowlng may be dlfflculL or expenslve, apply equally Lo dollarlzaLlon.
CenLral banks have a unlque ablllLy Lo creaLe money. 1hey are naLural provlders of
emergency loans Lo flnanclal lnsLlLuLlons (and governmenLs) when clLlzens and
lnvesLors lose confldence ln Lhem. uollarlzaLlon would leave ScoLland wlLhouL any
enLlLy under lLs conLrol LhaL ls capable of creaLlng money, and hence wlLhouL a
naLural backsLop for lLs banks. 1he ScoLLlsh CovernmenL would need Lo bulld up
enough reserves Lhrough years of runnlng balance of paymenLs surpluses, or ScoLLlsh
banks would need Lo be much more cauLlous Lo make needlng asslsLance very
lmprobable.
1he mosL llkely ouLcome of dollarlzaLlon ls LhaL ScoLLlsh banks would move Lo Lhe
resL of Lhe uk where Lhey would have Lhe backsLop of Lhe 8ank of Lngland. uk banks
would Lhen provlde banklng lnLo an lndependenL ScoLland Lhrough a branch
neLwork. Slnce Lhe supply of loans lnLo a forelgn [urlsdlcLlon ls generally a rlskler
proposlLlon Lhan aL home, Lhe cosL of borrowlng by prlvaLe clLlzens ls llkely Lo be
hlgher ln ScoLland under dollarlzaLlon. llnanclal sLablllLy pollcles ln ScoLland would
be declded by auLhorlLles ln Lhe resL of Lhe uk and for Lhe beneflL of Lhe resL of Lhe
uk only.

Cpt|on 3: Scot|and's own currency
1he currency opLlon LhaL an lndependenL ScoLland can unequlvocally dellver ls
lssulng lLs own currency. Pavlng lLs own currency and conLrolllng lLs own lnLeresL
raLes would provlde Lhe greaLesL amounL of pollcy flexlblllLy. 1he more flexlbly
ScoLland can respond Lo shocks, Lhe greaLer Lhe sLablllLy of lLs economy. 1rue, Lrade
cosLs would rlse as ScoLland and Lhe resL of Lhe uk would no longer use Lhe same
currency, buL Lhese cosLs pale ln comparlson Lo Lhe cosLs of flnanclal lnsLablllLy.


"8
Many successful counLrles ln Lurope wlLh slmllar wealLh and populaLlon slzes (such
as ln Scandlnavla) and dependenL on nelghbourlng markeLs have Lhelr own currency.
1he challenge ls how Lo leave a formal moneLary unlon and creaLe a new currency
ln as orderly way as posslble. usually, breaklng up a currency unlon lnvolves
sLamplng banknoLes ln Lhe breakaway LerrlLory Lo creaLe a new currency. Powever,
ScoLland already has lLs own dlsLlncLlve banknoLes. lL would be far easler Lo
lnLroduce a new currency on Lhe back of years of balance of paymenLs and flscal
surpluses Lo glve clLlzens and lnvesLors confldence LhaL Lhe value of Lhe new
currency value would be malnLalned. 1hls would requlre a marked, buL posslble, shlfL
ln economlc managemenL.
1here are oLher slgnlflcanL challenges. Whlle prlvaLe debL conLracLs - morLgages
and loans Lo ScoLLlsh flrms - could be redenomlnaLed lnLo ScoLs pounds, ScoLland's
obllgaLlons Lo repay lLs share of Lhe uk publlc debL would, aL leasL lnlLlally, be
denomlnaLed ln uk pounds. Leavlng Lhe debL denomlnaLed ln uk pounds would
lmply LhaL any depreclaLlon (loss ln value) of Lhe ScoLs pound would lead Lo hlgher
lnLeresL and caplLal repaymenLs Lo Lhe uk. 1hese rlsks are llkely Lo mean ln Lurn
hlgher credlL rlsk for uk banks. lL would Lherefore be ln Lhe lnLeresLs of Lhe resL of
Lhe uk Lo supporL Lhe ScoLLlsh CovernmenL Lo ensure as smooLh a LranslLlon as
posslble.

Conc|us|on
1he moral of Lhe sLory was besL expressed by rofessor Mlchael uooley:
'Lxchange raLe reglmes are born aL conference Lables and lald Lo resL ln forelgn
exchange markeLs.' CovernmenLs can choose whaLever currency arrangemenLs Lhey
wlsh, buL prlvaLe clLlzens and flnanclal companles wlll declde wheLher or noL Lhey
are sLable. As we approach Lhe referendum lL appears LhaL we are headlng Lowards
Lhe opLlon of 'dollarlzaLlon' almosL by defaulL and wlLhouL Lhe full consequences
belng consldered. ?eL 'dollarlzaLlon' ls an opLlon LhaL Lhe ScoLLlsh CovernmenL's
llscal Commlsslon Worklng Croup does noL conslder a 'clear opLlon for ScoLland.'
Whlle lnLroduclng a new ScoLLlsh currency has serlous LranslLlonal challenges, lL may
be Lhe besL opLlon for a prosperous lndependenL ScoLland.



"9
uest|on 3: What wou|d the p|cture for the Scott|sh Government's f|nances be |f
Scot|and votes yes? What |f Scot|and votes no?

uavld hllllps

1he ouLlook for Lhe publlc flnances of an lndependenL ScoLland ls a key baLLleground
ln Lhe ln Lhe referendum debaLe. Why? 8ecause Lhe healLh of Lhe governmenL's
flnances deLermlne how much can be spenL on publlc servlces llke schools, Lhe nPS,
welfare and penslons. lL ls also key Lo undersLandlng wheLher Laxes can be cuL or
need Lo be lncreased Lo avold Lhe governmenL borrowlng unsusLalnably. ulLlmaLely
lL affecLs how much money lndlvlduals and famllles wlll have ln Lhelr pockeLs, and
Lhe quallLy and quanLlLy of publlc servlces Lhey can en[oy ln Lhe years ahead.

If Scot|and votes No
AL Lhe momenL mosL Lax pald by people and buslnesses ln ScoLland goes lnLo one
cenLral poL conLrolled by Lhe uk CovernmenL, whlch ls responslble for defence,
forelgn affalrs and for paylng beneflLs and sLaLe penslons Lo ScoLLlsh people. lL also
glves money as a block granL Lo Lhe ScoLLlsh CovernmenL Lo pay for devolved
servlces - lL ls Lhen up Lo Lhe ScoLLlsh CovernmenL Lo declde how Lo allocaLe Lhls
beLween servlces such as schools, hosplLals, pollclng, LransporL eLc. 1he slze of Lhls
granL does noL depend on how much Lax revenue ls ralsed ln ScoLland, buL ls based
on hlsLorlc spendlng. ln recenL years Lhe granL has been large enough Lo allow LoLal
governmenL spendlng ln ScoLland Lo be around 11 hlgher per person Lhan Lhe uk
average.
lf ScoLland voLes no Lhls would conLlnue - for a few years aL leasL. Some small
Laxes are due Lo be devolved Lo ScoLland ln Aprll 2013, and Lhe ScoLLlsh CovernmenL
wlll galn more powers over Lhe raLe of lncome Lax ln ScoLland a year laLer. 1hls wlll
mean some exLra rlsk for Lhe ScoLLlsh CovernmenL's budgeL - revenues from Lhese
Laxes can be volaLlle - buL also blgger lncenLlves Lo grow Lhe economy. SLlll, mosL
Laxes wlll go Lo WesLmlnsLer and come back Lo ScoLland ln Lhe form of a block granL.
1he ScoLLlsh CovernmenL's flnances wlll sLlll depend on Lhe slze of Lhls granL.
Slnce 2010, Lhe block granL has been cuL by 8.8 afLer accounLlng for lnflaLlon.
1hls ls a resulL of Lhe uk CovernmenL's wlder spendlng cuLs deslgned Lo reduce Lhe
large budgeL deflclL caused by Lhe 'CreaL 8ecesslon'. under currenL uk CovernmenL
plans, Lhese spendlng cuLs wlll conLlnue unLll 2018-19 (by when Lhe uk as a whole
should be runnlng a small budgeL surplus). 1hls could mean LhaL for Lhe nexL flve
years cuLs ln Lhe block granL would be even blgger Lhan Lhose made so far. 1he
Labour arLy says lL would noL cuL qulLe so deeply, buL would sLlll llkely be looklng Lo
make furLher cuLs Lo governmenL spendlng.
ln Lhe longer-Lerm, Lhe pro-unlon parLles have offered furLher devoluLlon lf
ScoLland voLes no - for lnsLance, furLher conLrol of lncome Lax pollcy.

If Scot|and votes es
lndependence would mean Lhe ScoLLlsh CovernmenL would have full conLrol over
Laxes and spendlng. 1hls would glve addlLlonal freedoms, buL also new
responslblllLles. ln parLlcular, an lndependenL ScoLLlsh CovernmenL would bear all
Lhe rlsk of volaLlle Lax revenues as Lhe economy flucLuaLes. Whlle lL could borrow


":
money ln Lhe shorL-Lerm Lo make up for any deflclL, ln Lhe longer-Lerm lL would need
Lo ensure Lax revenues were hlgh enough Lo pay for spendlng Lo ensure LhaL Lhe
budgeL was susLalnable.
1he ScoLLlsh CovernmenL's esLlmaLes show LhaL ln 2012-13, Lax recelpLs
(lncludlng oll and gas revenues) were 789 hlgher per person ln ScoLland Lhan across
Lhe uk as a whole, buL governmenL spendlng was 1,236 hlgher per person. 1hls
means ScoLland's noLlonal budgeL deflclL for LhaL year was 8.3 of ScoLland's Cu
(naLlonal lncome), whlch was blgger Lhan Lhe deflclL of 7.3 of Cu for Lhe uk as a
whole.
1he pasL ls noL necessarlly a good gulde Lo Lhe fuLure Lhough, and wheLher an
lndependenL ScoLland's governmenL flnances would be sLronger or weaker Lhan
Lhose of Lhe uk wlll depend on a number of facLors:
Pow much of Lhe uk's naLlonal debL ScoLland would lnherlL,
Pow sLrong oll and gas revenues are ln fuLure,
Pow well Lhe broader economy of ScoLland would perform.
ulsagreemenLs abouL Lhese facLors are whaL underlles Lhe sLarkly dlfferenL vlslons
for Lhe publlc flnances of an lndependenL ScoLland ouLllned by Lhe ?es and no
campalgners.

What does the No s|de say?
8eLLer 1ogeLher and Lhe uk CovernmenL argue LhaL Lhe governmenL of an
lndependenL ScoLland would face a worse flnanclal slLuaLlon, necesslLaLlng spendlng
cuLs or Lax rlses on Lop of Lhose planned by Lhe uk CovernmenL.
8ased on Lhe lndependenL Cfflce for 8udgeL 8esponslblllLy's (C88) forecasL for
furLher decllnes ln oll revenues and ScoLland Laklng on a populaLlon-based share of
Lhe uk's publlc debL, Lhe uk CovernmenL says LhaL an lndependenL ScoLland would
have a budgeL deflclL of 3.3 of Cu ln 2016-17. 1hls ls subsLanLlally hlgher Lhan Lhe
uk's 2.4 deflclL forecasL for LhaL year and means Lhe ScoLLlsh CovernmenL's budgeL
deflclL would be around 1,000 hlgher per person. Such a large budgeL deflclL would
noL be susLalnable and would requlre ScoLland Lo make spendlng cuLs or Lax rlses
LhaL were blgger Lhan Lhose planned by Lhe uk.
1he uk CovernmenL Lhen looks 20 years Lo Lhe fuLure and argues LhaL voLlng no
and sLaylng wlLh Lhe uk would mean a 1,400 per person per year 'unlon dlvldend' -
or, puL anoLher way, a ?es voLe would mean a 1,400 'lndependence penalLy'. lL
argues LhaL mosL of Lhls penalLy would arlse from Lhe facL LhaL, under lndependence,
ScoLland's onshore revenues - from lncome Lax, vA1, naLlonal lnsurance eLc - and
decllnlng oll revenues would noL be enough Lo pay for Lhe relaLlvely hlgh
governmenL spendlng LhaL ScoLland en[oys as parL of Lhe uk. 1hey also say Lhere
would be seL-up cosLs of lndependence, cosLs assoclaLed wlLh ScoLland's more
rapldly agelng populaLlon and Lhe ScoLLlsh CovernmenL's proposals for a more
generous welfare sysLem. As a new counLry wlLh no record of repaylng credlLors, Lhe
ScoLLlsh CovernmenL would need Lo pay a hlgher lnLeresL raLe on lLs borrowlng.
Some people have argued LhaL Lhe uk CovernmenL's esLlmaLes of Lhe seL-up cosLs
of lndependence are Loo hlgh and LhaL lL has lncluded Lhe cosL of more generous
pollcles, buL noL Lhe beneflLs. 8uL lL ls worLh noLlng LhaL, even lf Lhese cosLs were
lgnored enLlrely, Lhe exLra cosLs Lhe uk CovernmenL says would be lncurred amounL
Lo an 'lndependence penalLy' of more Lhan 1,100 per person per year.


#;

What does the es s|de say?
?es ScoLland and Lhe ScoLLlsh CovernmenL have sald oll and gas revenues wlll
lncrease ln fuLure and an lndependenL ScoLland's publlc flnances wlll be 'slmllar Lo,
or sLronger Lhan' Lhe uk's by 2016-17. 1he ScoLLlsh CovernmenL's cenLral pro[ecLlon
ls for ScoLland's oll revenues Lo be abouL 7 bllllon ln 2016-17, up from 3.6 bllllon
ln 2012-13 and abouL 4.1 bllllon lasL year. 1hls ls a loL more opLlmlsLlc Lhan Lhe
C88's forecasLs, whlch lmply revenues of abouL 3 bllllon ln 2016-17.
Cn Lhls basls Lhe ScoLLlsh CovernmenL forecasLs a budgeL deflclL of 2.8 of Cu ln
2016-17, lf ScoLland Look on a populaLlon-based share of Lhe uk's naLlonal debL.
1hls compares Lo a deflclL of abouL 2.1 of Cu for Lhe uk as a whole under such a
scenarlo. lf ScoLland Look on a lower share of Lhe uk debL - whlch lncreaslngly looks
llke someLhlng Lhe ScoLLlsh CovernmenL wanLs Lo negoLlaLe - ScoLland could have
less debL lnLeresL Lo pay, so lLs deflclL would be lower.
Looklng furLher ahead, Lhe ScoLLlsh CovernmenL says LhaL because of hlgher oll
revenues lL would alm Lo locteose publlc spendlng a llLLle ln Lhe flrsL Lhree years
raLher Lhan cuL lL and reduce Lhe budgeL deflclL Lo 2.2 of Cu ln 2018-19, whlch lL
says would be 'susLalnable' and would allow lL Lo sLarL bulldlng up an oll fund for Lhe
fuLure. 8uL because lL would sLlll have a deflclL - unllke Lhe uk, whlch plans Lo have a
small budgeL surplus by 2018-19 - lL would have Lo borrow Lhe money lL was puLLlng
ln Lo LhaL fund.
ln Lhe longer Lerm, Lhe ScoLLlsh CovernmenL clalms LhaL lndependence would glve
lL Lools Lo boosL Lhe economy. lL suggesLs LhaL lf an addlLlonal 113,000 [obs were
creaLed, annual growLh ln labour producLlvlLy were boosLed from 2.2 Lo 2.3, and
neL lmmlgraLlon lnLo ScoLland were boosLed from 16,000 Lo 24,000 per year,
onshore Lax recelpLs would be 3 bllllon a year hlgher afLer 13 years Lhan would be
Lhe case wlLhouL Lhese lmprovemenLs. 1hls would be a 1,000 per person per year
'lndependence bonus'.
8uL would lL? lf an lndependenL ScoLland's governmenL flnances would oLherwlse
be slmllar Lo Lhe uk's, an addlLlonal 1,000 ln revenues clearly would be a bonus.
8uL, unless oll and gas revenues were Lo rebound and sLay hlgh, ScoLland's publlc
flnances would be weaker Lhan Lhe uk. AlLhough Lhe ScoLLlsh CovernmenL has
publlshed forecasLs for oll revenues up Lo 2018-19 lL has noL sald expllclLly whaL lL
Lhlnks wlll happen afLer LhaL. lf oll revenues decllned over Lhe longer Lerm, as Lhe
C88 forecasLs much, or all, of Lhe addlLlonal 1,000 mlghL be needed Lo compensaLe
and Lo malnLaln ScoLland's exlsLlng relaLlvely hlgher levels of governmenL spendlng.

What do other experts say?
LxperLs aL Lhe llS, SLlrllng and Clasgow unlverslLles agree LhaL boLh Lhe ScoLLlsh and
uk CovernmenL's analyses of Lhe sLarLlng poslLlon ln 2016-17 could be correcL
dependlng on whose oll revenue forecasLs you belleve. 8uL, Lhey also suggesL LhaL
Lhe predlcLlons of Lhe ?es slde are based on opLlmlsLlc assumpLlons LhaL
lndependence wlll lead Lo economlc lmprovemenL - whlch mlghL noL happen.
Cll revenues may be hlgher Lhan forecasL buL Lhey could also be lower.
8esearchers aL Lhe llS say: 'whllsL lL may Lurn ouL LhaL Lhe ScoLLlsh economy does
a greaL deal beLLer afLer lndependence Lhan lL would as parL of Lhe uk, plannlng on
Lhls as a cenLral assumpLlon seems less Lhan cauLlous.'


#"

So, what |s the bottom ||ne?
lL looks llkely LhaL Lhe ScoLLlsh CovernmenL's flnances wlll be squeezed ln Lhe years
afLer 2016 wheLher Lhe publlc voLe ?es or no. lf ScoLland remalns parL of Lhe uk,
cuLs Lo granLs from WesLmlnsLer are seL Lo conLlnue unLll 2018-19. lf Lhe voLe ls Lo
leave Lhe uk, an lndependenL ScoLLlsh CovernmenL would llkely have Lo make
spendlng cuLs or Lax rlses of lLs own [usL Lo balance Lhe books. uellverlng Lhe
promlses ln Lhe WhlLe aper would need furLher Lax rlses, spendlng cuLs ln lower-
prlorlLy areas or hlgher borrowlng.
Lven lf oll revenues do rebound, ScoLland were able Lo negoLlaLe a favourable
deal on Lhe naLlonal debL and neL lmmlgraLlon were Lo lncrease, flxlng an
lndependenL ScoLland's governmenL flnances for Lhe long Lerm would probably
requlre blgger Lax rlses or spendlng cuLs Lhan Lhe uk would need. 1hls ls because lf
oll revenues evenLually decllne LhaL wlll knock a much blgger hole ln an lndependenL
ScoLland's budgeL (oll conLrlbuLes around 10 of ScoLland's LoLal revenues,
compared Lo less Lhan 1 for Lhe uk as a whole).
An lndependenL ScoLland could lncrease some Laxes and Lhere would be opLlons
for cuLLlng spendlng. lndependence would glve more freedom Lo pursue a dlfferenL,
and perhaps beLLer, economlc pollcy, Lo underLake Lhe radlcal, pollLlcally challenglng
reforms LhaL could generaLe addlLlonal growLh. 8uL lL ls much easler Lo say Lhlngs
would be beLLer lf Lhe economy grows qulcker Lhan lL ls Lo develop and lmplemenL
pollcles LhaL would acLually dellver LhaL exLra growLh. 1he ScoLLlsh CovernmenL has
suggesLed a few pollcles - such as cuLs Lo corporaLlon Lax and expanded chlldcare -
buL Lhe lmmedlaLe effecL would be Lo cosL Lhe governmenL money (and hence
weaken lLs flnances) and Lhe effecLs on growLh look unllkely Lo be enough Lo offseL
Lhls.
WheLher you belleve ScoLland's governmenL flnances would be ln a beLLer sLaLe lf
ScoLland voLes for lndependence, should depend on Lwo Lhlngs.
llrsL, do you Lhlnk Lhe ScoLLlsh CovernmenL could flnd new pollcles Lo dellver
a susLalned lncrease ln economlc growLh, and
second would LhaL addlLlonal growLh mean hlgher Lax recelpLs LhaL wlll more
Lhan ouLwelgh Lhe long run decllne ln oll revenues.
lf so Lhen an lndependenL ScoLland mlghL be able Lo conLlnue wlLh lLs relaLlvely
hlgh publlc spendlng wlLhouL much ln Lhe way of addlLlonal Lax lncreases. lf noL Lhe
ScoLLlsh CovernmenL's flnances would llkely be weaker lf Lhe resulL ls ?es.




##
If the vote |s es.



#4
uest|on 4: If the vote |s es, how |ong w||| the |ndependence negot|at|ons take
and what w||| the ma|n cha||enges be?

N|co|a McLwen

lndependence ls a process noL an evenL. 1haL process would be klck-sLarLed by a ?es
voLe ln Lhe referendum. 1he dynamlcs LhaL Lhese negoLlaLlons Lake, as well as Lhelr
ouLcome, could deLermlne Lhe klnd of counLry an lndependenL ScoLland would be.
1he LranslLlonal perlod beLween a ?es voLe and an lndependence seLLlemenL would
be a perlod of anxleLy for some and of opporLunlLy for oLhers. 1hls chapLer examlnes
how Lhe Lwo sldes see Lhe process of becomlng lndependenL and looks aL Lhe key
challenges.

1he negot|at|on process
When Lhe ScoLLlsh and uk CovernmenLs slgned Lhe hlsLorlc 'Ldlnburgh AgreemenL,'
whlch paved Lhe way for Lhe referendum, Lhey each commlLLed Lo work LogeLher ln
llghL of Lhe ouLcome, whaLever Lhe resulL. A recenL [olnL sLaLemenL of Lhe Lwo
governmenLs conflrms LhaL 'lf more people voLe '?es' Lhan voLe 'no' ln Lhe
referendum, ScoLland would become an lndependenL counLry'. lL seems a ?es
ma[orlLy, even lf won by Lhe narrowesL of marglns, would Lrlgger lndependence
negoLlaLlons. 1hese negoLlaLlons would confronL a number of challenges.
1he flrsL would be Lo deLermlne who makes up Lhe negoLlaLlng Leams. We can
expecL LhaL negoLlaLlons would be led by Lhe Lwo governmenLs, buL lL would be for
Lhe governmenLs Lo deLermlne how lncluslve or excluslve Lhelr Leam should be. 1he
ScoLLlsh CovernmenL has lndlcaLed LhaL lLs Leam would be led by Lhe llrsL MlnlsLer
and would lnclude 'flgures from across ScoLLlsh publlc llfe and ScoLland's oLher
pollLlcal parLles.' Clven LhaL lf a ?es voLe was secured, lL would llkely be wlLh a
slender ma[orlLy, lL would be lmporLanL Lo Lry Lo ensure LhaL Lhe negoLlaLlng Leam
was regarded as genulnely represenLaLlve of ScoLLlsh lnLeresLs. 1haL means
lnvolvlng, or aL leasL engaglng wlLh, Lhose who found Lhemselves on Lhe loslng slde,
lncludlng pollLlcal parLles and represenLaLlves of reglons who voLed agalnsL
lndependence. 1he challenge would be Lo ensure LhaL Lhe Leam could lnclude Lhose
who genulnely represenLed oLher parLles and lnLeresLs whlle belng able Lo malnLaln
unlLy of purpose and declslon-maklng capablllLles focused on securlng Lhe besL deal
for ScoLland.
1he uk CovernmenL has sald llLLle abouL how lL would approach lndependence
negoLlaLlons, defeaL ln Lhe referendum ls noL a prospecL elLher slde could
comforLably conLemplaLe aL Lhls sLage. 8uL lL would face slmllar, lf noL greaLer,
challenges ln composlng a negoLlaLlng Leam. Some of Lhose glvlng evldence Lo Lhe
Pouse of Lords SelecL CommlLLee on Lhe ConsLlLuLlon leaned Lowards a Leam of only
uk mlnlsLers, as was Lhe case when negoLlaLlng lrlsh secesslon nearly a cenLury ago.
1he commlLLee lLself favoured Lhls opLlon Lo ensure Lhe Leam remalned 'small and
able Lo acL qulckly and wlLh auLhorlLy.' Powever, Lhls ralses Lhree furLher
compllcaLlons. llrsL, Lhe uk CovernmenL lncludes mlnlsLers represenLlng ScoLLlsh
consLlLuencles, lndeed Lhose who are mosL famlllar wlLh Lhe lssues belng debaLed ln
Lhe referendum are ScoLLlsh Ms. 1he Lords consLlLuLlonal commlLLee recommended
LhaL Lhey be excluded from belng parL of Lhe resL of Lhe uk's negoLlaLlng Leam, a


#5
poslLlon whlch Lhe SecreLary of SLaLe for ScoLland appeared Lo endorse. Second, Lhe
lmmlnence of Lhe uk Ceneral elecLlon ln May 2013 makes Lhe excluslon of oLher
pollLlcal parLles very rlsky pollLlcally. lL could see Lhe negoLlaLlon process becomlng a
pollLlcally conLenLlous lssue wlLhln Lhe uk elecLlon campalgn. 1he elecLlon lLself
mlghL produce a new governmenL whlch wanLs Lo reopen agreemenLs reached aL an
earller sLage of negoLlaLlons. 1hlrd, Lhere would be sLrong pressure from Lhe
devolved assemblles ln Wales and norLhern lreland Lo ensure Lhelr lnLeresLs were
represenLed ln Lhe negoLlaLlon process - Lhe uk CovernmenL would surely be keen
Lo avold encouraglng naLlonallsL senLlmenL ln oLher parLs of Lhe uk.
A second challenge would be Lo ensure LhaL Lhe negoLlaLlons were as LransparenL
as posslble, wlLh boLh negoLlaLlng Leams accounLable Lo Lhelr respecLlve
parllamenLs. 8oLh Lhe ScoLLlsh and WesLmlnsLer parllamenLs may have a role Lo play
ln glvlng a leglslaLlve fooLlng Lo Lhe negoLlaLlons and boLh would have a key role ln
scruLlnlslng Lhe process. 1hls creaLes an amblguous poslLlon for Lhose Ms
represenLlng ScoLLlsh consLlLuencles who would sLlll be slLLlng ln WesLmlnsLer unLll
Lhe polnL of lndependence. 1here would be sLrong pressure Lo curLall Lhelr rlghLs Lo
parLlclpaLe ln any parL of Lhe scruLlny process - and Lo curLall Lhelr rlghL Lo
parLlclpaLe ln and voLe on oLher maLLers noL dlrecLly affecLlng ScoLland. 1he
parllamenLs would also have Lo raLlfy Lhe ouLcome of negoLlaLlons, lncludlng passlng
leglslaLlon Lo glve effecL Lo lndependence, as well as any leglslaLlon requlred Lo puL
ln place agreemenLs relaLed Lo shared lnsLlLuLlons beLween an lndependenL ScoLland
and Lhe resL of Lhe uk.
1he Lhlrd challenge ls Lhe LlmeLable. 1he ScoLLlsh CovernmenL envlsaged a
LlmeLable for negoLlaLlons whlch would enable lL Lo declare lndependence on 24
March 2016. 1hls would mean ScoLland could assume lLs sLaLus as an lndependenL
counLry ln advance of Lhe ScoLLlsh elecLlons scheduled for May 2016. 1here are
dlfferlng vlews among academlc experLs over how reallsLlc Lhls ls. . ln hls evldence Lo
Lhe Pouse of Lords CommlLLee on Lhe ConsLlLuLlon, rofessor Alan 8oyle noLed LhaL
Lhe lrlsh negoLlaLlons and Lhe negoLlaLlons leadlng Lo Lhe break-up of Czechoslovakla
lasLed [usL slx monLhs. Slnce many of Lhe lssues are slmllar wlLh respecL Lo Lhe
dlvlslon of asseLs and llablllLles and fuLure relaLlons beLween Lhe Lwo sLaLes 'Lhe 18
monLhs envlsaged by Lhe ScoLLlsh CovernmenL may appear generous.' Cn Lhe oLher
hand, rofessor laln McLean argued LhaL Lhe LlmeLable was unreallsLlc because Lhe
Llmlng of Lhe uk Ceneral LlecLlon would make lL dlfflculL Lo agree anyLhlng durlng
Lhe flrsL elghL monLhs followlng a ?es voLe, whlle rofessor Adam 1ompklns
suggesLed LhaL Lhe ScoLLlsh CovernmenL's 18 monLh LlmeLable was 'preposLerous'
boLh because of Lhe Llmlng of Lhe uk elecLlon and Lhe complexlLles of Lhe 'mlghLy,
dlfflculL Lask' of unplcklng a 307 year old unlon.
1he ScoLLlsh CovernmenL's LlmeLable for negoLlaLlons ls asplraLlonal. lL ls noL seL
ln sLone and cannoL be lmposed upon Lhe Leam negoLlaLlng for Lhe resL of Lhe uk.
lndeed, one of Lhe flrsL declslons for Lhe Leams may be Lo agree a seL of prlnclples Lo
gulde Lhe process of negoLlaLlon, lncludlng a proposed LlmeLable or key mllesLones.
1he slgnlflcance of Lhe uk Ceneral LlecLlon Lo Lhe LlmeLable for negoLlaLlng
lndependence may depend on Lhe exLenL Lo whlch Lhe currenL uk CovernmenL
reaches ouL Lo Lhe maln opposlLlon parLy ln composlng lLs own negoLlaLlng Leam and
conducLlng negoLlaLlons. 1he ouLcome of Lhe elecLlon obvlously maLLers Loo - a


#6
change of governmenL could produce a change of prlorlLles, Lhe re-elecLlon of a
ConservaLlve-led governmenL ls more llkely Lo malnLaln conLlnulLy of approach.

Negot|at|on dynam|cs and the key |ssues at stake
8oLh governmenLs wlll have an obllgaLlon Lo negoLlaLe ln good falLh, buL each wlll
also be keen Lo geL Lhe besL ouLcome for Lhelr respecLlve consLlLuenLs - and be seen
sLrlvlng Lo do so.
8efore decldlng how lnsLlLuLlons, asseLs and llablllLles wlll be dlsenLangled Lhe
Lwo parLles mlghL deLermlne whaL would be shared. 1here are around 300 publlc
bodles whlch currenLly operaLe aL Lhe uk level and acL for ScoLland. 1he ScoLLlsh
CovernmenL envlsages LhaL around 180 of Lhese would Lransfer Lhelr funcLlons Lo
new or exlsLlng bodles ln ScoLland upon, or followlng, lndependence whlle around 90
could conLlnue Lo be shared, lncludlng Lhe naLlonal LoLLery, Lhe Creen lnvesLmenL
8ank, Lhe unlverslLy research counclls, Lhe Clvll AvlaLlon AuLhorlLy, and nPS 8lood
and 1ransplanL.
lL may be posslble Lo reach agreemenL qulckly on sharlng some funcLlonal
lnsLlLuLlons, provlded Lhere was agreemenL on how Lo fund Lhelr operaLlons. CLher
proposals for sharlng arrangemenLs posL-lndependence may be more problemaLlc,
and sharlng key lnsLlLuLlons may requlre Lhe equlvalenL of an lnLernaLlonal LreaLy. A
currency and cenLral bank may fall lnLo Lhls caLegory. 1he ScoLLlsh CovernmenL
seems lnLenL on pushlng for a formal currency unlon ln splLe of an apparenL
consensus among Lhe uk parLles re[ecLlng Lhls proposlLlon. Whlle Lhls may lead one
Lo conclude LhaL such a unlLed opposlLlon could mean Lhls lssue ls dealL wlLh qulckly
(by Laklng currency unlon off Lhe Lable), lL would be lnexLrlcably llnked wlLh oLher
conLenLlous lssues. ln hls evldence Lo Lhe ScoLLlsh Affalrs CommlLLee, rofessor laln
McLean suggesLed LhaL a scenarlo ln whlch Lhe uk CovernmenL says 'on day one,
hour one, mlnuLe one, '?ou cannae have Lhe pound, LhaL's Lhe end of Lhe lssue' ' ls
lmplauslble because lL would Lhen be easy Lo envlsage LhaL on day one, mlnuLe Lwo,
Lhe ScoLLlsh CovernmenL would respond wlLh a hardllne lnslsLence on Lhe speedy
removal of nuclear weapons from Lhe Clyde. Such a scenarlo would be dlfflculL for
Lhe uk slnce Lhere ls currenLly no obvlous base Lo whlch Lhe mlsslles could relocaLe.
1he dlvlslon of asseLs and llablllLles ls dlscussed ln deLall ln anoLher chapLer, buL ln
prlnclple, boLh governmenLs would be under an obllgaLlon Lo Lry Lo agree an
equlLable apporLlonmenL. 8uL deLermlnlng whaL ls 'equlLable' ls a pollLlcal maLLer.
ulfferenL prlnclples may apply Lo dlfferenL asseLs. lor example, ln some cases, lL may
be approprlaLe Lo apporLlon a geographlc share Lo ScoLland for land or sea-based
asseLs, such as oll and gas, or bulldlngs owned by Lhe Crown LsLaLe or Lhe defence
esLaLe. lL may be more compllcaLed when lL comes Lo uk bulldlngs whlch are also
parL of Lhe machlnery of uk CovernmenL. 1he ScoLLlsh CovernmenL assumes LhaL
many of Lhe 30,000 uk clvll servanLs currenLly worklng ln ScoLland wlll Lransfer Lo
Lhe ScoLLlsh CovernmenL upon lndependence. ln some cases, lL suggesLs agreemenL
could be reached Lo dellver some servlces [olnLly, for example, Lo cover penslons and
beneflLs. 1he fuLure of uk CovernmenL offlces and Lhelr personnel would clearly be a
maLLer for negoLlaLlon. Sharlng bureaucracles, whlle feaslble, would come aL a prlce
whlch ls noL [usL flnanclal - lL would enLall a degree of lnLergovernmenLal pollcy co-
ordlnaLlon LhaL could llmlL Lhe opLlons for elLher governmenL Lo lmplemenL dlfferenL
pollcles.


#7

opulaLlon raLher Lhan geography wlll be a more approprlaLe gulde Lo Lhe dlvlslon
of some asseLs. 1hls may, ln effecL, be a populaLlon-based share of Lhe voloe of
asseLs raLher Lhan Lhe asseLs Lhemselves, for example, ln Lhe case of embassles or
consulaLes overseas or defence equlpmenL. WlLh respecL Lo Lhe dlvlslon of debLs, Lhe
expecLaLlon would be LhaL each parLy Lake an agreed share of Lhe naLlonal publlc
debL, buL Lhe ScoLLlsh CovernmenL may argue LhaL raLher Lhan slmply uslng
populaLlon share as Lhe gulde, Lhe hlsLorlc conLrlbuLlon made Lo Lhe uk's publlc
flnances (presumably lncludlng norLh Sea oll wealLh already spenL) should also be
Laken lnLo accounL. lL has also suggesLed LhaL lL may choose Lo offseL parL of Lhe
share of uk asseLs agalnsL lnherlLed debL. 1he rlghLs of, and obllgaLlons Lo, Lhlrd
parLy credlLors would also have Lo be consldered.

Conc|us|on
As wlLh many lssues dlscussed ln Lhls book, lL ls lmposslble Lo glve deflnlLlve answers
Lo Lhe quesLlons concernlng Lhe process and Llmlng of negoLlaLlon. ln any
negoLlaLlon, Lhere ls glve and Lake on boLh sldes. noL everyLhlng need be agreed
before ScoLLlsh lndependence can be formally recognlsed by Lhe uk CovernmenL
and Lhe lnLernaLlonal communlLy. 8ecomlng lndependenL, and renegoLlaLlng Lhe
relaLlonshlps beLween Lhe naLlons and reglons of Lhese lsles, would be an evolvlng
process, noL a one-off evenL. 8uL glven Lhe lnevlLable uncerLalnLy LhaL would follow a
?es voLe, Lhe aLLendanL rlsks of such uncerLalnLy on Lhe behavlour of clLlzens,
buslnesses and lnvesLors, and Lhe nervousness whlch ls llkely Lo be felL among oLher
sLaLes aL Lhe poLenLlal repercusslons of an lndependence voLe beyond Lhese shores,
Lhere would be enormous pressure on boLh governmenLs Lo negoLlaLe an agreemenL
on Lhe key lssues as qulckly and as cleanly as posslble.




#8
uest|on S: If Scot|and votes es, how w||| assets and ||ab|||t|es be d|v|ded?

Angus ArmsLrong and Monlque Lbell

ln Lhe evenL of a voLe ln favour of ScoLLlsh lndependence, Lngland, Wales and
norLhern lreland would become Lhe conLlnulng uk sLaLe and ScoLland would
become a new, separaLe soverelgn counLry. 1he lnsLlLuLlons of Lhe currenL uk, such
as Lhe 8ank of Lngland, would conLlnue Lo be lnsLlLuLlons of Lhe uk buL no longer
responslble Lo ScoLland, unless boLh soverelgn sLaLes agree oLherwlse. All llablllLles -
promlses Lo pay - lncurred by Lhese lnsLlLuLlons afLer lndependence would belong Lo
Lhe conLlnulng uk only and would noL be Lhe responslblllLy of an lndependenL
ScoLland.
1here ls, however, Lhe lssue of dlvldlng up Lhe asseLs and llablllLles of Lhe currenL
uk sLaLe aL Lhe Llme ScoLland mlghL become an lndependenL counLry. 1hls dlvlslon ls
cruclal for Lhe vlablllLy of alLernaLlve economlc frameworks (see ln parLlcular
CuesLlon 2, on Lhe currency arrangemenL) and capaclLy for an lndependenL
governmenL Lo manage Lhe economy. uesplLe Lhe fluldlLy of lnLernaLlonal borders
over Lhe pasL slxLy years, whlch has seen dozens of new soverelgn counLrles creaLed,
hlsLory offers surprlslngly few precedenLs on how Lo dlvlde sLaLe asseLs and
llablllLles. Some clalm LhaL Lhe un vlenna ConvenLlon of 1983 (ArLlcle 40) provldes a
legal basls. ?eL Lhe convenLlon only requlres an'equlLable' dlvlslon of asseLs and
debL, leavlng 'equlLable' undeflned. Moreover, Lhe ConvenLlon was noL raLlfled by
any CLCu counLry and so hardly consLlLuLes a legal gulde.

ub||c sector assets and ||ab|||t|es
1he besL reglsLer of uk publlc secLor asseLs and llablllLles ls Lhe Whole of
CovernmenL AccounLs (WCA) publlshed by Lhe uk 1reasury. 1hese glve a LoLal asseL
flgure of 1,268 bllllon (Lhe sum of physlcal asseLs, plus oLher asseLs and equlLy
lnvesLmenLs) whlch ls quoLed ln Lhe ScoLLlsh CovernmenL's WhlLe aper as Lhe 'neL'
asseLs Lo be shared lf ScoLland becomes lndependenL. 1hls lncludes 743 bllllon of
physlcal asseLs lncludlng properLy ln Lhe uk and overseas and Lhe lnfrasLrucLure,
such as Lhe road neLwork. MosL of Lhe physlcal asseLs are speclflc Lo Lhelr locaLlon
and lL ls noL obvlous LhaL a markeL value would be as hlgh.
1he WCA exclude naLural resources, such as Lhe counLryslde and envlronmenL,
and, ln parLlcular, Lhe remalnlng norLh Sea oll and gas flelds, whlch would be keenly
conLesLed ln negoLlaLlons. MarlLlme experLs expecL LhaL Lhe oll and gas flelds wlll be
allocaLed by locaLlon, wlLh Lhe medlan llne beLween ScoLland and oLher parLs of Lhe
uk Lhe mosL llkely boundary. Cn Lhls basls, an lndependenL ScoLland could recelve
up Lo 84 of Lax revenues from Lhe remalnlng reserves. 1he amounLs lnvolved are
uncerLaln and dlspuLed. Accordlng Lo Lhe Cfflce of 8udgeL 8esponslblllLy's (C88)
cenLral forecasL, Lhe LoLal undlscounLed Lax yleld beLween 2019-20 and 2040-41 ls
esLlmaLed aL 39 bllllon. lf an lndependenL ScoLland ls awarded a geographlc share
of Lhe oll and gas flelds, Lhe Lax yleld would be 33 bllllon ln cash Lerms. 1hls beneflL
Lo ScoLland ls mlrrored by a Lax loss Lo Lhe conLlnulng uk.

ub||c sector debt
Slnce Lhe unlon was creaLed, all clLlzens of Lhe uk have also beneflLed Lo a greaLer or
lesser exLenL from Lhe servlces and lnvesLmenLs provlded by Lhe sLaLe. lf ScoLland
becomes lndependenL, Lhe new ScoLLlsh sLaLe wlll be expecLed Lo compensaLe Lhe


#9
conLlnulng uk sLaLe for belng relleved of (l.e. no longer obllged Lo pay) lLs share of
ouLsLandlng uk publlc debL aL Lhe daLe of lndependence. 1hls compensaLlon ls
complex and ralses Lhree lmporLanL lssues.
Whlch measure of exlsLlng uk publlc debL ls approprlaLe?
Pow would Lhe publlc secLor debL be dlvlded?
Pow would an lndependenL ScoLland assume lLs share?

Wh|ch measure of debt?
1he amounL of debL Lo be shared depends on Lhe deflnlLlon of debL. 1he WCA neL
llablllLles of 1,347 bllllon already Lake lnLo accounL Lhe asseLs and lnclude known
fuLure obllgaLlons. lL ls Lherefore Lhe mosL compleLe measure of Lhe uk's obllgaLlons
and can be LhoughL of as a counLerparL Lo Lhe ubllc SecLor neL uebL (Snu) used by
boLh Lhe uk 1reasury and Lhe ScoLLlsh CovernmenL ln Lhelr pro[ecLlons of flscal
susLalnablllLy. 1he C88 forecasLs LhaL Snu wlll reach 1,439 bllllon aL Lhe end of Lhe
flscal year 2013/16, Lhe daLe aL whlch lndependence would occur. A broader
measure of Cross uebL ls more ofLen used lnLernaLlonally and does noL allow for
neLLlng-off llquld asseLs or Lhe excluslon of debLs lssued by oLher publlc bodles. We
prefer Lhls measure as a more accuraLe lndlcaLlon of fundlng pressure because, ln
pracLlce, all governmenLs requlre a sLock of llquld asseLs and Lherefore deducLlng
Lhem provldes a low esLlmaLe of Lhe amounL of debL whlch has Lo be lncurred. Cross
debL ls also less vulnerable Lo changes ln sLaLlsLlcal classlflcaLlons Lhan Lhe Snu
(expecLed laLer Lhls year) whlch do noL change Lhe acLual debL ouLsLandlng. 1he uk
gross debL ls pro[ecLed by Lhe C88 Lo be 1,701 bllllon aL Lhe end of 2013/16.

now to d|v|de the debt?
Cnce Lhe measure of debL has been agreed, Lhe nexL lssue ls Lhe basls on whlch lL ls
Lo be dlvlded. 1here have been Lwo cases of 'frlendly' campalgns for lndependence
LhaL provlde some guldance: flrsL, Lhe separaLlon of Czechoslovakla ln 1993, and
second, Lhe voLe agalnsL Cuebec's lndependence from Canada ln 1993. So far as
general prlnclples can be drawn, flxed asseLs are generally dlvlded on Lhe basls of
physlcal locaLlon. 1hls makes sense as mosL of Lhe flxed asseLs are speclflc Lo Lhelr
locaLlon, such as roads or Lhe naLlonal Callerles ln Ldlnburgh, or ln London ln
1rafalgar Square. non-physlcal asseLs and llablllLles are dlvlded on some basls of
'falrness' or equlLy, of whlch Lwo maln measures are a populaLlon and ablllLy Lo pay.
1he dlvlslon of uk debLs would be an lmporLanL negoLlaLlon and we can lllusLraLe
how poslLlons of Lhe Lwo sldes mlghL dlffer by looklng aL Lhe dlfferenL deflnlLlons of
debL. Cn a populaLlon basls, an lndependenL ScoLland would be responslble for 8.4
of Lhe ouLsLandlng debL. ScoLland's lnlLlal Cross uebL (on Lhe wldely used
lnLernaLlonal measure) would be 143 bllllon, or 86 of ScoLLlsh Cross uomesLlc
roducL (Cu). Cn Lhe narrower Snu measure an lndependenL ScoLland's debL
would be would fall Lo 121 bllllon, or 73 of Cu. 1he laLLer raLlo ls lncluded ln Lhe
uk 1reasury and ScoLLlsh CovernmenL reporLs.
1he ScoLLlsh CovernmenL has suggesLed a Lhlrd approach based on whaL Lhey call
a 'hlsLorlc' share slnce 1980, whlch would leave an lndependenL ScoLland wlLh debL
of 109 bllllon or 64 of Cu. 1he key lssues are wheLher sLarLlng ln 1980 ls
reasonable (raLher Lhan some oLher daLe) and wheLher a reLrospecLlve calculaLlon ls
[usLlfled. lor example, had ScoLland kepL Lhe oll Lax revenues slnce 1980, ls lL
reasonable Lo assume everyLhlng else would have been unchanged (e.g. would Lhere
have been a moneLary unlon)? ?eL anoLher opLlon ls 'ablllLy Lo pay'. Cn Lhls basls an


#:
lndependenL ScoLland would have a hlgher per-caplLa Cu lncludlng norLh Sea oll
ouLpuL and so would Lake on a greaLer share of publlc debL Lhan all of Lhe amounLs
quoLed above.
1he ScoLLlsh CovernmenL has also ralsed Lhe ldea LhaL Lhe 373 bllllon of uk
CovernmenL bonds boughL for CuanLlLaLlve Laslng (CL) and held by Lhe 8ank of
Lngland, could be deducLed from Lhe Snu. 1he apparenL reasonlng ls LhaL as Lhese
are asseLs held by one arm of Lhe sLaLe, so Lhey can be 'cancelled ouL' agalnsL
governmenL debL. Powever, Lhere are aL leasL Lwo serlous problems wlLh Lhls
argumenL. llrsL, Lhe asseLs have been boughL by lssulng anoLher offseLLlng llablllLy
(namely newly creaLed money) of Lhe same value so Lhe governmenL bonds held for
CL are already balanced by an equlvalenL llablllLy, so Lhere ls no neL asseL holdlng for
Lhe governmenL. Second, when Lhe asseLs maLure new debL (ln Lhe form of
governmenL bonds) wlll need Lo be lssued by Lhe uk CovernmenL Lo repay Lhe 8ank
of Lngland. lor Lhese reasons we are very doubLful LhaL Lhe CL asseLs can somehow
be 'cancelled ouL' and deducLed from Lhe Snu measure of governmenL debL.

now wou|d Scot|and assume |ts share of debt?
1he preclse means of Lransferrlng Lhe debL ls also of greaL lmporLance. 1he uk
1reasury has already assumed full responslblllLy for all uk CovernmenL debL. 1hls
ruled-ouL somehow sharlng ouL Lhe ouLsLandlng debL, whlch would have probably
consLlLuLed a Lechnlcal defaulL. 1hls leaves Lwo broad opLlons for Lhe ScoLLlsh
CovernmenL Lo compensaLe Lhe uk. 1he flrsL opLlon ls where ScoLland pays Lhe full
amounL of lLs share aL lndependence, whlch we call a 'clean break' opLlon. A slmple
back of Lhe envelope calculaLlon (Laklng Lhe duraLlon of uk publlc debL aL 8.3 years
and dlscounLlng aL 4.1 Lhe average yleld on 10 year uk gllLs slnce 2000) reduces Lhe
presenL value of a populaLlon share of Cross uebL Lo 102 bllllon. 'Clean break'
lmplles Lhe ScoLLlsh CovernmenL pays Lhe uk CovernmenL 102 bllllon ln cash ln
2016/17. 1hls mlghL be parLlally accompllshed by a 'debL for oll' swap, or by Lhe
lndependenL ScoLLlsh CovernmenL lssulng new bonds Lo ralse Lhls amounL of money.
8alslng 102 bllllon ln caplLal markeLs mlghL be qulLe challenglng for a newly
esLabllshed counLry, however.
1he second opLlon, noLed ln Lhe ScoLLlsh CovernmenL's WhlLe aper, ls LhaL an
lndependenL ScoLLlsh CovernmenL would commlL Lo paylng lLs share of lnLeresL and
prlnclpal paymenLs as and when Lhey fall due. We call Lhls Lhe 'lCu' opLlon. We Lake
Lhls Lo mean LhaL lf Lhe uk's debL sLock lncluded, say, 1 bllllon of flve year 'gllLs'
(governmenL bonds due for repaymenL ln flve years) and ScoLland were responslble
for 8.4 of Lhe debL, Lhen ScoLland would pay Lhe lnLeresL on 84 mllllon, when lL
fell due every slx monLhs, and repay 84 mllllon of Lhe prlnclpal aL Lhe end of Lhe flve
years. 1he same paLLern would occur across Lhe 'overall maLurlLy proflle of uk debL'.
1he lmporLanL lssue ls whaL Lhls lmplles for Lhe debL repaymenL schedule of an
lndependenL ScoLland. 1he amounL of debL an lndependenL ScoLland would need Lo
lssue ln lLs flrsL year has Lhree parLs: Lhe amounL of debL Lo be re-flnanced as lL
maLures (descrlbed above), plus lnLeresL on Lhe remalnder of Lhe lCu, plus enough
Lo cover any new budgeL deflclL (revenues mlnus spendlng) whlch mlghL be lncurred.
We have argued elsewhere LhaL an lndependenL ScoLLlsh CovernmenL would have Lo
borrow 23 bllllon ln lLs flrsL year. Powever, Lhe uk 1reasury Lakes a far more
lenlenL approach Lhan we do. lL assumes a populaLlon share of Snu raLher Lhan
Cross uebL and LhaL only 3 of Lhe debL maLures ln Lhe flrsL year. 8ased on Lhese
assumpLlons, Lhe LoLal amounL of debL Lo be ralsed ln Lhe flrsL year of lndependence


4;
would be only 16 bllllon. A crlLlcal quesLlon ls Lhe cosL aL whlch an lndependenL
ScoLland could borrow Lhls amounL.

8orrow|ng costs
Lven lf an lndependenL ScoLland uses sLerllng, Lhere ls no reason Lo assume LhaL lL
would have Lhe same borrowlng cosLs as Lhe resL of Lhe uk. lor example, eurozone
counLrles have very dlfferenL borrowlng cosLs desplLe uslng Lhe same currency. We
have esLlmaLed LhaL an lndependenL ScoLLlsh CovernmenL would be llkely Lo pay
beLween 0.72 and 1.63 hlgher lnLeresL raLes Lhan would be Lhe case for Lhe uk
for borrowlng over Len years. Cur analysls shows LhaL Lhe mosL lmporLanL facLor for
Lhls hlgher raLe ls Lhe slze of Lhe counLry. Large counLrles have much blgger markeLs
for governmenL debL Lhan small ones, meanlng LhaL lnvesLors can buy and sell Lhelr
holdlngs more easlly. 1hey compensaLe for Lhls by charglng small counLrles hlgher
raLes of lnLeresL.
1he hlgher borrowlng cosLs would be anoLher facLor addlng Lo Lhe hlgher debL
requlremenL ln Lhe flrsL year of lndependence. Plgher governmenL borrowlng cosLs
would also be llkely Lo lead Lo hlgher borrowlng cosLs for households and buslnesses
ln an lndependenL ScoLland compared Lo Lhe uk. Powever, Lhe lncrease mlghL noL
be as much. rlvaLe clLlzens generally borrow for shorLer perlods Lhan governmenLs
(e.g. morLgages are Lled Lo shorL Lerm lnLeresL raLes). 1herefore, prlvaLe borrowlng
cosLs are llkely Lo reflecL dlfferences ln shorL Lerm lnLeresL raLes, whlch are llkely Lo
be much smaller Lhan Lhe Len year lnLeresL raLes we esLlmaLed.
1he exLenL Lo whlch an lndependenL ScoLland uslng sLerllng would have hlgher
borrowlng cosLs Lhan Lhe resL of Lhe uk depends on Lhe naLure of Lhe currency
arrangemenL. WlLh all of Lhese debL flgures fresh ln Lhe mlnd, we recommend
readers Lurn Lo CuesLlon 2 on Lhe currency arrangemenL. We cannoL sLress enough
Lhe lmporLance of conslderlng Lhe currency quesLlon ln con[uncLlon wlLh Lhe debL
lssues dlscussed above.



4"
uest|on 6: If there |s a es vote, how |ong wou|d |t take to set up a new Scott|sh
state and how much wou|d |t cost?

aLrlck uunleavy

Pow Lhe uk sLaLe operaLes ls well known Lo ScoLland's voLers. 8uL how would a
ScoLLlsh sLaLe work? Pow cosLly would lL be Lo esLabllsh new lnsLlLuLlons ln Lhe shorL
Lerm? Pow feaslble ls Lhe LranslLlon process proposed? And how long would lL Lake,
and aL whaL cosL, Lo achleve Lhe separaLlon of ScoLLlsh governance compleLely from
Lhe uk?
1hese lssues have only so far been addressed ln a raLher fragmenLed way ln Lhe
ScoLLlsh CovernmenL's WhlLe aper 5cotlooJs lotote and ln a serles of uk clvll
servlce brleflngs dlscusslng varlous deLalled problems LhaL an lndependenL ScoLland
mlghL face. 1he publlc debaLe has noL really addressed Lhese lssues ln a clear way. A
uk 1reasury brleflng ln laLe May 2014 dld noL help, conLalnlng as lL dld some
specLacularly wrong lnformaLlon, whlch greaLly muddled Lhe waLers. WhaL we Lry Lo
do here lnsLead ls Lo show whaL deflnlLe cosLs we can esLlmaLe wlll be lncurred ln
Lhe shorL Lerm - Lhese are genulne 'seL-up cosLs'. We also look aL Lhe longer Lerm
cosLs of achlevlng a LranslLlon Lo ScoLLlsh lndependence - uslng Lhe LlmeLables and
commlLmenLs lncluded ln Lhe ScoLLlsh CovernmenL's WhlLe aper (whlch are Lhe
only ones avallable).

1he key tasks |n ach|ev|ng a smooth trans|t|on
1he ScoLLlsh CovernmenL have pledged LhaL Lhelr Lop prlorlLy wlll be Lo achleve a
smooLh LranslLlon Lo lndependence by March 2016. WhaL LhaL means ln concreLe
Lerms ls summed up by Lhe really blg Lhlngs ScoLland musL do for lLself.
A new Scott|sh Defence Iorce (lncorporaLlng army, navy and alr force unlLs)
would need Lo be esLabllshed. 1hls wlll probably lnclude around 10,000 personnel,
plus a new uefence ulrecLoraLe lnslde Lhe ScoLLlsh CovernmenL, perhaps lnvolvlng
around 3,000 sLaff (currenL MlnlsLry of uefence sLaff ln ScoLland ls somewhaL more
Lhan Lhls).
A new, lnLegraLed Scott|sh Secur|ty and Inte|||gence Agency would need Lo be seL
up also, coverlng lnLernal securlLy, overseas lnLelllgence gaLherlng and elecLronlc and
cyber securlLy. lollowlng Lhe Scandlnavlan paLLern, lL would work closely Lhe
naLlonal pollce force for ScoLland, already esLabllshed by Lhe Sn governmenL.
ScoLland would also need Lo creaLe a fore|gn m|n|stry and a core group of
overseas embassles coverlng ma[or counLrles, probably bulldlng ouL from exlsLlng
overseas ScoLLlsh CovernmenL offlces. A full embassy neLwork coverlng abouL 30
counLrles would come laLer. lnlLlally many ScoLLlsh embassles mlghL slL ln uk or
oLher Lu counLrles' embassles.
1hese are Lhe only brand new agencles LhaL ScoLland wlll need. 8uL ln addlLlon a
large number of sLaff would Lransfer from Lhe uk Lo Lhe ScoLLlsh CovernmenL. !usL
under 8,000 people work for Lhe uk's Lax agency PM8C ln ScoLland (noL all on
ScoLLlsh Laxes) - Lhey would need Lo be lncorporaLed lnLo a greaLly expanded
Scott|sh I|nance and Lconomy d|rectorate.
Some 9,300 sLaff work for Lhe uk's ueparLmenL of Work and enslons ln ScoLland,
agaln noL all on ScoLLlsh beneflLs alone. 1hey would come under a greaLly expanded


4#
ScoLLlsh CovernmenL dlrecLoraLe coverlng soc|a| we|fare a|ongs|de we||be|ng and
nPS ln ScoLland (already devolved).
And flnally Lhe currenLly beleaguered uk assport Cff|ce would need Lo Lransfer
lLs Clasgow sLaff over Lo ScoLLlsh CovernmenL conLrol.
Cf course, modern governmenL ls noL [usL abouL cenLral governmenL deparLmenLs
dlrecLly conLrolled by mlnlsLers. A loL of rouLlne or Lechnlcal work also goes on ln
agencles, separaLed from maln deparLmenLs, or ln arms-lengLh publlc bodles
handllng professlonal lssues LhaL we don'L wanL mlnlsLers Lo lnLerfere ln dlrecLly. So
Lhe blg changes above are only parL of Lhe plcLure. 1here are 206 deparLmenLs,
agencles and bodles LhaL Lhe uk CovernmenL says currenLly handle ScoLland
maLLers. Medlum scale bodles spend some slgnlflcanL amounL of money or
lmplemenL servlces, buL small or Llny bodles make up a Lhlrd of Lhe LoLal - Lhey do
speclallsL Lasks, or are [usL advlsory commlLLees. Many bodles are already operaLlng
on a shared basls wlLh ScoLland's devolved governmenL and so do noL need ma[or
reorganlsaLlon, as wlLh mosL uk-level nPS bodles.
Much of uk CovernmenL ls hlghly elaboraLe and long-llved, however - so lL ls noL
aL all clear LhaL a ScoLLlsh CovernmenL would need all Lhese bodles. ln facL, we have
carefully consldered Lhe full llsL and concluded LhaL 43 of Lhem would noL need
ScoLLlsh CovernmenL equlvalenLs. We are also clear ln some cases LhaL lssues
handled by mulLlple bodles aL uk level would requlre only one ScoLLlsh body. Cur
[udgemenLs are noL ln any way Lhe offlclal cholces of Lhe ScoLLlsh CovernmenL - buL
Lhey do aL leasL suggesL LhaL Lhere ls a conslderable scope for 'sLreamllnlng' whaL
geLs done norLh of Lhe border, compared Lo uk pracLlce. ln facL, we Lhlnk LhaL raLher
Lhan 206 bodles ScoLland would need no more Lhan 136 bodles, of whlch less Lhan
60 would be new and of any slgnlflcanL slze aL all.
WhaL wlll all Lhls mean for cenLral governmenL wlLhln ScoLland? We belleve Lhere
would have Lo be a blg change ln Lhe scale of clvll servlce, buL noL LhaL much change
ln how lL operaLes.
CurrenLly Lhe pollcy-maklng ScoLLlsh CovernmenL operaLes wlLh [usL 3,000 clvll
servanLs, uslng a modern and effecLlve way of organlslng called 'dlrecLoraLes.' ln
conLrasL Lo Lhe deeply embedded 'sllos' of WhlLehall deparLmenLs, ScoLLlsh
CovernmenL ls currenLly run as a slngle organlsaLlon uslng Lhe same human
resources and l1 sysLems, buL wlLh slx dlrecLoraLes. 8eyond Lhls core, Lhere are oLher
ma[or agencles dolng dlscreLe Lasks (llke Lhe ScoLLlsh prlsons) LhaL are separaLely
managed. Lach of Lhe ScoLLlsh dlrecLoraLes usually works for several mlnlsLers wlLh
dlfferenL pollcy brlefs. 1he mosL senlor mlnlsLers are called CablneL SecreLarles and
always aLLend cablneL, whlle oLher mlnlsLers go as needed based on Lhe day's
buslness. MosL currenL ScoLLlsh cablneL meeLlngs have around Len mlnlsLers presenL,
and Lhere are only a couple of sub-commlLLees. 1hls has proved a very effecLlve
paLLern of governmenL, wlLh sLaff numbers held down, spendlng conLrols well
managed and pollcy developmenL generally aL leasL as good as LhaL ln Lhe uk.
AfLer lndependence Lhe ScoLLlsh CovernmenL plan Lo malnLaln Lhelr dlrecLoraLes,
buL Lo enlarge Lhe number from flve Lo nlne, wlLh Lhe llrsL MlnlsLer runnlng a small
pollcy dlrecLoraLe handllng LranslLlon negoLlaLlons, and elghL oLhers. Cne of Lhese
wlll be wholly new (coverlng defence and forelgn affalrs). 1hree oLhers are greaLly
expanded buL drawlng on some exlsLlng experlence (forelgn affalrs, flnance and Lax,
and soclal securlLy). Cn Lhe face of lL, Lhese plans are clear and modesL, drawlng on


44
exlsLlng sLrengLhs and developlng Lhem. 1he ScoLLlsh cablneL would also be blgger,
wlLh probably around 13 people slLLlng around Lhe Lable from 2016 lnsLead of Len,
and more sub-commlLLees. 8uL compared wlLh all oLher CLCu governmenLs, whlch
generally have around 13 separaLe mlnlsLrles, ScoLland's nlne dlrecLoraLes answerlng
Lo around nlne Lop rank CablneL SecreLarles (and more mlnlsLers) sLlll looks lean.

1he trans|t|on t|metab|e
1he slngle besL aLLesLed lesson of all publlc managemenL ls LhaL Lhe cosLs (and oLher
rlsks) of a speedy or forced LranslLlon are always greaLer Lhan Lhose changes LhaL are
properly planned, Lrlalled and phased, so LhaL effecLlve lmplemenLaLlon can Lake
place aL each sLage. ln Lhe ScoLLlsh case Lhe governmenL has acLually seL ouL ln lLs
WhlLe aper a reasonable LlmeLable for lmplemenLlng changes. 1he key declslon
LhaL Salmond and colleagues have made ls Lo move raLher brlskly from a ?es voLe Lo
lndependence, buL Lo focus on [usL Lhe key Lasks. 8y 2016 ScoLland wlll have pollcy
conLrol of some of Lhe blggesL lssues, buL even ln defence lLs capablllLy wlll only [usL
be beglnnlng, and no compleLe separaLlon from uk sysLems ls envlsaged.
Lven ln lmporLanL areas llke defence plannlng, back offlce and procuremenL, and
some Laxes, lL wlll Lake a conslderable Llme for ScoLland Lo bulld up lLs own sysLems.
And ln some Lechnlcal areas, LhaL maLLer a loL less for ScoLLlsh pollcymaklng, Lhe
LranslLlon wlll Lake more Lhan seven years. lor lnsLance Lhe reglsLerlng of vehlcles
and llcenslng of drlvers carrled ouL by uvLA and Lhree oLher uk agencles wlll
conLlnue Lo be based ln Swansea unLll aL leasL 2021.
So whaL would happen wlLh Lhlngs LhaL have noL been moved over Lo full ScoLLlsh
conLrol? 1he ScoLLlsh CovernmenL wlll obvlously wanL Lo brand and manage all lLs
communlcaLlons wlLh clLlzens - so webslLes and forms would carry Lhe SalLlre and
conLacL deLalls for sLaff based ln ScoLland. 8uL for some years Lhe 'back offlce'
sysLems for boLh Lax sysLems and beneflLs would need Lo run Lhrough Lhe exlsLlng,
very compllcaLed compuLer and l1 seL-ups ln Lhe PM8C and uW. And only when
Lhese sysLems were fully replaced wlLh new ScoLLlsh ones would mlnlsLers ln
Ldlnburgh galn Lhe full freedom Lo vary beneflLs for ScoLLlsh clLlzens (planned for
2018) and personal Laxes ln ScoLland (planned for 2020).
1hroughouL Lhese longer LranslLlon perlods Lhen, how would ScoLland conLlnue Lo
geL Lhe conLlnulng servlces lL needs from WhlLehall? 1he deLalls would need Lo be
negoLlaLed wlLh Lhe resL of Lhe uk, buL ln every case ScoLland would have Lo pay Lhe
exlsLlng cosLs for Lhese servlces, plus a small addlLlon.

1he costs of trans|t|on (and poss|b|e offsett|ng sav|ngs)
1here are flve maln Lypes of cosLs (and also poLenLlal savlngs) lnvolved for ScoLland
here.

Set-up costs are Lhose lncurred by ScoLland only, ln Lhe early LranslLlon perlod
(especlally from a ?es voLe Lo March 2016) ln dupllcaLlng a capaclLy LhaL already
exlsLs ln Lhe uk. 1hese cosLs are unavoldable, one-off cosLs of LranslLlon LhaL creaLe
no addlLlonal or offseLLlng welfare galn for ScoLland's clLlzens. We have esLlmaLed
Lhe seL-up cosLs for ScoLLlsh CovernmenL as belng ln Lhe range from 130 mllllon Lo
200 mllllon - LhaL ls 30 Lo 40 per person. lf ScoLland can do Lhe [ob Lhe uk


45
apparaLus does wlLh fewer or smaller bodles, Lhen lL can generaLe sLreamllnlng
savlngs Lo offseL Lhe seL-up cosLs.

D|sentang||ng costs arlse because currenL uk-run processes LreaL ScoLland and resL
of Lhe uk clLlzens ln a merged way. lollowlng a ?es voLe, governmenLs on boLh sldes
of Lhe border wlll need Lo de-merge daLa abouL clLlzens, Laxpayers, beneflLs
clalmanLs, buslness Laxpayers and so on, and perhaps change some back-offlce
operaLlonal processes so as Lo re-allocaLe Lhem. 1he raLlonal Lhlng for boLh ScoLland
and London governmenLs ls do each of Lhese Lasks only once, so LhaL Lhe cosLs
lnvolved would be shared beLween Lhem.

1rans|t|on costs occur when ScoLland negoLlaLes or conLracLs wlLh Lhe resL of Lhe uk
Lo keep dolng parL of processes LhaL would cosL Loo much Lo change durlng Lhe
LranslLlon perlod. noLlce here Lhough LhaL only Lhe extto cosL of Lhe conLracL
negoLlaLlon and monlLorlng are new burdens borne by ScoLLlsh Laxpayers - wlLh
unchanged sysLems Lhe maln bulk of servlces cosLs wlll be Lhe same afLer
lndependence as Lhey were before.

Investment costs have Lo be borne by ScoLland ln order for lLs pollcy makers Lo galn
full conLrol over Lhe Lax, beneflLs and defence areas, runnlng all Lhe back-offlce
sysLems ln a self-sufflclenL way. When Lhe new ScoLLlsh CovernmenL and parllamenL
have deslgned Lhelr Lax and welfare pollcles for Lhe long Lerm ScoLland can lnvesL ln
modernlsed, purpose-bullL compuLer sysLems and admlnlsLraLlon Lo permanenLly
replace uk provlslon. And as Lhe ScoLLlsh uefence lorce bullds up, Lhey Loo can Lake
over Lhelr own command and conLrol, procuremenL and oLher complex back offlce
funcLlons. 1he uk 1reasury has noL glven any speclflc numbers for defence, buL Lhey
have puL forward some large numbers abouL Lwo oLher areas. 1hey say:
Lhe ScoLLlsh CovernmenL would need Lo pay 400 mllllon Lo creaLe new l1
sysLems and processes Lo handle all welfare beneflLs lLself - whlch ls LargeLed
Lo happen by 2018, and
Lhey would need Lo pay 300 mllllon Lo creaLe l1 sysLems capable of handllng
all Lhelr Lax admlnlsLraLlon - Lhe maln bulk of whlch ls due Lo happen by
2020.
1hese esLlmaLes are noL based on any careful analysls, buL glven prevalllng l1 and
change cosLs Lhey do noL seem lmplauslble. Powever, Lhese are noL [usL 'seL-up
cosLs,' because ScoLland would be replaclng older and complex legacy l1 sysLems ln
each case, wlLh newer, modern l1 sysLems LhaL would lasL for a long Llme (aL leasL
Len years), and could well be cheaper and far more flexlble Lo operaLe. Pence Lhese
are lnvesLmenLs (noL [usL seL-up expenses).

o||cy cost sav|ngs would accrue Lo ScoLland lf lL no longer needed Lo cover cosLs,
such as Lhe cosLs of runnlng nuclear weapons sysLems. ln 2013-14 Lhe uk MlnlsLry of
uefence had cosLs of 47 bllllon, a slxLh on whlch was caplLal spendlng, and Lhe vasL
bulk on gross operaLlng cosLs. 1he ScoLLlsh CovernmenL anLlclpaLes spendlng only
2.3 bllllon a year on defence and lnLelllgence comblned. 1hls ls a loL less Lhan
ScoLland's populaLlon-proporLlonal share of around 4 bllllon a year for Mou cosLs.
CumulaLed over a decade, such pollcy savlngs mlghL qulckly dwarf seL-up cosLs. Cn


46
Lhe oLher hand, Lhe 1reasury argues LhaL a leaked paper from ScoLland's flnance
mlnlsLer, !ohn Swlnney, lncluded a passage esLlmaLed LhaL Lhe annual cosLs of
runnlng Lhe ScoLLlsh Lax sysLems would be around 600 mllllon a year. 1hls ls
acLually far hlgher Lhan ScoLland's populaLlon-proporLlonal share of PM8C cosLs,
whlch would be around 300 mllllon. 1he evldence basls for Lhe Swlnney esLlmaLe
seems Lo have been slender, derlved from looklng aL Lhe proporLlon of Cu spenL on
Lax collecLlon ln lreland and new Zealand. lL seems hlghly unllkely LhaL ScoLland
would need Lo double PM8C's cosLs.

Conc|us|ons
1he Lwo absoluLely crlLlcal lnfluences on ScoLland's llkely overall LranslLlon cosLs are:
Lhe reallsm of ScoLLlsh CovernmenL plannlng for lndependence, whlch
generally seems hlgh. Powever, lL does assume LhaL a moderaLe and
raLlonallsL approach wlll be Laken by Lhe governmenL ln WesLmlnsLer, and
Lhe sLance LhaL London mlnlsLers would acLually Lake ln negoLlaLlons over Lhe
LranslLlon, whlch remalns largely undeflned.
1hls analysls does noL offer any poslLlve reasons for voLers Lo choose ?es or no, for
LhaL was noL our purpose. !usL because a sLep mlghL be feaslble, and noL Loo cosLly,
ls noL ln lLself a reason Lo Lake lL. ScoLland's voLers wlll make up Lhelr own mlnds
whaL Lo do, and for Lhelr own reasons. 8uL Lhey can be broadly confldenL LhaL,
whaLever Lhe ma[orlLy decldes, fuLure ScoLLlsh CovernmenL wlll be generally
effecLlve and well organlsed.




47
If the vote |s No.



48
uest|on 7: If the vote |s No, wou|d we get more powers? What d|fference wou|d
they make?

Charlle !effery

1he uest|on
AL flrsL slghL Lhe referendum offers a slmple cholce: a ?es voLe for lndependence or a
no voLe for Lhe sLaLus quo. 1he reallLy ls less sLralghLforward. CLher conLrlbuLlons ln
Lhls book look closely aL whaL lndependence means for Lhe ?es slde. 1hey show LhaL
whaL ls on offer ln many respecLs lnvolves a loL more conLlnulLy ln ScoLland's
relaLlonshlp wlLh Lhe resL of Lhe uk Lhan Lhe word 'lndependence' mlghL usually
suggesL.
Llkewlse whaL Lhe no slde ls offerlng ls noL slmply abouL an unchanglng sLaLus
quo. Change ls golng Lo happen anyway - ln 2012 a new ScoLland AcL was passed
whlch boosLed Lhe powers of Lhe ScoLLlsh parllamenL by glvlng lL a new ablllLy Lo Lax
and borrow along wlLh a small number of new pollcy powers. Much of Lhls ls already
ln place, buL Lhe mosL lmporLanL new measure - glvlng Lhe parllamenL parLlal conLrol
over seLLlng lncome Lax raLes ln ScoLland - ls sLlll Lo come lnLo force ln 2013.
Slnce Lhe 2012 AcL Lhe pro-unlon parLles have been ln a debaLe abouL wheLher Lo
go furLher sLlll. Lach seL up Lhelr own commlsslons Lo come up wlLh proposals for
more devoluLlon. 1he Llberal uemocraLs reporLed flrsL ln laLe 2012. Labour followed
ln March 2014 and Lhe ConservaLlves ln !une.
1he varlous proposals dlffer ln deLall and emphasls buL have plenLy of common
ground, especlally around more devoluLlon of Lax and some welfare pollcles. 1he
Lhree parLles came LogeLher around Lhls common ground ln !une 2014 wlLh a [olnL
pledge Lo 'sLrengLhen furLher' Lhe ScoLLlsh parllamenL and Lo puL Lhelr proposals ln
Lhelr respecLlve manlfesLos for Lhe May 2013 uk Ceneral LlecLlon.

Why a|| th|s |s |mportant
1he pro-unlon parLles are slgnalllng LhaL no doesn'L mean Lhe sLaLus quo, or even
Lhe sLaLus quo plus Lhe new powers of Lhe 2012 ScoLland AcL, buL a ScoLLlsh
parllamenL wlLh slgnlflcanL exLra powers beyond LhaL.
1he Llberal uemocraLs have long argued for more devoluLlon, buL Labour and Lhe
ConservaLlves are more recenL converLs. Whlle some ln each parLy genulnely supporL
a sLronger parllamenL, Lhere ls also a sLrong whlff of LacLlcs here. Cplnlon among
ScoLLlsh voLers doesn'L correspond neaLly wlLh Lhe ?es/no cholce we have ln
SepLember. lL ls spllL Lhree ways: one Lhlrd supporL lndependence, one Lhlrd Lhe
sLaLus quo, and one Lhlrd a mlddle ground ln beLween (someLlmes known ln
shorLhand as 'devo-plus' or 'devo-max').
1he mlddle ground voLer prefers a sLronger ScoLLlsh parllamenL Lhan now, buL noL
lndependence. Pere ls a key baLLleground for Lhe Lwo sldes ln Lhe referendum. 1he
?es slde's offer of lndependence wlLh all sorLs of conLlnulLles wlLh Lhe resL of Lhe uk
(currency, broadcasLlng and all Lhe resL) ls almed aL LhaL mlddle ground. So Loo ls Lhe
no slde's offer of more devoluLlon.





49
What the No s|de says
1ox
1ax devoluLlon has been Lhe mosL hlgh proflle lssue ln Lhe debaLe abouL more
devoluLlon. 1he ScoLLlsh parllamenL currenLly has llLLle say abouL ralslng Lhe money lL
spends beyond seLLlng councll Lax and buslness raLes. lnsLead Lhe greaL bulk of Lhe
parllamenL's fundlng comes from a block granL from Lhe uk CovernmenL. 1he slze of
Lhe block granL ls seL by Lhe so-called 8arneLL formula and enables Lhe parllamenL Lo
spend more per head of populaLlon ln ScoLland Lhan ls Lhe case ln Lngland (whlch aL
Llmes provokes conLroversy ln Lngland).
Many argue LhaL LhaL Lhls slLuaLlon of very llmlLed Lax powers and block granL
fundlng encourages lrresponslblllLy ln spendlng declslons. CLhers Lhlnk Lhe
parllamenL doesn'L have Lhe rlghL lncenLlves Lo look Lo grow Lhe ScoLLlsh economy lf
lL has no sLake ln Lhe Lax recelpLs from economlc growLh. 1he Lax proposals of Lhe
pro-unlon parLles are aLLempLs Lo Lackle Lhese argumenLs. lf Lhe parllamenL had Lo
make more Lax declslons lLself Lo fund lLs spendlng, and [usLlfy Lhose declslons
dlrecLly Lo ScoLLlsh Laxpayers, lL mlghL Lhlnk more carefully abouL whaL lL spends.
And lL mlghL look more Lo do Lhlngs whlch boosLed Lhe economy and wlLh LhaL lLs
own Lax recelpLs.
1he Lax proposals fall lnLo Lwo caLegorles. Cne ls slmply Lo glve Lhe parllamenL
some or all of Lhe power Lo seL Lhe bands and raLes of parLlcular Laxes. Alr passenger
duLy - a surcharge on every alr LlckeL - ls one whlch Lhe ConservaLlves and Llberal
uemocraLs, buL noL Labour, would wanL Lo see devolved. 1he effecL (aL leasL lf Lhe
duLy were cuL) mlghL be Lo boosL Lourlsm or open up new buslness opporLunlLles by
encouraglng alrllnes Lo lnLroduce new rouLes.
1he mosL lmporLanL dlfferences are abouL lncome Lax. 1he Llberal uemocraL and
ConservaLlve proposals would glve Lhe ScoLLlsh parllamenL full conLrol over Lax
bands (currenLly baslc, hlgher and addlLlonal) and Lhe raLes aL each band (currenLly
20, 40 and 43 dependlng on lncome level). WlLh Lhese powers Lhe ScoLLlsh
parllamenL could creaLe dlfferenL bands compared wlLh Lhe resL of Lhe uk and seL
raLes hlgher or lower Lhan ln Lhe resL of Lhe uk. Labour's proposals do noL offer
flexlblllLy on bands, whlch would sLlll be seL uk-wlde. 8uL Lhey would allow varlaLlon
ln Lax raLes, lncludlng a new 'ScoLLlsh rogresslve 8aLe' whlch could lncrease
(Lhough noL reduce) Lhe hlgher and addlLlonal raLes ln ScoLland relaLlve Lo Lhe
sLandard raLe.
1he effecLs of declslon-maklng powers on lncome Lax, wheLher Lhe more llmlLed
Labour verslon or Lhe fuller Llberal uemocraL/ConservaLlve verslon, would be very
vlslble ln people's pay packeLs and Lax reLurns. Any changes would cerLalnly prompL
publlc debaLe and requlre Lhe ScoLLlsh parllamenL Lo [usLlfy more fully Lhe spendlng
proposals LhaL would be funded ln Lhls very dlrecL way by Lhe ScoLLlsh Laxpayer (and
rewarded or punlshed by Lhe ScoLLlsh Laxpayers' voLes aL Lhe nexL elecLlon).
1he oLher caLegory of Lax proposal ls Lo leave declslons on Lhe raLes of parLlcular
Laxes Lo be seL uk-wlde by Lhe uk CovernmenL, buL Lo work ouL Lhe proporLlon of
uk Lax recelpLs generaLed ln ScoLland and Lo allocaLe Lhose recelpLs Lo Lhe ScoLLlsh
parllamenL's budgeL. 1he Llberal uemocraLs would allocaLe a ScoLLlsh share of uk
corporaLlon Lax recelpLs Lo Lhe ScoLLlsh parllamenL ln Lhls way, and Lhe ConservaLlves
have sald Lhey would explore wheLher Lo do Lhe same wlLh ScoLLlsh vA1 recelpLs. ln


4:
each case Lhere would be an lncenLlve for Lhe ScoLLlsh parllamenL Lo Lake measures
whlch would lncrease ScoLLlsh recelpLs from corporaLlon Lax or vA1.
Labour does noL propose slmllar measures for corporaLlon Lax or vA1. 1ogeLher
wlLh Lhe more llmlLed proposals on lncome Lax, Labour's Lax proposals are by some
way Lhe mosL modesL of Lhe Lhree pro-unlon parLles. 1hls appears Lo reflecL dlvlslons
wlLhln Lhe parLy abouL Lhe deslrablllLy of more devoluLlon, wlLh Lhe parllamenLary
parLy aL WesLmlnsLer less open Lo furLher devoluLlon Lhan Lhe parLy ln Lhe ScoLLlsh
parllamenL and Lhe WesLmlnsLer parLy wlnnlng ouL.
1hough none of Lhe parLles' reporLs say Lhls expllclLly, lL ls llkely LhaL Lhe amounL
of block granL recelved from Lhe uk CovernmenL would be reduced ln proporLlon Lo
Lhe amounL any new ScoLLlsh Lax-seLLlng powers or any shares of recelpLs from uk-
wlde Laxes would brlng ln. 1hls approach was esLabllshed ln Lhe 2012 ScoLland AcL.
Cne effecL would be remove some of Lhe conLroversy around Lhe 8arneLL formula
(whlch has been used Lo calculaLe Lhe ScoLLlsh block granL unLll now), because Lhe
amounL of fundlng lL would allocaLe would be much less.

welfote
Lach of Lhe pro-unlon parLles also proposes welfare devoluLlon, Lhough none of
Lhem would wanL Lo devolve hlgher cosL beneflLs llke penslons. 1he emphasls
lnsLead ls on beneflLs LhaL connecL closely wlLh exlsLlng devolved responslblllLles.
1he Llberal uemocraLs have leasL Lo say here excepL for a greaLer ScoLLlsh
CovernmenL role ln lmplemenLlng Lhe uk Work rogramme so as Lo connecL lL
beLLer Lo ScoLLlsh Lralnlng and skllls pollcles.
8oLh Labour and Lhe ConservaLlves would devolve Pouslng 8eneflL Lo connecL Lo
exlsLlng ScoLLlsh parllamenL responslblllLles ln houslng pollcy, and ALLendance
Allowance for pensloners needlng care ln Lhelr homes, whlch connecLs wlLh exlsLlng
responslblllLles ln healLh and soclal care. Labour would also devolve Lhe Work
rogramme, buL glve responslblllLy for lL Lo local auLhorlLles raLher Lhan Lhe ScoLLlsh
CovernmenL. 1he ConservaLlves would enable Lhe ScoLLlsh parllamenL Lo
supplemenL beneflLs sLlll run on a uk-wlde basls.
AL Lhelr fullesL exLenL Lhese proposals on Lax and welfare devoluLlon are clearly
slgnlflcanL and would have dlrecL lmpacL on ScoLland's clLlzens, wheLher Lhough
beneflLs recelved, Laxes lncreased (or reduced) and - lf all Lhe lncenLlve effecLs
worked ln pracLlce as well as ln Lheory - hlgher economlc growLh. ln addlLlon all
Lhree parLles would Lake sLeps Lo sLrengLhen Lhe powers of local governmenL and
lnLroduce modesL new pollcy-maklng powers for Lhe ScoLLlsh parllamenL along wlLh
new lnsLlLuLlonal arrangemenLs elLher Lo sLrengLhen Lhe legal sLaLus of Lhe
parllamenL and/or Lo bulld lmproved llnks beLween ScoLLlsh and uk pollLlcal
lnsLlLuLlons.

What the es s|de says
1he ?es slde's response Lo Lhe pro-unlon parLles' proposals on more devoluLlon has
been very slmple: Lhe pro-unlon parLles cannoL be LrusLed Lo dellver. 1hls ls ofLen
accompanled by recollecLlon of Lhe commlLmenLs glven by senlor ConservaLlves ln
Lhe laLe 1970s LhaL lf Lhe ScoLs re[ecLed Lhe proposals ln Lhe 1979 devoluLlon
referendum, Lhe ConservaLlves would dellver a beLLer alLernaLlve afLer Lhe nexL uk


5;
elecLlon. 1hey dld noL. 1he ?es slde message ls ln effecL 'don'L geL fooled agaln' and
LhaL Lhe besL way Lo guaranLee a sLronger ScoLLlsh parllamenL ls Lo voLe ?es.

Wou|d the No s|de de||ver?
So would Lhe no slde dellver? 1here are no guaranLees LhaL Lhey would. 1he closesL
Lo a guaranLee was glven ln !une 2014 when Lhe Lhree pro-unlon parLles made a
[olnL pledge on more devoluLlon. 1hls focused on Lhe common ground around Lax
and welfare devoluLlon and foresaw LhaL each would wrlLe a commlLmenL Lo pursue
Lhls common ground ln Lhelr 2013 uk elecLlon manlfesLos.
1he common ground may be subsLanLlal, buL Lhere are sLlll slgnlflcanL dlfferences.
Labour lags behlnd Lhe oLher Lwo and appears Lo have more lnLernal parLy dlvlslons
Lo conLend wlLh. 1here ls a susplclon Loo LhaL Lhe ConservaLlve arLy may also have
dlvlslons LhaL have noL yeL surfaced. Clven such acLual and poLenLlal lotetool parLy
dlfferences lL may be dlfflculL Lo malnLaln ctoss-parLy consensus.
And much may depend on Lhe ouLcome of Lhe 2013 uk Ceneral LlecLlon. Many
commenLaLors envlsage anoLher hung parllamenL whlch could make Lhe
parllamenLary arlLhmeLlc for a furLher ScoLland AcL challenglng - especlally lf Lhe
new uk CovernmenL resLed dlsproporLlonaLely on supporL from Ms ln Lngland.
1here ls also a quesLlon mark around Lhe sense of prlorlLy LhaL ScoLland would have
elLher lf Lhe no voLe had been a clear one, or lf oLher maLLers pressed hlgher onLo
Lhe agenda aL WesLmlnsLer - noL leasL LhaL parllamenL's endurlng concerns abouL
Luropean lnLegraLlon.
1here are Lhough Lwo counLerbalances LhaL could help ensure dellvery of a new
ScoLland AcL wlLh slgnlflcanL addlLlonal powers for Lhe ScoLLlsh parllamenL followlng
a no voLe Lhls SepLember.
1he flrsL lles ln Lhe pledge made by Lhe pro-unlon parLles ln !une 2014. AlLhough lL
was palnfully Lhln on deLall, lL exlsLs. We can be sure Lhose parLles wlll be remlnded
of Lhls and wlll be aware LhaL Lhe mlddle ground voLer wanLlng more devoluLlon buL
noL lndependence wlll have alLernaLlves Lo Lhe pro-unlon parLles boLh ln Lhe 2013 uk
elecLlon and Lhe 2016 ScoLLlsh parllamenL elecLlon. lf Lhose parLles are felL Lo have
gone back on Lhelr pledge Lhere ls llkely Lo be only one beneflclary, Lhe Sn.
1he second lles ln Lhe process of leglslaLlng on more devoluLlon. Assumlng a 8lll ls
broughL ln aL WesLmlnsLer lL would also - as Lhe 2012 ScoLland AcL dld - need Lhe
consenL of Lhe ScoLLlsh parllamenL, whlch has an Sn ma[orlLy unLll 2016. So more
devoluLlon ls noL [usL a maLLer for Lhe pro-unlon parLles, buL one on whlch Lhe Sn
has a say. 1haL would cerLalnly keep Lhe pressure on Lhe pro-unlon parLles Lo dellver.
So, would Lhey? 1hey would cerLalnly be foollsh noL Lo.



5"
Internat|ona|




5#
uest|on 8: What k|nd of |nternat|ona| ro|e and |nf|uence wou|d an |ndependent
Scot|and have?

!ulleL kaarbo and uanlel kenealy

lf Lhe referendum resulLs ln a ?es voLe, ScoLland wlll emerge, afLer a LranslLlon
perlod, as Lhe world's newesL sLaLe. WhllsL many pollcy areas (such as healLh,
educaLlon, and crlmlnal [usLlce) are already under ScoLLlsh auLhorlLy, lndependence
would brlng new responslblllLles and opporLunlLles. 1he leaders of an lndependenL
ScoLland, and ScoLLlsh clLlzens, would have Lo deslgn and supporL a forelgn pollcy for
Lhelr counLry, and declde how besL Lo galn lnfluence, secure Lhelr lnLeresLs, and
promoLe ScoLLlsh values ln Lhe lnLernaLlonal sysLem. An lndependenL ScoLland would
qulckly flnd lLself ln a world LhaL puLs many consLralnLs on sLaLes' lnLernaLlonal
asplraLlons. 8uL as a soverelgn sLaLe, ScoLland would have Lhe opporLunlLy Lo shape
Lhe role lL would play on Lhe world's sLage. WhaL klnd of forelgn pollcy would
ScoLland have and how much lnfluence could lL exerL ln Lhe lnLernaLlonal sysLem?

Important, but often over|ooked
AlLhough voLers may be more lmmedlaLely concerned wlLh Lhe effecLs lndependence
mlghL have on Lhe economy, Lhelr penslons, and Lhelr personal prospecLs for
employmenL, Lhe lssue of ScoLland's lnLernaLlonal role and lnfluence remalns
lmporLanL. lndeed, glven ScoLland's currenL conLrol over many of lLs lnLernal pollcles,
lLs forelgn pollcy as a soverelgn sLaLe ls, wlLh defence, one of Lhe mosL dlsLlncLlve
dlfferences LhaL would maLerlallse afLer lndependence. 1he slgnlflcance of Lhls
quesLlon has been recognlsed by boLh Lhe ?es and no camps and by parllamenLary
enqulrles ln London and Ldlnburgh. lLs lmporLance has also been recognlsed by
oLher counLrles, lnLernaLlonal organlsaLlons and forelgn observers who have volced
oplnlons abouL an lndependenL ScoLland's lnLernaLlonal role.
lor clLlzens of ScoLland, an lndependenL forelgn pollcy ls lmporLanL because lL
would lmpacL on Lhe oLher lssues voLers say Lhey care mosL abouL. 1he economy for
lnsLance: wheLher an lndependenL ScoLland secures a qulck and seamless LranslLlon
Lo Lu membershlp could have slgnlflcanL economlc lmpllcaLlons. Slmllarly, ln
negoLlaLlons wlLh Lhe uk CovernmenL followlng a ?es voLe, lssues such as wheLher
Lhe 1rldenL nuclear submarlnes would sLay ln ScoLland and Lhe dlvlslon of defence
and dlplomaLlc asseLs wlll represenL key bargalnlng chlps ln a broader negoLlaLlon
LhaL wlll have conslderable economlc consequences.
ln our hlghly connecLed and lnLerdependenL world, no sLaLe can lsolaLe lLself from
developmenLs ouLwlLh lLs borders. SoverelgnLy does noL mean auLonomy. WhaL ls
happenlng wlLh cllmaLe change, ln Aslan flnanclal markeLs, and ln LerrorlsL Lralnlng
camps affecLs Lhe healLh, wealLh and securlLy of resldenLs of ScoLland. All modern
sLaLes recognlse Lhe lmporLance of havlng lnfluence ln lnLernaLlonal pollLlcs and Lhe
connecLlons beLween Lhe exLernal world and lnLernal condlLlons.
1hose lnLerdependencles make an lndependenL ScoLland's lnLernaLlonal role
slgnlflcanL Lo Lhe world. A wealLhy ScoLland fully lnLegraLed ln reglonal or global
agreemenLs for economlc co-operaLlon means a good Lradlng parLner for oLhers. An
lndependenL ScoLland, no maLLer whlch paLh lL chooses for lLs forelgn pollcy,
dlsrupLs exlsLlng relaLlons LhaL oLhers have wlLh Lhe uk. resldenL Cbama, for


54
example, has sLaLed an lnLeresL ln seelng LhaL Lhe uk remalns 'sLrong, robusL and
unlLed' glven lLs poslLlon as a key uS ally and a key conLrlbuLor Lo nA1C's nuclear
capablllLles. CLhers have volced concerns abouL ScoLLlsh lndependence as a
precedenL for oLher lndependence movemenLs. 1he lssue ls Lherefore an lmporLanL
one, boLh wlLhln ScoLland and beyond.

1he es v|s|on of an |ndependent Scot|and |n the wor|d
1he WhlLe aper 5cotlooJs lotote seLs ouL Lhe ?es campalgn's vlslon of an
lndependenL ScoLland's lnLernaLlonal role and lnfluence. 1haL vlslon comblnes
conLlnulLy wlLh change. ConLlnulLy would be provlded by on-golng membershlp ln a
varleLy of lnLernaLlonal organlsaLlons, perhaps mosL promlnenL amongsL Lhem nA1C
and Lhe Lu. 8uL Lhere would also be Lhe posslblllLy of change as an lndependenL
ScoLland would be free Lo pursue a seL of values and lnLeresLs somewhaL dlsLlncL
from Lhose of Lhe uk.
SLaLes' vlslons of Lhelr lnLernaLlonal role can be porLrayed ln Lerms of four forelgn
pollcy plllars: proLecLlon, proflLs, prlnclples, and prlde. 1he ?es campalgn proposes
ScoLLlsh membershlp of nA1C and a ScoLLlsh defence force as cornersLones of
'proLecLlon.' (See CuesLlon 10 on defence for more deLall). ScoLland wlll earn, 'proflL'
and Lhrlve, accordlng Lo Lhe ?es campalgn, ln Lhe global pollLlcal economy by
adopLlng llberal, pro-Lrade forelgn economlc pollcles. CenLral Lo Lhe 'proflL' plllar ls
conLlnued membershlp of Lhe Lu. 1he message across Lhese plllars - 'proLecLlon'
and 'proflL' - ls, Lo a large exLenL, one of conLlnulLy. An lndependenL ScoLland would
conLlnue Lo be embedded ln a range of alllances and lnsLlLuLlons geared Lo provlde
securlLy and prosperlLy.
lndependence, however, would also brlng forLh prospecLs of change. ln Lhe area
of 'prlnclples,' eLhlcs, and values, Lhe ?es camp proposes a hlghly asplraLlonal pollcy,
conLrasLlng lL wlLh lLs characLerlsaLlon of pasL and presenL uk forelgn pollcy. 1he
WhlLe aper emphaslses Lhe 'dlfferenL lnLernaLlonal prlorlLles' LhaL an lndependenL
ScoLland would pursue, seen 'mosL clearly ln maLLers of war and peace and ln our
relaLlonshlp wlLh Lhe Lu'. 1he pledge Lo rld an lndependenL ScoLland of nuclear
weapons ls also grounded ln prlnclple.
1he ?es campalgn descrlbes an lndependenL ScoLland as a 'champlon for
lnLernaLlonal [usLlce and peace,' commlLLed Lo Lhe values of 'lnLernaLlonal
developmenL, human rlghLs, cllmaLe change, and cllmaLe [usLlce.' And ScoLLlsh
defence forces would be used, ln addlLlon Lo naLlonal defence, Lo supporL
lnLernaLlonal peacekeeplng and humanlLarlan mlsslons underLaken under Lhe
ausplces of Lhe un and ln supporL of lnLernaLlonal law. ScoLland would also
conLrlbuLe ln a LargeLed way Lo nA1C and Lu mlsslons.
1he vlslon ls Lhus one of ScoLland as a good global clLlzen wlLh a 'do no harm'
prlnclple, especlally Lo developlng counLrles, flrmly embedded ln lLs lnLernaLlonal
role. llnally, 'prlde' has a place ln mosL sLaLes' forelgn pollcles. rlde lnvolves Lhe
pro[ecLlon of self-lmage by a counLry and Lhe WhlLe aper palnLs a plcLure of
ScoLland as 'an ouLward faclng naLlon, exporLlng goods, people, and ldeas around
Lhe world ... [wlLh a] proud mlllLary LradlLlon'.





55
1he No v|s|on of a strong Scot|and w|th|n a strong Uk
1he no slde sees ScoLland sLronger as a parL of Lhe uk Lhan lL would be on lLs own.
1he argumenL ls capLured ln Lhe phrase 'A sLrong volce ln Lhe world'. Clven LhaL Lhe
uk ls a permanenL member of Lhe un SecurlLy Councll, one of Lhe largesL members
of Lhe Lu, and already an experlenced parLlclpanL ln oLher lnfluenLlal lnLernaLlonal
organlsaLlons, ScoLland's lnLeresLs, accordlng Lo Lhe no campalgn, are beLLer
advanced Lhrough Lhese exlsLlng channels and lnsLlLuLlons and as parL of a larger
sLaLe. 1helr messages sLress, ln Lerms of sheer numbers and expendlLure, how much
larger Lhe uk dlplomaLlc servlce, Lhe uk economy, Lhe uk armed forces, and Lhe uk
lnLelllgence servlces, are ln comparlson Lo hypoLheLlcal lndependenL ScoLLlsh
counLerparLs.
Such argumenLs Louch dlrecLly on Lhe lssue of lnfluence and how lL ls besL
aLLalned. lor Lhe no campalgn lnfluence ls besL achleved as parL of a larger sLaLe.
1he '?es' campalgn makes Lhe case LhaL an lndependenL ScoLland can bulld on
exlsLlng goodwlll, a LrusLed and respecLed 'brand,' and pre-exlsLlng lnLernaLlonal
connecLlons.
1here has been a Lendency by Lhe no campalgn Lo polnL ouL Lhe dlfflculLles LhaL
ScoLland mlghL face ln an uncerLaln world. lL ls, Lhey argue, lmporLanL Lo conslder
Lhe obsLacles LhaL could LhwarL Lhe ?es campalgn's forelgn pollcy asplraLlons. 1hey
argue LhaL Lhe Lu wlll noL granL Lhe same opL-ouLs and speclal Lerms (for example on
Lhe euro, Lhe Schengen area, and Lhe budgeL rebaLe) Lo an lndependenL ScoLland as
are currenLly possessed by Lhe uk. 1hey sLress LhaL Lhe nA1C alllance may noL
accepL ScoLland as a member lf ScoLland refuses Lo house Lhe uk nuclear deLerrenL
on lLs soll. 1he no slde also quesLlons Sn asserLlons abouL lLs rlghLs Lo uk
dlplomaLlc asseLs, such as embassles and consulaLes. ln shorL, accordlng Lo Lhe no
slde, uncerLalnLy ls pervaslve and rlsks abound.
ln some respecLs, Lherefore, Lhe Lwo sldes of Lhe debaLe are Lalklng pasL each
oLher wlLh no speaklng Lhe language of blg sLaLes and power pollLlcs, and ?es
speaklng Lhe language of small sLaLes punchlng above Lhelr welghL.

What do the experts say?
1here ls llLLle consensus on many of Lhe speclflc polnLs of conLenLlon. MosL experLs
agree wlLh Lhe no campalgn LhaL ScoLland would be consldered a new sLaLe ln
lnLernaLlonal law, wlLh Lhe resL of Lhe uk as a conLlnulng sLaLe. CLhers lnLerpreL Lhe
slLuaLlon dlfferenLly, seelng boLh ScoLland and Lhe resL of Lhe uk as equal successor
sLaLes, and oLhers would sLress LhaL Lhe legal sLandlng ls noL as lmporLanL as Lhe
pollLlcal negoLlaLlons LhaL would occur ln Lhe LranslLlon perlod. Slmllarly, whlle mosL
agree LhaL ScoLland would have Lo apply for membershlp Lo lnLernaLlonal
organlsaLlons, such as Lhe Lu and nA1C, mosL experLs see membershlp Lo be a very
llkely ouLcome, buL sLress LhaL ScoLland wlll noL be able secure everyLhlng lL wanLs ln
negoLlaLlons.
1he more general debaLe beLween Lhe ?es and no campalgns on Lhe lnfluence a
small sLaLe can have ln Lhe world ls famlllar Lo scholars of lnLernaLlonal 8elaLlons.
Many experLs vlew Lhe lnLernaLlonal sysLem as domlnaLed by greaL powers. Weak
sLaLes are LllllpuLlans ln Culllver's world and suffer whaL Lhey musL. An lndependenL
ScoLland would flnd lLself ln many slLuaLlons where lL would be dependenL on oLhers
boLh ln Lerms of economlcs and securlLy. Smaller economles can be more vulnerable


56
ln Lhe face of lnsLablllLy ln global flnanclal markeLs. 1hey can also be more
dependenL on mlllLary alllances ln Lhe face of securlLy LhreaLs and may need Lo
compromlse Lhelr goals or values ln reLurn for proLecLlon. 1he boLLom llne, for Lhose
vlewlng lnLernaLlonal pollLlcs Lhrough Lhe lens of blg sLaLes maklng blg declslons, ls
Lhls: small sLaLes are rule-Lakers, noL rule-makers.
1he opposlng vlew, supporLed by a growlng body of research, argues LhaL small
sLaLes ofLen have lnfluence dlsproporLlonal Lo Lhelr slze. Small sLaLes can play an
acLlve role ln lnLernaLlonal organlsaLlons, ofLen hosLlng headquarLers and offlces and
placlng Lhelr naLlonals lnLo key leadershlp poslLlons. Such organlsaLlons provlde
dlplomaLlc space, lnformaLlon neLworks, and a place Lo co-ordlnaLe collecLlve acLlon,
leadershlp allows small sLaLes Lo shape Lhe agenda of reglonal and global
organlsaLlons.
8y prlorlLlslng Lhelr goals and concenLraLlng Lhelr more llmlLed dlplomaLlc
resources, small sLaLes can carve ouL nlche roles, champlon speclflc lssues, and
broker agreemenLs, as Lhey ofLen en[oy more credlblllLy and neuLrallLy Lhan larger
sLaLes, becoose of Lhelr small slze. 1he hlsLory of lnLernaLlonal relaLlons reveals many
examples of small sLaLes playlng lmporLanL roles (conslder norway's lnfluence ln Lhe
Arab-lsraell confllcL durlng Lhe 1990s or CosLa 8lca's lnfluence ln Lhe CenLral
Amerlcan confllcLs of Lhe 1980s). Small sLaLes can use Lhelr power, and parLlcularly
Lhelr 'sofL' power of persuaslon and example-seLLlng, ln smarL ways Lo advance Lhelr
lnLeresLs and exerL lnfluence. ln economlcs Loo, small sLaLes can flnd and Lhen
explolL hlghly proflLable nlches and smaller economles may be able Lo adapL more
easlly Lo changlng economlc condlLlons.

Conc|us|on
1here ls cerLalnly reason Lo Lhlnk LhaL an lndependenL ScoLland would be able Lo play
an lnfluenLlal role on Lhe world sLage. Academlc research has hlghllghLed Lhe
dlfferenL ways LhaL small sLaLes can secure Lhelr lnLeresLs and advance Lhelr ldeals.
8uL lL ls noL auLomaLlc, noL all small sLaLes are effecLlve ln overcomlng Lhelr
dlsadvanLages. And an lndependenL ScoLland would be glvlng up any effecLlveness lL
already en[oys as parL of Lhe uk.
1he credlblllLy LhaL ls key Lo small sLaLes' lnfluence Lakes Llme Lo develop and ls
dependenL on how oLhers see Lhem. lL Lakes plannlng, Lhe selecLlon of approprlaLe
pollcles, Lhe commlLmenL of necessary resources and Lhe exerclse of dynamlc
leadershlp for any sLaLe - small or large - Lo dellver a successful forelgn pollcy.
WhllsL we have a sense, from Lhe ?es slde, of whaL an lndependenL ScoLland's
asplraLlons are, Lhe concreLe pollcles LhaL may Lake us from 'here' Lo 'Lhere' remaln
unclear and Lhe condlLlons LhaL would faclllLaLe an lnfluenLlal lndependenL ScoLland
cannoL be conLrolled or easlly predlcLed.
1he rlghL pollcles also need Lhe rlghL resources Lo supporL Lhem, noL only flnanclal
resources (a dlplomaLlc neLwork ls noL cheap) buL also human caplLal. ulplomaLlc
servlces requlre Lhe approprlaLe experlence and knowledge and LhaL wlll requlre
slgnlflcanL and sLraLeglc lnvesLmenL. And whlle Lhe forelgn pollcy of democraLlc
sLaLes ls cerLalnly affecLed by Lhe publlc, lL ls leaders who sLeer soverelgn shlps.
Leaders who are lnLeresLed ln forelgn affalrs and skllled aL playlng a Lwo-level game
of domesLlc and lnLernaLlonal pollLlcs can slgnlflcanLly enhance any sLaLe's poLenLlal
Lo successfully LranslaLe plllars lnLo pollcy.


57
uest|on 9: Wou|d an |ndependent Scot|and be |n the Luropean Un|on?

Mlchael keaLlng

8ackground
When Lhe uk [olned Lhe Lhen Luropean CommunlLles ln Lhe early 1970s, Lhe Sn was
opposed. lL campalgned for a no ln Lhe 1973 membershlp referendum, alLhough a
Lurophlle wlng was always presenL wlLhln lL. MaLLers changed ln Lhe laLe 1980s,
when Lhe Sn embraced Lhe ldea of 'lndependence ln Lurope.' Slnce Lhen,
membershlp of Lhe Luropean club has been an essenLlal exLernal supporL for Lhe
lndependence pro[ecL.

What does es say?
AL Lhe sLarL of Lhe currenL lndependence debaLe, poslLlons were polarlsed.
lndependence supporLers argued LhaL ScoLland would remaln ln Lhe Luropean unlon
(Lu) more or less auLomaLlcally, whlle Lhelr opponenLs suggesLed LhaL lL would be
ouL. 1hose poslLlons have been modlfled as Lhe campalgn has gone on. 1he ScoLLlsh
CovernmenL now accepLs LhaL Lhe uk would be Lhe 'successor sLaLe,' so LhaL
ScoLland would have Lo apply for membershlp. 1hey lndlcaLe Lwo rouLes Lo
membershlp, under arLlcles 48 and 49 of Lhe currenL Luropean 1reaLy. under arLlcle
49 Lhey would apply ln Lhe normal way, buL could be assured rapld progress slnce
ScoLland already meeLs Lhe enLry crlLerla. under arLlcle 48, Lhere would be a LreaLy
change Lo add ScoLland as a 29
Lh
member sLaLe, allowlng for a rapld LranslLlon.
1he ScoLLlsh CovernmenL proposes Lo keep Lhe presenL uk Lerms of membershlp,
lncludlng opL-ouLs on Lhe Luro, Lhe Schengen border-free Lravel area, and !usLlce
and Pome Affalrs. 1hey envlsage Lhe negoLlaLlons on Lhe deLalls of membershlp
belng concluded ln Lhe elghLeen-monLh LranslLlon perlod for lndependence, so LhaL
ScoLland would noL remaln ouLslde Lhe Lu for any Llme.

What does No say?
1he poslLlon of Lhe no slde ls less clear, as ls LhaL of varlous people from Lhe
Luropean lnsLlLuLlons. Commlsslon presldenL !ose Manuel 8arroso has declared LhaL
any LerrlLory leavlng a member sLaLe would auLomaLlcally be ouLslde Lhe Lu. LaLer,
he declared ln a 8rlLlsh Lelevlslon lnLervlew LhaL lL would be 'dlfflculL lf noL
lmposslble' for ScoLland Lo [oln Lhe Lu. 1he Pouse of Commons ScoLLlsh Affalrs
CommlLLee Lakes an only sllghLly less lnLranslgenL llne, accepLlng LhaL ScoLland could
[oln, buL lnslsLlng on Lhe ArLlcle 49 accesslon process, LhaL Lhe condlLlons would be
exLremely onerous and LhaL Lhere was a hlgh probablllLy of belng lefL ouL whlle Lhese
are negoLlaLed. 1hese hard argumenLs seem Lo revlslL Lhe whole prlnclple of Lhe
rlghL Lo lndependence conceded under Lhe Ldlnburgh AgreemenL, slnce Lhe proposal
was, from Lhe sLarL, lndependence-ln-Lurope and noL secesslon from boLh Lhe uk
and Lhe Lu. Less lnLranslgenL people on Lhe no slde accepL LhaL ScoLland could [oln
Lhe Lu buL LhaL lL would have Lo adopL Lhe euro and enLer Schengen and would lose
Lhe currenL uk opL-ouLs.





58
What do experts th|nk?
1here have been conLrlbuLlons from lawyers argulng LhaL Lhe LreaLles do noL provlde
for membershlp of a secedlng LerrlLory. 1hls ls Lrue buL nelLher Lo Lhey deny lL, Lhey
are sllenL. !ean Claude lrls, from Lhe Commlsslon, has clalmed LhaL Lhe use of arLlcle
48 (LreaLy change) would noL be 'legally correcL,' buL lL ls noL clear whaL Lhls
expresslon acLually means. Member sLaLes can amend Lhe LreaLles ln any way Lhey
llke, as long as lL ls conslsLenL wlLh procedure.
Many observers have argued LhaL Luropean leaders do noL normally look Lo law
Lo Lell Lhem whaL Lo do. 1hey declde whaL Lhey wanL Lo do pollLlcally and Lhen flnd a
legal means. Cn Lhls vlew, we should look Lo whaL ls ln Lhe lnLeresL of Lhe exlsLlng
member sLaLes. Many people have argued LhaL no member sLaLe, and cerLalnly noL
Lhe remalnlng uk, would have an lnLeresL ln excludlng ScoLland and dlsrupLlng Lhe
lnLernal markeL. Slr uavld Ldward, former [udge ln Lhe Luropean CourL of !usLlce and
Craham Avery, a former dlrecLor general ln Lhe Luropean Commlsslon who has
handled prevlous enlargemenLs, argue LhaL ScoLland would be allowed ln and LhaL
LreaLy change would be Lhe besL way. nelLher Ldward nor Avery has endorsed
ScoLLlsh lndependence as such, Lhey have only explored lLs consequences, should
Lhere be a ?es voLe. CLher lawyers have argued LhaL Lhe relevanL law Lo apply ln Lhls
case ls noL lnLernaLlonal law buL Luropean law. 1hls brlngs ln Lhe maLLer of Luropean
clLlzenshlp, whlch ScoLs currenLly en[oy and whlch glves rlghLs Lo oLher Lu clLlzens
wlLhln ScoLland. lL mlghL be argued LhaL clLlzens could noL be deprlved of Lhelr rlghLs
because of ScoLLlsh lndependence, especlally lf Lhey have Laken no declslon Lo Lhls
effecL Lhemselves. 1here ls also Lhe quesLlon of Lhe broader democraLlc prlnclples
upon whlch Lhe Lu ls based. Many LhoughL lL wrong for a Commlsslon presldenL Lo
LhreaLen Lo exclude from Lhe unlon flve mllllon Lu clLlzens who wanL Lo remaln ln
and who meeL Lhe membershlp crlLerla.

Wou|d Scot|and 8e A||owed In?
LlLher rouLe Lo membershlp would requlre unanlmlLy among Lhe exlsLlng 28 member
sLaLes and Lhere have been suggesLlons LhaL sLaLes wlLh Lhelr own resLlve lnLernal
naLlons, noLably Spaln, mlghL veLo ScoLland. ?eL, lnvlLed Lo sLaLe LhaL Lhey would
veLo ScoLLlsh accesslon, Spanlsh mlnlsLers have decllned Lo do so. lnsLead, Lhey have
Laken Lhe llne LhaL ScoLLlsh lndependence would noL provlde a precedenL for
CaLalonla or Lhe 8asque CounLry, slnce ln Lhe uk Lhere ls a consLlLuLlonal provlslon
for ScoLland Lo secede and an agreed process, whlch ls noL Lhe case ln Spaln. 1hls ls
conslsLenL wlLh sLubborn refusal Lo conslder CaLalan demands oLher Lhan Lhrough a
narrow readlng of Lhe Spanlsh consLlLuLlon.
8arroso, who conLlnues Lo vlew Lhe ScoLLlsh quesLlon Lhrough Lhe CaLalan lens,
does noL seem Lo recognlze Lhls dlfference probably because of hls greaLer
famlllarlLy wlLh Spaln and hls neLworks ln Lhe Luropean eople's arLy. Pe even
made an exLremely provocaLlve comparlson of ScoLland wlLh kosovo. 1he key
dlfference ls LhaL kosovo ls noL recognlsed by Serbla and because of Lhls ls noL
recognlsed by Spaln and some oLher Lu sLaLes. lf, ln Lhe splrlL of Lhe Ldlnburgh
AgreemenL, an lndependenL ScoLland were recognlsed by Lhe uk, Lhere ls no reason
for any of Lhe remalnlng 27 sLaLes Lo wlLhhold recognlLlon. ScoLLlsh lndependence
would cerLalnly have pollLlcal repercusslons ln Spaln buL Lhe Spanlsh CovernmenL's


59
poslLlon ls Lo avold lL seLLlng a new legal norm, oLherwlse Lhey really would be ln
Lrouble were ScoLland Lo voLe ?es.
Lurope ls currenLly engulfed by Lhe economlc crlsls, Lhe problems of Lhe eurozone
and Lhe Lurbulence ln ukralne. lL ls dlfflculL Lo see why elLher Lhe Luropean
lnsLlLuLlons or Lhe member sLaLes would wanL Lo add Lo Lhelr Lroubles by seeklng Lo
exclude ScoLland, dlsrupLlng Lhe lnLernal markeL and dlscredlLlng an emlnenLly
democraLlc means of resolvlng a self-deLermlnaLlon dlspuLe. keeplng ScoLland ln Lhe
Lu, under elLher ArLlcle 48 or 49, mlghL be compllcaLed buL pales beslde Lhe
challenges of dlsenLangllng ScoLland Lo geL lL ouL. lorclng lL ouL of Lhe slngle markeL,
only Lo allow lL back ln agaln, ls Lhe sorL of challenge member sLaLes can really do
wlLhouL. So lL ls llkely LhaL Lurope and Lhe member sLaLes wlll seek conLlnulLy ln Lhe
lnLernal markeL as well as ln clLlzenshlp rlghLs. 1hls could be done Lhrough
declaraLory leglslaLlon whlle deLalled negoLlaLlons on Lhe Lerms of membershlp were
Laklng place.

1erms of membersh|p
1he argumenL here ls wheLher ScoLland could keep Lhe exlsLlng uk opL-ouLs or noL.
1he legal lssue ls mooL, as ScoLland could be deflned elLher as a new sLaLe or an
exlsLlng parL of Lhe Lu for Lhese purposes. Agaln, Lhe ouLcome would llkely be
deLermlned by pragmaLlc conslderaLlons. no counLry has ever been forced lnLo
Lheeuro agalnsL lLs wlll. Sweden has no opL-ouL buL shows no slgn of [olnlng and
would requlre anoLher referendum Lo do so. Pungary and Lhe Czech 8epubllc have
no lnLenLlon of [olnlng any Llme soon. lf ScoLland were Lo reLaln a currency unlon
wlLh Lhe resL of Lhe uk, lL mlghL noL even be ellglble Lo apply. nor ls lL llkely LhaL
ScoLland would be forced lnLo Schengen, especlally as Lhe uk CovernmenL would
have a sLrong lnLeresL ln keeplng an open border. 1hls makes LhreaLs by uk mlnlsLers
LhaL Lhere could be border posLs beLween Lngland and ScoLland quesLlonable, Lhe
only auLhorlLy LhaL mlghL plauslbly lmpose such posLs ls Lhe uk CovernmenL lLself.
1he cosLs of ScoLLlsh Lu membershlp, llke oLher cosLs ln Lhe lndependence
debaLe, are dlfflculL Lo calculaLe. llgures abouL paymenLs and recelpLs under Lhe
Common AgrlculLural ollcy are dlspuLed. luLure paymenLs under Lhe SLrucLural
lunds are sub[ecL Lo negoLlaLlon ln Lhe nexL spendlng round Lo sLarL ln 2020.
ScoLland's presenL allocaLlon of SLrucLural lunds ls purely noLlonal, slnce Lhe
1reasury's rule ls LhaL 'addlLlonallLy' applles only Lo Lhe uk as a whole, whlle
dlsLrlbuLlon wlLhln Lhe uk ls parL of Lhe 8arneLL lormula. Slnce Lhe oLher member
sLaLes are unllkely Lo wanL Lo reopen negoLlaLlons wlLhln Lhe currenL 2014-20
spendlng round, Lhe easlesL soluLlon would be a per caplLa share wlLhln Lhe currenL
uk LoLal. 1he same mlghL be Lrue of Lhe uk budgeL rebaLe, by applylng Lhe same
formula Lo ScoLland as Lhe uk, sub[ecL Lo noL lncreaslng overall paymenLs. lor Lhe
nexL spendlng round, Lhe uk wlll have greaL dlfflculLy ln keeplng lLs rebaLe, especlally
lf lL has been annoylng oLher member sLaLes wlLh demands for renegoLlaLlon. lLs
besL, and posslbly only, frlend, would be an lndependenL ScoLland maklng Lhe same
case, Lhls would also allow lL Lo presenL Lhe maLLer as one of general prlnclple raLher
Lhan speclal pleadlng.





5:
What wou|d Scot|and do |n the LU?
WlLh Lhe debaLe on how ScoLland mlghL geL lnLo, or sLay ln, Lhe Lu, less aLLenLlon
has been glven Lo whaL role lL mlghL play Lhere. 1he ScoLLlsh CovernmenL proposes
Lo keep Lhe same Lerms as Lhe uk presenLly has as well as reLalnlng Lhe ound and
varlous common lnsLlLuLlons. AL Lhe same Llme, Lhe uk ConservaLlve arLy, and now
Lhe Labour arLy, are proposlng a loosenlng of Lhe relaLlonshlp wlLh Lurope. 1he
quesLlon Lhen arlses as Lo wheLher ScoLland should cllng Lo Lhe uk llne and rlsk belng
dragged away from Lurope, or sLrlke ouL on lLs own, wlLh a consequenL weakenlng of
llnks wlLh Lhe uk. So lndependence ln Lurope could leave ScoLland sLlll ln Lhe
shadow of Lhe unlLed klngdom.
We know LhaL small sLaLes ln Lhe Lu have less lnfluence Lhan larger ones, buL Lhey
can be effecLlve lf Lhey are well organlsed and know Lhelr way around Lhe Luropean
lnsLlLuLlons, and lf Lhey have a repuLaLlon as consLrucLlve players and good
Luropeans. ScoLland would need Lo learn Lhese skllls and poslLlon lLself as a
conLrlbuLor Lo Lhe Luropean pro[ecL, raLher Lhan [usL argulng lLs own case. As a small
sLaLe lL could noL hope Lo behave llke Lhe uk does lf lL wanLed Lo reLaln lnfluence.

Uk out, Scot|and |n?
1he maLLer ls furLher compllcaLed by Lhe ConservaLlve promlse of an ln-ouL
referendum on Lhe Lu ln 2017. Surveys have shown publlc oplnlon ln ScoLland Lo be
only sllghLly less LuroscepLlc Lhan ln Lngland, buL Lhe lssue ls much less pollLlcally
promlnenL norLh of Lhe border. LuroscepLlclsm has llLLle elecLoral appeal so LhaL Lhe
old 'permlsslve consensus' on Lurope sLlll holds across Labour, Llberal uemocraL and
Sn voLers, desplLe Lhe llnk beLween lndependence and Lurope Lhe lasL group are
noL parLlcularly Lurophlle.
1here ls a broad pro-Luropean consensus ln clvll socleLy, ln buslness and ln Lhe
Lrades unlons. Cplnlon polls have suggesLed LhaL Lhere ls a real posslblllLy LhaL, ln an
Lu referendum, ScoLland would voLe Lo sLay ln and Lngland Lo come ouL. Such an
ouLcome followlng a no voLe ln Lhe ScoLLlsh lndependence referendum would
cerLalnly puL Lhe lssue back on Lhe agenda. AnoLher posslblllLy ls a narrow voLe for
Lhe uk Lo say ln Lhe Lu, aLLrlbuLable Lo ScoLLlsh voLes. lL does appear LhaL Lhe
presenL ConservaLlve arLy leadershlp would llke Lo be able Lo propose a ?es Lo
Lurope ln a 2017 referendum, buL Lhelr hold on Lhe lssue ls precarlous and lL ls by no
means clear LhaL Lhey could negoLlaLe a new deal, sell lL Lo Lhelr own parLy, or carry
lL aL a referendum. 1he lssues of Lurope and of ScoLLlsh lndependence are llkely Lo
remaln lnLlmaLely llnked.



6;
uest|on 10: now wou|d an |ndependent Scot|and defend |tse|f?

Colln llemlng

As defence ls currenLly a reserved pollcy area lL has noL prevlously experlenced a
hlgh level of aLLenLlon ln ScoLland. 1hls ls no longer Lhe case and Lhere have been a
range of Pouse of Commons parllamenLary commlLLee enqulrles examlnlng defence
and securlLy lssues relaLlng Lo posslble ScoLLlsh lndependence. 1hese were followed
ln november 2013 wlLh Lhe publlcaLlon of Lhe ScoLLlsh CovernmenL's WhlLe aper
5cotlooJs lotote whlch seLs ouL lLs vlslon for an lndependenL ScoLLlsh defence
model.

What does es say?
1he ScoLLlsh CovernmenL's defence and securlLy blueprlnL offers a very dlfferenL
model Lo LhaL currenLly pursued by Lhe uk. uesplLe slgnlflcanL cuLs Lo Lhe defence
budgeL followlng Lhe CoallLlon governmenL's SLraLeglc uefence and SecurlLy 8evlew
ln 2010 Lhe uk conLlnues Lo provlde a full-specLrum of mlllLary capablllLles - land, alr
and sea - wlLh Lhe capaclLy Lo be lnvolved ln mlllLary lnLervenLlons ln slLuaLlons llke
lraq and AfghanlsLan.
AL Lhe core of lLs defence case, Lhe ScoLLlsh CovernmenL has provlded a
commlLmenL LhaL ScoLLlsh forces would noL be allowed Lo become lnvolved ln a
forelgn war unless lL was sancLloned by Lhe unlLed naLlons, supporLed by Lhe
ScoLLlsh CovernmenL and had Lhe backlng of Lhe ma[orlLy of Lhe ScoLLlsh parllamenL
(Lhe so-called 1rlple Lock). Whlle Lhe uk's sLraLeglc efforL remalns global ln scope,
ScoLland's focus would be on Lhe defence of lLs LerrlLorlal lnLegrlLy as well as Laklng
on a reglonal defence role ln norLhern Lurope. ln conLrasL Lo Lhe currenL sLraLeglc
posLure of Lhe uk, wlLh lLs hlsLory as a ma[or lnLernaLlonal power, Lhe ScoLLlsh
CovernmenL's defence proposals reflecL Lhose of a small sLaLe.

What wou|d be Scott|sh defence capab|||t|es and purpose?
1he ScoLLlsh CovernmenL has placed a parLlcular emphasls on cooperaLlng wlLh
allles, lncludlng Lhe resL of Lhe uk and nA1C. lLs maln sLraLeglc lnLeresLs would lle ln
malnLalnlng securlLy ln Lhe norLh Sea, LasLern ALlanLlc and across Lhe nordlc reglon.
1hls ls a naLural sLraLeglc area for ScoLland Lo engage, buL lL has been helghLened by
uk wlde defence cuLs whlch have lefL slgnlflcanL capablllLy gaps ln marlLlme alr
survelllance and naval surface vessel capablllLles ln Lhls reglon - gaps whlch Lhe
ScoLLlsh CovernmenL has commlLLed Lo fllllng.
ScoLland's defence forces would reflecL Lhe change ln emphasls from belng parL
of a large sLaLe Lo LhaL of a small sLaLe wlLh a more llmlLed defence budgeL.
neverLheless, Lhe ScoLLlsh CovernmenL's proposed defence budgeL of 2.3 blllon ls
ln llne wlLh oLher small Luropean sLaLes, such as uenmark, and would enable
ScoLland Lo bulld modern, flexlble defence forces capable of respondlng Lo reglonal
(and global) challenges ln cooperaLlon wlLh allles. lL ls lmporLanL Lo noLe LhaL
ScoLland's defence capablllLles would noL be fully operaLlonal by 2016, when
ScoLland would offlclally become an lndependenL sLaLe.
1he WhlLe aper ldenLlfles flve 'defence prlorlLles' for an lndependenL ScoLland:
commlLmenL Lo a budgeL of 2.3 bllllon,


6"
ensurlng Lhe speedlesL safe wlLhdrawal of nuclear weapons from ScoLland,
a focus on marlLlme capablllLles, such as alr and sea-based paLrol, and
speclallsL forces,
progresslvely bulldlng a LoLal of 13,000 regular and 3,000 reserve personnel
over Lhe Len years followlng lndependence,
reconflgurlng Lhe defence esLaLe lnherlLed aL Lhe polnL of lndependence Lo
meeL ScoLland's needs. 1hls would lnclude Lhe LranslLlon of laslane Lo
become a convenLlonal naval base and Lhe [olnL headquarLers of ScoLLlsh
defence forces.
1here ls a furLher commlLmenL Lo underLake a feaslblllLy assessmenL of wheLher
8osyLh could be broughL back lnLo use as a naval base on Lhe easL coasL, glvlng Lhe
ScoLLlsh uefence lorce (Sul) Lhe flexlblllLy Lo deal wlLh poLenLlal lncldenLs ln Lhe
norLh Sea.
1he Sul would be comprlsed of 13,000 regular and 3,000 reserve personnel and
Lhe ScoLLlsh CovernmenL would prlorlLlse defence spendlng Lo provlde naval and alr
forces able Lo proLecL ScoLland's long coasLllne, as well as a moblle army brlgade Lo
deploy as parL of larger operaLlons lf requlred. 1he WhlLe aper proposes a 'phased
LranslLlon' of forces from Lhose currenLly parL of Lhe 8rlLlsh armed forces Lo an all-
ScoLLlsh force. As a consequence, only cerLaln elemenLs of Lhe Sul would be
operaLlonal on lndependence, wlLh Lhe full LranslLlon expecLed Lo Lake around a
decade. uurlng Lhls perlod Lhe ScoLLlsh CovernmenL would conLlnue Lo pay a
flnanclal conLrlbuLlon Lo cover uk wlde defence. AlLhough Lhere have been
suggesLlons LhaL more Lhan Len years may be necessary, Lhe LranslLlon plan appears
Lo provlde defence and securlLy conLlnulLy whlle allowlng ScoLland and Lhe resL of
Lhe uk Llme Lo underLake deLalled plannlng on fuLure defence arrangemenLs -
lncludlng poLenLlal defence cooperaLlon beLween Lhe Lwo counLrles.
1hls ls a pragmaLlc approach. 1he uk MlnlsLry of uefence ls ln Lhe mldsL of
slgnlflcanL downslzlng as a resulL of lLs own SLraLeglc uefence and SecurlLy 8evlew
(2010) and ls sLruggllng Lo meeL lLs LargeLs Lo reallgn lLs regular and reserve forces ln
llne wlLh lLs fuLure defence requlremenLs. A phased LranslLlon would be of beneflL Lo
boLh sLaLes. AL Lhe polnL of lndependence Lhe proposal ls for an Sul esLlmaLed LoLal
of 7,300 regular and 2,000 reserve personnel. 1hls would be lncreased Lo
approxlmaLely 10,000 regulars and 3,300 reserves by Lhe end of Lhe lnlLlal flve year
phase of LranslLlon. Maxlmum sLrengLh of 13,000 regulars and 3,000 reserves would
be reached wlLhln Len years.

What the No s|de say
ln lLs 5cotlooJ ooolysls. uefeoce paper Lhe uk CovernmenL argues LhaL ScoLland
en[oys Lhe proLecLlon provlded by a larger sLaLe wlLh an lnLegraLed defence sLrucLure
whlch ensures Lhe securlLy of Lhe 8rlLlsh lsles - and whlch ls underplnned by lLs
nuclear deLerrenL. AlLhough Lhe uk MlnlsLry of uefence has had Lo make slgnlflcanL
cuLs Lo lLs defence budgeL, Lhe uk mlllLary remalns a full-specLrum force and Lhe uk
CovernmenL argues LhaL dlvldlng responslblllLy for defence would lead Lo a
dlmlnuLlon ln securlLy, leavlng ScoLland open Lo securlLy LhreaLs such as Lerrorlsm
and cyber-aLLacks whlch a uk-wlde defence ls beLLer able Lo manage.
ln addlLlon, Lhe uk CovernmenL makes Lhe case LhaL as parL of Lhe uk ScoLland
has an lnLernaLlonal presence LhaL an lndependenL ScoLland would be unable Lo


6#
maLch. 1he uk CovernmenL provldes several examples where uk forces have made
lmporLanL conLrlbuLlons Lo lnLernaLlonal securlLy lncludlng Lhe recenL and ongolng
mlllLary operaLlons ln lraq, AfghanlsLan, Lhe 8alkans, as well as anLl-plracy and anLl-
drug smuggllng operaLlons.
1he uk CovernmenL also hlghllghLs lLs long held sLaLus as a permanenL member
of Lhe unlLed naLlons SecurlLy Councll, nA1C, and Lhe Lu. lL argues LhaL ScoLland
could noL [oln nA1C whlle slmulLaneously bannlng nuclear weapons (a cenLral
commlLmenL of Lhe ScoLLlsh CovernmenL's WhlLe aper). 1he no slde also make Lhe
clalm LhaL ScoLLlsh membershlp of nA1C would be veLoed lf lL forced Lhe resL of Lhe
uk lnLo an early removal of lLs 1rldenL nuclear fleeL from ScoLland.
ln lLs 5cotlooJ Aoolysls. 5ecotlty paper Lhe uk CovernmenL polnLs Lo rlsks and
uncerLalnLles of ScoLland seLLlng up lLs own lnLelllgence and securlLy neLwork. lL
argues LhaL Lhe uk could noL guaranLee sharlng lnLelllgence wlLh ScoLland.
Moreover, ScoLland would noL recelve Lhe prlvlleged lnLelllgence LhaL Lhe uk does as
parL of Lhe 'flve eyes' lnLelllgence neLwork whlch also lncludes Lhe uSA, AusLralla,
new Zealand and Canada. lL also argues LhaL a ScoLLlsh lnLelllgence agency would noL
be able Lo repllcaLe Lhe funcLlons of Ml3, Ml6 or CCPC.

key debates: NA1C and 1r|dent?
AL lLs 2012 annual parLy conference, Lhe ScoLLlsh naLlonal arLy overLurned lLs
long-Lerm opposlLlon Lo [olnlng Lhe norLh ALlanLlc 1reaLy CrganlsaLlon (nA1C). 1hls
poslLlon was reafflrmed ln Lhe WhlLe aper, whlch expllclLly sLaLes LhaL followlng a
?es voLe ScoLland would formally declare lLs lnLenLlon Lo [oln nA1C. 1hls lssue ls
compllcaLed by Lhe ScoLLlsh CovernmenL's commlLmenL Lo puL a ban on nuclear
weapons from belng based on ScoLLlsh LerrlLory ln a wrlLLen consLlLuLlon. As Lhe uk's
1rldenL nuclear mlsslles are based ln ScoLland Lhls has become one of Lhe cenLral
baLLlegrounds ln Lhe defence debaLe. 8ecause nA1C ls a nuclear alllance lL has been
argued LhaL ScoLland's membershlp would be denled on Lhe grounds of lLs anLl-
nuclear sLance.
Would ScoLland's proposed membershlp be veLoed? 1hls ls an lmporLanL polnL of
debaLe, buL belng anLl-nuclear ls noL ln lLself a barrler Lo ScoLLlsh membershlp. 1he
ScoLLlsh CovernmenL has slgnalled LhaL lL wlll slgn up Lo nA1C's SLraLeglc ConcepL
whlch resLs on lL belng a nuclear alllance. 8efuslng Lo slgn would almosL cerLalnly
prevenL ScoLland's membershlp. Powever, by accepLlng nA1C ls a nuclear club Lhe
maln barrler Lo membershlp ls removed.
1hls does noL mean LhaL ScoLland would galn enLry lmmedlaLely. 1he sLance on
Lhe removal of 1rldenL ls cruclal and nA1C wlll be wary of permlLLlng ScoLLlsh
membershlp lf Lhe LlmeLable for Lhe removal of 1rldenL forced Lhe resL of Lhe uk lnLo
nuclear dlsarmamenL agalnsL lLs wlshes. lndeed, nA1C pollcy ls LhaL candldaLe
members would be refused full membershlp lf Lhere ls any ongolng dlspuLe wlLh
oLher exlsLlng alllance members. ConsequenLly, lf Lhe 1rldenL quesLlon were noL
resolved saLlsfacLorlly ScoLland could expecL Lo be refused membershlp lnlLlally
(Lhough lL would be permlLLed Lo become an assoclaLe member as parL of lLs
arLnershlp for eace programme).
1hls belng sald, lL ls lmporLanL Lo noLe LhaL Lhe ScoLLlsh CovernmenL has noL
provlded a seL Llmellne for removal of 1rldenL. 8aLher, Lhe WhlLe aper noLes LhaL lL
wlll seek as qulck and safe removal of Lhe deLerrenL as ls posslble and wlll enLer lnLo


64
negoLlaLlon wlLh Lhe uk CovernmenL on Lhe lssue. lL ls slgnlflcanL LhaL Lhe WhlLe
aper underllnes LhaL a declslon on Lhe uk's fuLure nuclear posLure (should ScoLland
become lndependenL) ls noL a maLLer for Lhe ScoLLlsh CovernmenL. 1hus, alLhough
Lhe ScoLLlsh CovernmenL has lndlcaLed lLs preferred LlmeLable for removal ls aL Lhe
end of Lhe flrsL parllamenL of an lndependenL ScoLland, removal of Lhe deLerrenL
may Lake longer. Whlle Lhe exacL Llme lL wlll Lake Lo remove Lhe deLerrenL ls hoLly
debaLed, Lhe uk SecreLary for uefence, hllllp Pammond has suggesLed around a
decade. 1hls seems approprlaLe and would allow London Llme Lo flnd sulLable
alLernaLlve faclllLles for 1rldenL lf lL wlshed Lo malnLaln lLs currenL nuclear capablllLy.
8esolvlng Lhls lssue ls cruclal Lo membershlp, as lL ls Lo Lhe wlder relaLlonshlp
beLween Ldlnburgh and London ln Lhe evenL of a ?es voLe. lf lL ls resolved, Lhls
would pave Lhe way for ScoLLlsh membershlp of nA1C. lL ls clear LhaL Lhere would be
wrangllng durlng negoLlaLlons, however, lL ls ln no one's lnLeresL, noL leasL Lhe resL
of Lhe uk, Lo have ScoLland slLLlng ouLslde Lhe alllance and lL ls probable LhaL a
soluLlon would be found. Clven lLs geopollLlcal locaLlon and exlsLlng mlllLary
lnfrasLrucLure ScoLland ls sLraLeglcally lmporLanL and membershlp ls ln nA1C's
lnLeresLs. AlLhough membershlp ls declded by consensus of all 28 alllance members,
wlLh Lhe backlng of Lhe resL of Lhe uk, lL ls very unllkely LhaL ScoLland's membershlp
would be problemaLlc glven lLs deslre and commlLmenL Lo add Lo Lhe alllance.

Conc|us|on
AlLhough Lhere was lnlLlal scepLlclsm regardlng ScoLLlsh defence plans, Lhe plans seL
ouL ln Lhe WhlLe aper appear credlble and affordable. Powever, llke every oLher
Luropean sLaLe an lndependenL ScoLland would have Lo make hard cholces abouL lLs
sLraLeglc prlorlLles. lf ScoLland becomes lndependenL lL would do so ln a relaLlvely
benlgn securlLy envlronmenL and would have Lhe beneflL of a phased LranslLlon.
Powever, glven LhaL lL would Lake up Lo Len years or longer Lo meeL lLs full operaLlng
crlLerla an Sul would Lake Llme Lo bed down and would need Lo work closely wlLh
Lhe resL of Lhe uk and oLher allles.
1hls would requlre LrusL on boLh sldes and, alongslde ScoLland's poLenLlal
membershlp of nA1C, Lhe 1rldenL quesLlon looms large. ueallng wlLh Lhls lssue
consLrucLlvely and senslbly would Lherefore noL slmply be a dlscusslon abouL Lhe
merlLs of nA1C membershlp, buL also abouL Lhe long-Lerm relaLlonshlp beLween
ScoLland and Lhe resL of Lhe uk. 1he onus would resL on negoLlaLors Lo reach some
level of compromlse LhaL worked ln Lhe lnLeresLs of boLh sLaLes. lollowlng Lhe full
esLabllshmenL of an Sul Lhere would be no reason why ScoLland would noL have a
flexlble, modern defence organlsaLlon whlch would be able Lo work wlLh parLners
and brlng beneflLs Lo Lhe wlder securlLy of Lhe 8rlLlsh lsles as well as lLs reglonal
focus ln Lhe nordlc reglon.



65
What sort of Scot|and?








66
uest|on 11: 1he const|tut|on of an |ndependent Scot|and: What w||| |t conta|n?
now w||| |t be made?

SLephen 1lerney

1hls chapLer analyses Lhe ScoLLlsh CovernmenL's proposal of a wrlLLen consLlLuLlon
for an lndependenL ScoLland. rovldlng overarchlng auLhorlLy for Lhe parllamenL and
governmenL of Lhe counLry, as well as a deLalled llsL of clLlzens' rlghLs, has been a
long-sLandlng commlLmenL of Lhe Sn. 1he deLall of Lhls proposal has gradually been
elaboraLed ln Lhe course of Lhe referendum campalgn, culmlnaLlng ln a drafL ScoLLlsh
lndependence 8lll, unvelled on 16 !une ln an address by nlcola SLurgeon, uepuLy
llrsL MlnlsLer Lo Lhe Ldlnburgh CenLre for ConsLlLuLlonal Law.

8ackground
ln november 2013 Lhe ScoLLlsh CovernmenL publlshed lLs WhlLe aper 5cotlooJs
lotote, whlch declared LhaL an lndependenL ScoLland would have a new wrlLLen
consLlLuLlon. 1he lnLenLlon ls Lo replace WesLmlnsLer parllamenLary supremacy wlLh
Lhe 'soverelgnLy of Lhe people of ScoLland' slnce, Lhe ScoLLlsh CovernmenL clalms,
popular soverelgnLy has hlsLorlcally been 'Lhe cenLral prlnclple ln Lhe ScoLLlsh
consLlLuLlonal LradlLlon.' 1hls commlLmenL ls relLeraLed ln Lhe drafL 8lll: 'ln ScoLland,
Lhe people are soverelgn'.
1he 8lll would be passed by Lhe ScoLLlsh parllamenL followlng a ?es voLe and Lhe
lnLerlm consLlLuLlon lL conLalns would Lake effecL on 'lndependence uay' ln March
2016. 1hls lnLerlm consLlLuLlon would conLlnue ln force unLll a permanenL wrlLLen
consLlLuLlon for Lhe SLaLe 'ls agreed by or on behalf of Lhe people of ScoLland.' 1he
8lll Lherefore seLs ouL boLh Lhe conLenL of Lhe lnLerlm consLlLuLlon and also Lhe
process by whlch a permanenL wrlLLen consLlLuLlon would be drafLed followlng Lhe
ScoLLlsh parllamenL elecLlons ln May 2016.

Why |s th|s |mportant?
1he lnLerlm consLlLuLlon ls lmporLanL because we don'L know when lL would be
replaced and because a number of lLs provlslons may well flnd Lhelr way lnLo a
permanenL consLlLuLlonal documenL. Also, Lhe very ldea of a wrlLLen consLlLuLlon
promlses a slgnlflcanL consLlLuLlonal break wlLh Lhe WesLmlnsLer LradlLlon. 1here are
Lwo blg seLs of quesLlons.
WhaL would Lhe flnal wrlLLen consLlLuLlon look llke? Such a documenL would
mosL llkely enLrench lmporLanL prlnclples beyond Lhe reach of ordlnary acLs
of parllamenL. 1hls would lnevlLably hand more power Lo [udges who would
have Lhe duLy Lo lnLerpreL Lhls consLlLuLlon and Lo sLrlke down Lhe leglslaLlve
wlll of parllamenL lf an enacLed law were found Lo be lncompaLlble wlLh Lhe
consLlLuLlon.
Who would drafL Lhls permanenL consLlLuLlon? Would Lhe process be
genulnely popular, or would lL be conLrolled by ellLes?
1he flrsL quesLlon wlll deLermlne whaL klnd of counLry ScoLland becomes, Lhe
second wlll deLermlne Lhe leglLlmacy of Lhe enLlre process.



67
What does the Scott|sh Government propose the permanent const|tut|on w||| |ook
||ke?
ln lLs WhlLe aper Lhe ScoLLlsh CovernmenL offered an exLenslve llsL of whaL lL Lhlnks
Lhe consLlLuLlon should conLaln. A number of Lhese provlslons are key Lo lLs vlslon for
lndependence and mosL flnd Lhelr way lnLo Lhe drafL lnLerlm consLlLuLlon:
equallLy of opporLunlLy and enLlLlemenL Lo llve free of dlscrlmlnaLlon and
pre[udlce (ln Lhe lnLerlm consLlLuLlon alLhough wlLhouL any speclflc
reference Lo pre[udlce)
enLlLlemenL Lo publlc servlces and Lo a sLandard of llvlng LhaL, as a mlnlmum,
secures dlgnlLy and self-respecL and provldes Lhe opporLunlLy for people Lo
reallse Lhelr full poLenLlal boLh as lndlvlduals and as members of wlder
socleLy (noL ln Lhe lnLerlm consLlLuLlon)
proLecLlon of Lhe envlronmenL and Lhe susLalnable use of ScoLland's naLural
resources Lo embed ScoLland's commlLmenL Lo susLalnable developmenL and
Lackllng cllmaLe change
a ban on nuclear weapons belng based ln ScoLland (Lhe lnLerlm consLlLuLlon
conLalns a commlLmenL Lo 'pursue negoLlaLlons wlLh a vlew Lo securlng. Lhe
safe and expedlLlous removal from Lhe LerrlLory of ScoLland of nuclear
weapons based Lhere').
conLrols on Lhe use of mlllLary force and a role for an lndependenL ScoLLlsh
parllamenL ln approvlng and monlLorlng lLs use (Lhere ls no speclflc reference
Lo Lhls ln Lhe lnLerlm consLlLuLlon, buL lL does commlL ScoLland Lo respecLlng
lnLernaLlonal law and Lo promoLlng peace, [usLlce and securlLy)
Lhe exlsLence and sLaLus of local governmenL
rlghLs ln relaLlon Lo healLhcare, welfare and penslons (noL ln Lhe lnLerlm
consLlLuLlon)
chlldren's rlghLs
rlghLs concernlng oLher soclal and economlc maLLers, such as Lhe rlghL Lo
educaLlon and a ?ouLh CuaranLee on employmenL, educaLlon or Lralnlng (noL
ln Lhe lnLerlm consLlLuLlon)
1he lnLerlm consLlLuLlon also declares LhaL ScoLland ls a 'consLlLuLlonal monarchy'
and 'Lhe Cueen ls Pead of SLaLe.' ln Lhe WhlLe aper lL was added LhaL ScoLland
would remaln a consLlLuLlonal monarchy 'for as long as Lhe people of ScoLland wlsh
us Lo be so.' 1hls suggesLs LhaL Lhe head of sLaLe lssue could be revlslLed ln Lhe
process of drafLlng Lhe permanenL consLlLuLlon.
lL ls noLable LhaL ln Lhe WhlLe aper Lhere was no commlLmenL LhaL a number of
Lhe proposed rlghLs, such as Lhe opporLunlLy of educaLlon, Lralnlng or employmenL
and rlghLs Lo welfare supporL and healLh care would be legally enforceable by courLs
buL raLher Lhe more open-ended suggesLlon LhaL Lhey would be 'quesLlons of soclal
[usLlce aL Lhe forefronL of Lhe work of ScoLland's parllamenL, governmenL and publlc
lnsLlLuLlons.' noLably, Lhe rlghLs do noL flnd Lhelr way lnLo Lhe lnLerlm consLlLuLlon aL
all.
1he lnLerlm consLlLuLlon also provldes LhaL Lhe exlsLlng hlgh courLs, Lhe CourL of
Sesslon and Plgh CourL of !usLlclary, wlll be ln Lhelr respecLlve areas of compeLence
'Lhe Supreme CourL of ScoLland.' 1he lnLerlm consLlLuLlon wlll seek Lo llmlL Lhe
powers of Lhe ScoLLlsh parllamenL, prevenLlng lL from maklng laws LhaL confllcL wlLh
Lhe Luropean ConvenLlon on Puman 8lghLs or Luropean unlon law.


68
lL ls also anLlclpaLed LhaL Lhe lnLerlm consLlLuLlon wlll 'slL alongslde' a 'refreshed
and rewrlLLen' ScoLland AcL 1998 whlch wlll no doubL relLeraLe Lhe human rlghLs
provlslons ln Lhe AcL, and wlll lnLegraLe Lhe Puman 8lghLs AcL 1998 lnLo Lhls renewed
ScoLland AcL. AL Lhe same Llme, however, Schedule 3 of Lhe ScoLland AcL wlll be
removed, freelng Lhe ScoLLlsh parllamenL from Lhe consLralnLs of Lhose maLLers
currenLly reserved Lo Lhe WesLmlnsLer parllamenL. lL ls anLlclpaLed LhaL ln due
course Lhere wlll be a permanenL wrlLLen consLlLuLlon ln whlch Lhe supremacy of
LhaL consLlLuLlon over Lhe powers of Lhe ScoLLlsh parllamenL ls expressly declared.
8uL unLll Lhen, durlng Lhe lnLerlm consLlLuLlonal perlod, Lhe ScoLLlsh parllamenL wlll
operaLe Lhrough a reglme of self-lmposed leglslaLlve resLrlcLlons.

Draft|ng the Const|tut|on: A Scott|sh Const|tut|ona| Convent|on?
1he WhlLe aper provldes LhaL, followlng Lhe elecLlons of May 2016, a consLlLuLlonal
convenLlon wlll be esLabllshed Lo 'prepare Lhe wrlLLen consLlLuLlon.' 1hls
commlLmenL ls sLaLed more flrmly ln Lhe ScoLLlsh lndependence 8lll.
1he WhlLe aper dld noL Lell us much abouL Lhe composlLlon of Lhls convenLlon,
excepL LhaL lL would be 'open, parLlclpaLlve and lncluslve' and LhaL Lhe new
consLlLuLlon 'should be deslgned by Lhe people of ScoLland, for Lhe people of
ScoLland.' 1he lnLerlm consLlLuLlon also leaves Lhe membershlp of Lhe convenLlon
and lLs operaLlonal rules for Lhe ScoLLlsh parllamenL Lo deLermlne, lncludlng 'Lhe
procedure by whlch Lhe wrlLLen consLlLuLlon prepared by Lhe ConvenLlon ls Lo be
agreed by or on behalf of Lhe people.' ln oLher words, we don'L know yeL lf a
referendum wlll be used Lo raLlfy a permanenL consLlLuLlon for ScoLland.
1he duLy Lo esLabllsh a convenLlon ls a legally blndlng commlLmenL wlLhln Lhe
lnLerlm consLlLuLlon buL slnce Lhe ScoLLlsh lndependence 8lll, whlch would conLaln
Lhls lnLerlm consLlLuLlon, ls open Lo repeal ln Lhe same way as any oLher acL of Lhe
ScoLLlsh parllamenL, lL wlll noL ln facL blnd Lhe ScoLLlsh parllamenL should lL laLer
wlsh Lo delay Lhls process or change how a new consLlLuLlon ls Lo be broughL abouL.
1he lnLerlm consLlLuLlon and lLs explanaLory noLes don'L offer deLalled
prescrlpLlon as Lo whaL Lhe convenLlon should look llke, buL we know from Lhe WhlLe
aper LhaL Lhe ScoLLlsh CovernmenL has been looklng aL 'lnLernaLlonal besL pracLlce'
and Lhe pracLlcal experlence of oLher counLrles such as clLlzen-led assemblles and
consLlLuLlonal convenLlons ln 8rlLlsh Columbla (2004), Lhe neLherlands (2006),
CnLarlo (2007) and lceland (2010).
1hls ralses Lhe quesLlon: wlll Lhe process really be a popular and meanlngful
engagemenL wlLh clLlzens, or wlll lL be a largely ellLe-led evenL, llke Lhe ScoLLlsh
ConsLlLuLlonal ConvenLlon from 1989-1993? Wlll ln facL Lhe new consLlLuLlon be
drafLed by ellLes - pollLlclans, clvlc socleLy organlsaLlons, buslness lnLeresLs, Lrade
unlons and local auLhorlLles? 1here are slgnlflcanL democraLlc rlsks assoclaLed wlLh
consLlLuLlonal convenLlons concernlng how represenLaLlve and how accounLable
Lhey are. 1here ls also Lhe problem of such processes belng open Lo Lhe mosL vocal
elemenLs of clvll socleLy who can selze Lhe opporLunlLy Lo embed parLlcular pollcy
preferences ln Lhe consLlLuLlon even Lhose Lhese may noL en[oy Lhe supporL of a
ma[orlLy of clLlzens.
ln shorL, any move Lowards a permanenL wrlLLen consLlLuLlon should be worked
ouL very carefully Lo ensure LhaL Lhe process ls genulnely democraLlc and
dellberaLlve.


69

What does the No s|de say?
1he parLles whlch consLlLuLe Lhe 8eLLer 1ogeLher organlsaLlon Lend noL Lo
commenL on Lhe prospecL of a posL-lndependence consLlLuLlon largely because Lhey
do noL wanL Lo enLerLaln publlcly Lhe prospecL of a ?es voLe. Powever, lL ls llkely LhaL
all parLles ln ScoLland would develop Lhelr own consLlLuLlonal agendas ln Lhe evenL
LhaL ScoLs do lndeed voLe for lndependence.
1he LlmeLable seL ouL ln boLh Lhe WhlLe aper and Lhe lnLerlm consLlLuLlon makes
clear LhaL Lhere would be Llme for Lhls Lo Lake place. 1he consLlLuLlonal convenLlon
would noL be esLabllshed unLll afLer Lhe ScoLLlsh parllamenLary elecLlon ln May 2016.
arLles would surely run ln LhaL elecLlon wlLh manlfesLo plans for Lhe consLlLuLlonal
process, seLLlng ouL wheLher or noL Lhey agree wlLh Lhe consLlLuLlonal convenLlon
rouLe, and no doubL deLalllng Lhelr preferred consLlLuLlonal deslgn. And lndeed lL
may well be LhaL one or more of Lhe parLles whlch are currenLly campalgnlng for a
no voLe would ln facL be ln governmenL Lo oversee Lhe move Lowards a new
consLlLuLlon.

What do academ|cs th|nk?
1urnlng Lo Lhe quesLlon of academlc consensus on Lhe lssue, Lhere ls clearly general
agreemenL LhaL Lhere would be a wrlLLen consLlLuLlon. ln Lhe evenL of lndependence,
some form of foundaLlonal wrlLLen documenL would be needed Lo replace Lhe
ScoLland AcLs of 1998 and 2012, even lf an unwrlLLen consLlLuLlon were consldered
deslrable, lL ls slmply lmposslble Loday Lo repllcaLe Lhe condlLlons under whlch Lhe
uk parllamenL acqulred lLs auLhorlLy. 1he powers of Lhe ScoLLlsh parllamenL and
ScoLLlsh CovernmenL would requlre Lo be deflned, as would Lhe courL sLrucLure, lLs
hlerarchy and Lhe llmlLs of lLs [urlsdlcLlon. 1here would of course be dlsagreemenL
abouL whaL else should be ln Lhe consLlLuLlon, parLlcularly ln relaLlon Lo clLlzens'
rlghLs and enLlLlemenLs.

Conc|us|on
1he drafLlng process for a new consLlLuLlon should engage wlLh Lhe general publlc as
much as posslble - Laklng serlously publlc oplnlon on a range of lssues - so LhaL Lhe
process ls genulnely popular raLher Lhan ellLe-drlven. 8uL l am ln general very
scepLlcal of hlghly deLalled wrlLLen consLlLuLlons for Lhe followlng reasons:
lmporLanL declslons should be lefL Lo parllamenLs, so LhaL people can use Lhe
elecLoral process Lo make key cholces on pollcy maLLers. lL seems very
quesLlonable LhaL Lhe flrsL generaLlon of posL-lndependence ScoLs should
Lake upon Lhemselves Lhe power Lo crysLalllse a broad range of currenL pollcy
preferences as consLlLuLlonal prlnclples.
8y consLlLuLlonallslng speclflc values and pollcles, Lhe consLlLuLlon would
slgnlflcanLly ramp up Lhe powers of [udges, glvlng auLhorlLy Lo a small
unelecLed group whlch ls arguably noL enLlLled Lo deLermlne Lhese lssues.
Such a consLlLuLlonal arrangemenL could be hlghly lnflexlble and poLenLlally
very dlfflculL Lo change. Also, Lo declare so many Lhlngs 'consLlLuLlonal values'
can curLall pollLlcal debaLe. eople who Lhen crlLlclse pollcles whlch have
been dressed up as consLlLuLlonal prlnclples can flnd Lhemselves accused of
dlsloyalLy Lo Lhe counLry, whlch ls deeply unhealLhy for democracy.


6:
Why noL have confldence ln Lhe clLlzens of a new counLry Lo use Lhelr parllamenL
Lo make Lhe laws Lhey wanL? lf ScoLs are flL for self-governmenL Lhen surely Lhey are
compeLenL Lo bulld Lhelr fuLure Lhrough Lhe rough and Lumble of Lhe pollLlcal
process. A flnal danger ls LhaL Lhere could be huge conLroversy over Lhe consLlLuLlon
lf lL becomes clear LhaL lL wlll mlcro-manage pollLlcal and moral values. 1hls could
Lurn lnLo a damaglng baLLleground whlch would noL be a good way Lo glve blrLh Lo a
new sLaLe, wlLh wlnners and losers characLerlsed as such from Lhe very beglnnlng,
furLhermore, Lhe process could well be hl[acked by Lhe mosL vocal and besL
organlsed lnLeresL groups whlch agaln would be fundamenLally undemocraLlc.
ln my vlew Lhls ls all avoldable. ln Lhe evenL of lndependence a consLlLuLlon wlll
be needed, buL why noL sLarL wlLh a more modesL consLlLuLlon provldlng for a head
of sLaLe, seLLlng ouL Lhe powers of Lhe ScoLLlsh parllamenL and ScoLLlsh CovernmenL,
Lhe courL sLrucLure, and local governmenL? 1hls would Lhen leave lL up Lo Lhe people
Lo exerclse Lhelr newly galned lndependence Lhrough Lhelr parllamenL, allowlng
Lhem Lo make Lhe declslons Lhey wanL, and from Llme Lo Llme Lo change Lhelr mlnds
abouL Lhese declslons should Lhey wlsh Lo do so ln an open and robusL way.
And for blg declslons Lhere ls of course Lhe referendum, lf lL ls approprlaLe Lo use
a referendum Lo deLermlne Lhe lndependence quesLlon why noL use lL for oLher
ma[or declslons whlch ScoLs wlll make ln Lhe fuLure?





7;
uest|on 12: now d|fferent wou|d or cou|d Scott|sh soc|a| and we|fare po||cy be
from the po||cy of the Uk |n the event of e|ther a es or a No vote?

klrsLeln 8ummery and Cralg McAngus

1he quest|on
ScoLland has always had a separaLe legal sysLem and had conLrol over much of lLs
own welfare pollcy, such as local auLhorlLy soclal care, for many years prlor Lo
devoluLlon. As a resulL of devoluLlon ln 1999 many areas of soclal pollcy, lncludlng
healLh, houslng and local governmenL fell under Lhe remlL of Lhe ScoLLlsh parllamenL.
Powever, crlLlcally, soclal securlLy, flscal and Lhe bulk of economlc pollcy,
lmmlgraLlon and forelgn pollcy are 'reserved' aL WesLmlnsLer.

Why does |t matter?
lnLernaLlonal evldence suggesLs LhaL a unlversal approach Lo publlc servlces and a
commlLmenL Lo equallLy, wheLher ln leglslaLlon or as a consLlLuLlonal alm, ls an
lmporLanL sLep Lowards proLecLlng vulnerable members of socleLy. lor example,
counLrles wlLh rlghLs Lo access soclal care supporL servlces, provlslon of accesslble
LransporL and commlLmenLs Lo malnLalnlng lncome replacemenL for Lhose unable Lo
work have a correspondlngly good record ln Lackllng dlsabled and older people's
poverLy. Slmllarly, counLrles whlch score hlghly on Lhe Luropean Cender LquallLy
lndex ofLen have legal rlghLs Lo chlldcare and equallLy of access Lo Lralnlng, pollLlcal
and economlc power, and educaLlon ln Lhelr consLlLuLlons. 'unlversallsm' also
faclllLaLes soclal coheslon - lf everyone ls enLlLled Lo beneflLs Lhere are no dlsLlncLlon
beLween 'welfare users' and 'welfare payers' as lL ls assumed LhaL everyone wlll boLh
conLrlbuLe Lo, and draw from, Lhe welfare sLaLe. 1he success of Lhe nordlc counLrles
has been based upon Lhls ldea.
1o Lackle Lhe llnk beLween poverLy and soclal excluslon (for lnsLance lsolaLlon or
unemploymenL), counLrles need Lo be able Lo [oln up dlfferenL parLs of soclal pollcy.
lor example, Lhey need Lo be able Lo conLrol Lax and soclal securlLy pollcy Lo avold
low lncome famllles belng 'Lrapped' ln worklessness because lL does noL pay Lo work
once Lravel, chlldcare, soclal care, LaxaLlon and loss of beneflLs are Laken lnLo
accounL.
1he currenL welfare reform and ausLerlLy pollcles, whlch apply Lo Lhe whole of Lhe
uk, lnvolve cuLs Lo dlsablllLy beneflLs, houslng beneflL, soclal care, chlld beneflL,
soclal securlLy and oLhers. 1hls represenLs a sharp move away from unlversallsm.
1argeLed and means LesLed beneflLs can LheoreLlcally Lackle lnequallLy more
effecLlvely Lhan unlversal beneflLs. Powever, Lhey also have Lhe resulL of sLlgmaLlslng
welfare reclplenLs - and Lhe currenL language of 'welfare dependency' versus 'hard
worklng famllles' makes lL clear LhaL WesLmlnsLer favours creaLlng dlslncenLlves Lo
use sLaLe servlces and beneflLs wherever posslble.
ln Lhe areas where ScoLland has had conLrol over soclal pollcy, Lhere are some
lndlcaLlons LhaL lL favours a unlversal over a LargeLed approach Lo welfare. ollcles
such as unlversal access Lo free personal care, free prescrlpLlons, and free hlgher
educaLlon are deslgned Lo creaLe soclal coheslon, alLhough, Lhey do
dlsproporLlonaLely beneflL Lhe well-off over poorer secLors of socleLy. 1hey are also
deslgned Lo avold Lhe sLlgma assoclaLed wlLh accesslng welfare. So, whaL would


7"
happen Lo ScoLland's fuLure welfare and soclal pollcles ln Lhe evenL of lndependence,
and whaL would Lhe ouLcome be lf Lhe referendum resulL sald no?

What does the es s|de say?
1here are some lnLeresLlng commlLmenLs ln Lhe WhlLe aper 5cotlooJs lotote -
'lndependence wlll provlde Lhe opporLunlLy Lo creaLe a falrer, more equal socleLy
bullL around Lhe needs of clLlzens' - buL some lmporLanL quesLlons are lefL
unanswered. 1here ls a commlLmenL LhaL 'Soclal rlghLs embedded ln a consLlLuLlon
wlll puL quesLlons of soclal [usLlce aL Lhe forefronL of Lhe work of ScoLland's
parllamenL.' 1he evldence suggesLs LhaL small, economlcally sLrong sLaLes
(parLlcularly norway, uenmark and oLher nordlc sLaLes) wlLh boLh Lhe prlnclples of
unlversallsm bullL lnLo Lhelr consLlLuLlons, and Lhe mechanlsms for dellverlng soclal
[usLlce Lend Lo be more equal. 1he recenLly publlshed lndependence 8lll does
suggesL wlder lnvolvemenL ln Lhe drawlng up of a consLlLuLlonal framework for an
lndependenL ScoLland, buL Lhere ls no deLall abouL how Lhls would be done.
Cender lnequallLles are recognlsed: 'Lhe ScoLLlsh CovernmenL's recenL analysls
concludes LhaL women wlll also lose ouL because of how Lhe unlversal credlL sysLem
ln parLlcular ls sLrucLured' and 'resLorlng Lhe ablllLy of clalmanLs Lo recelve lndlvldual
supporL raLher Lhan slngle household paymenLs.. beneflLLlng 880,000 lndlvlduals,
many of Lhem women.. and equallse Lhe earnlngs dlsregard beLween flrsL and
second earners, whlch wlll be of parLlcular beneflL Lo women.' Women's economlc
lndependence plays a vlLal parL ln achlevlng equallLy, and Lhelr unpald care ls a
lmporLanL parL of Lhe economy. 1here are no proposals Lo recognlse Lhls alLhough
Lhe experL group on Welfare 8eform does recognlse Lhe value of unpald care.
Chlldcare ls an lmporLanL parL of Lhe proposed changes Lo soclal pollcy: 'LxLenslve
provlslon of early learnlng and chlldcare ls a hallmark of some of Lhe mosL advanced
and successful counLrles Loday...' 'lndependence... wlll... subsLanLlally bolsLer Lhe
flnanclal case for a LransformaLlonal change ln chlldcare provlslon.' lnvesLlng ln a
'unlversal sysLem of hlgh quallLy early learnlng and chlldcare' Moreover, a
recognlLlon LhaL ScoLLlsh parenLs pay 27 of Lhelr household lncome on chlldcare as
compared Lo Lhe 12 average ln CLCu counLrles and LhaL Lherefore 'lndependence
wlll glve us Lhe opporLunlLy Lo lnvesL more ln Lhe supply of servlces raLher Lhan
subsldlslng demand.' 8esearch lndlcaLes LhaL Lhls commlLmenL wlll resulL ln beLLer
ouLcomes for chlldren and worklng parenLs, wlll creaLe [obs, creaLe wealLh LhaL ls
spenL ln Lhe local economy, address chlld poverLy and lead Lo lmproved educaLlonal
achlevemenL.
Looklng aL wlder lssues, Lhe commlLmenL Lo abollshlng welfare reforms LhaL have
been crlLlclsed as belng sLlgmaLlslng and dlvlslve offers a posslble sLep Lowards a
welfare sLaLe LhaL promoLes unlversallsm as opposed Lo slmply provldlng a baslc
safeLy neL. 1he ?es campalgn has repeaLedly sLaLed LhaL declslons abouL publlc
spendlng prlorlLles need Lo be made ln ScoLland Lo reflecL ScoLLlsh prlorlLles, values
and needs. A commlLmenL Lo creaLlng a consLlLuLlon and a welfare sysLem bullL on
Lhe prlnclples of soclal [usLlce ls lmporLanL.

What does the No s|de say?
1he Lhree maln pro-uk parLles have now played Lhelr hands ln Lerms of produclng
proposals for furLher devoluLlon. Clven LhaL Lhe ConservaLlves were hosLlle Lo Lhe


7#
very noLlon of devoluLlon ln Lhe 1990s, Lhelr proposals go furLher Lhan Lhose from
Labour, wlLh Lhe Llberal uemocraLs' proposals belng Lhe mosL far-reachlng ln Lerms
of Lhe devoluLlon of Lax powers. AlLhough Lhere are slgnlflcanL dlfferences beLween
Lhe proposals, all Lhe parLles have placed Lhe devoluLlon of lncome Lax as, arguably,
Lhe maln plllar of Lhelr plans.

Labour - the Uk as a 'shar|ng un|on'
underplnnlng Lhe parLy's proposals from lLs uevoluLlon Commlsslon ls lLs noLlon
LhaL: '1he uk ls a sharlng unlon," wlLh economlc, soclal, and pollLlcal aspecLs, ln
whlch rlsks and rewards are collecLlvely pooled... lL also means we can share
resources Lo permlL soclal solldarlLy.' AlLhough Lhere are slgnlflcanL pollcy areas Lhe
parLy wlshes Lo devolve, such as healLh and safeLy, Lhe plllars of Lhe 8rlLlsh soclal
securlLy sysLem (e.g. penslons, beneflL paymenLs, Lax credlLs) musL remaln aL
WesLmlnsLer ln order Lo promoLe a uk-wlde pro[ecL of soclal [usLlce.
Cn Lop of Lhe 10p varlablllLy ln Lhe ScoLland AcL 2012, Labour proposes LhaL Lhe
ScoLLlsh parllamenL should be able Lo vary lncome Lax by 13p ln Lhe and Lhere
would be flexlblllLy ln whlch Lax bands could be varled. 1hls would glve Lhe ScoLLlsh
parllamenL Lhe capaclLy Lo lncrease lncome Lax ln order Lo boosL spendlng on publlc
servlces.

Conservat|ves - |ncreas|ng the accountab|||ty of the Scott|sh par||ament
CommenLlng on Lhe 'unlons' of 1707 and 1801, Lhe ConservaLlves' SLraLhclyde
Commlsslon sLaLes: 'AL rooL, each unlon had and sLlll has - Lwo fundamenLal goals:
Lo creaLe a larger economlc markeL for [obs and enLerprlse and Lo assure Lhe
common securlLy of everyone wlLhln Lhe sLaLe.' 8ulldlng on Lhe economlc and
securlLy advanLages broughL abouL by Lhe wlder uk, ScoLland has Lhe space Lo be
dlfferenL ln Lerms of lLs lnsLlLuLlonal ldenLlLy. 1he ScoLLlsh parllamenL ls a key
componenL of Lhls buL, as lL sLands, ls noL accounLable enough because lL essenLlally
spends money wlLhouL belng responslble for ralslng lL. As a resulL '...we have based
our recommendaLlons on sLrong ConservaLlve prlnclples of responslblllLy,
Lransparency and accounLablllLy, whlch we belleve are requlred for a susLalned
relaLlonshlp of all four parLs of Lhe uk.'
Such Lhlnklng ls Lhe basls for Lhe maln proposal ln Lhe reporL: Lhe full devoluLlon
of lncome Lax. 1hls would make Lhe ScoLLlsh parllamenL dlrecLly accounLable for a
slgnlflcanL proporLlon of lLs budgeL. ln Lerms of welfare, Lhe ConservaLlves argue
LhaL Lhe core of soclal securlLy should remaln aL Lhe uk level, sLaLlng LhaL devolvlng
penslons, for example, would undermlne Lhe uk's slngle markeL. Powever, Lhe
reporL conLalns an lnLeresLlng, lf somewhaL vague, proposal Lo allow Lhe ScoLLlsh
parllamenL Lo 'supplemenL' beneflLs: 'Lveryone ln Lhe uk - wherever Lhey llve -
should be enLlLled Lo aL leasL Lhe soclal securlLy provlded for ln uk leglslaLlon aL
WesLmlnsLer. 8uL, lf Lhe ScoLLlsh parllamenL were Lo Lake Lhe vlew LhaL, from lLs own
resources, Lhe uk enLlLlemenL should be supplemenLed ln ScoLland, lL may be LhaL
Polyrood oughL Lo be able Lo leglslaLe accordlngly.'
ln Lhls regard, Lhe reporL goes furLher Lhan Labour's proposals ln LhaL Lhe
ConservaLlves are qulLe comforLable wlLh a ScoLLlsh 'Lop-up' on core welfare
paymenLs. Such proposals would glve Lhe ScoLLlsh parllamenL Lhe capaclLy Lo


74
provlde more generous welfare paymenLs, buL Lhe llkellhood ls LhaL lncome Lax
would have Lo be ralsed ln order Lo pay for Lhls.

L|bera| Democrats - a federa| Uk
1he Llberal uemocraLs have a long-sLandlng commlLmenL Lo a federal uk, and ln
many respecLs, parLlcularly wlLh regards Lo LaxaLlon devoluLlon, Lhelr devoluLlon
reporL ls Lhe mosL comprehenslve. uesplLe recommendlng LhaL lncome Lax,
lnherlLance Lax, caplLal galns Lax and alr passenger duLy be devolved, Lhe reporL sees
soclal securlLy as a uk-level compeLency: '1he Commlsslon... endorses Lhe reLenLlon
of a slngle uk welfare and penslons sysLem, supporLlng free movemenL and
resldency across Lhe uk wlLh a common seL of llvlng sLandards and enLlLlemenLs.'
1he [usLlflcaLlon for Lhe uk reLalnlng such compeLencles ls slmllar Lo Lhe
ConservaLlves'. 1he LaxaLlon powers LhaL Lhe Llberal uemocraLs belleve oughL Lo be
devolved would glve Lhe ScoLLlsh parllamenL some subsLanLlal flscal levers Lhrough
whlch lL could ralse exLra revenues for publlc spendlng, buL wlLhouL powers over
soclal securlLy, Lhe ablllLy Lo creaLe a dlsLlncLly ScoLLlsh sysLem are llmlLed.

In summary: our assessment of the arguments
1he ?es campalgn has made a persuaslve case for a vlslon of soclal and welfare
pollcy LhaL ls a deparLure from Lhe WesLmlnsLer model. Slnce 1999 Lhere has been a
move Lowards a commlLmenL Lo unlversallsm and soclal [usLlce ln prlnclple and ln
pracLlce, such as free personal care, free prescrlpLlons, a commlLmenL Lo no
unlverslLy fees, governance mechanlsms llke Lhe LquallLles and 8udgeLary Advlsory
group, domesLlc vlolence pollcy, and a commlLmenL Lo end homelessness. 8uL
ScoLland ls sLlll a dlvlded socleLy ln Lerms of lncome, healLh, gender and oLher
lnequallLles. lf prlnclples deslgned Lo Lackle Lhls are noL enshrlned ln Lhe consLlLuLlon
lL wlll sLruggle Lo address Lhls. A ?es voLe would poLenLlally offer Lhe naLlon an
opporLunlLy Lo creaLe a more soclally [usL socleLy Lhan lL would lf lL remalned ln Lhe
uk, buL Lhls depends heavlly on Lhe consLlLuLlonal seLLlemenL LhaL ls agreed - noL
everyone ln ScoLland ls commlLLed Lo soclal [usLlce and unlversallsm.
lf ScoLland voLes no, Lhe paLh lL follows wlll be largely deLermlned by Lhe 2013 uk
general elecLlon. 1he devoluLlon proposals wlll llkely exlsL as manlfesLo promlses
and would Lhus be dellvered on Lhe basls of Lhe proposlng parLy wlnnlng Lhe elecLlon
and formlng a ma[orlLy ln Lhe Pouse of Commons. Powever, Lhere ls a sLrong chance
LhaL Lhe 2013 elecLlon wlll noL produce a clear wlnner and so a slngle-parLy mlnorlLy
or coallLlon governmenL ls a reallsLlc prospecL - meanlng LhaL dellverlng a coherenL
seL of proposals wlll no longer be ln Lhe glfL of any parLy. Compromlses may have Lo
be made and/or reforms may be blocked.
1he Lechnlcal deLalls of whlch welfare and soclal securlLy arrangemenLs wlll come
abouL afLer a no voLe remaln Lo be seen. Powever, lf ScoLland does voLe no, Lhe
cenLral plllars of Lhe soclal securlLy sysLem wlll sLay aL Lhe uk level as Lhere ls llLLle
wlll from Lhe pro-uk parLles Lo furLher devolve Lhls parLlcular pollcy area.



75
uest|on 13: Does Scot|and need a separate |mm|grat|on po||cy? And |f the vote |s
es cou|d we have one?

uavld McCollum and ScoLL 8llnder

Why does |t matter?
lmmlgraLlon ls an area of pollcy over whlch Polyrood currenLly has llLLle leglslaLlve
conLrol. under Lhe 1998 ScoLland AcL, whlch relnsLaLed Lhe ScoLLlsh parllamenL, Lhe
lmmlgraLlon sysLem and border conLrols remalned 'reserved' Lo Lhe uk CovernmenL.
8uL an lndependenL ScoLland would be llkely Lo pursue a dlfferenL seL of pollcles
from Lhe presenL approach ln Lhe uk, so Lhls ls an lssue relevanL Lo Lhe
lndependence debaLe.
1he uk CovernmenL has developed an lncreaslngly resLrlcLlve sLance Lowards
lmmlgraLlon, argulng LhaL Loo many people comlng ln has sLralned soclal coheslon
and puL pressure on wage levels and publlc servlces. ln conLrasL, Lhe ScoLLlsh
CovernmenL wanLs Lo aLLracL more mlgranLs Lo ScoLland - parLlcularly Lhe hlghly-
skllled - for boLh demographlc and economlc reasons. lL argues LhaL lL ls prevenLed
from dolng so by Lhe resLrlcLlve 'one slze flLs all' uk lmmlgraLlon reglme. 1he WhlLe
aper, 5cotlooJs lotote, sald 'ScoLland has a dlfferenL need for lmmlgraLlon Lhan
oLher parLs of Lhe uk. Lhe currenL uk lmmlgraLlon sysLem has noL supporLed
ScoLland's lmmlgraLlon pollcles'.
lL ls Lherefore wldely assumed LhaL lndependence would lead Lo changes Lo
lmmlgraLlon pollcy ln ScoLland. lf lL had Lhe relevanL powers, ScoLland - aL leasL
under an Sn-led CovernmenL - would llkely enacL a less resLrlcLlve seL of
lmmlgraLlon pollcles Lhan Lhose of Lhe currenL WesLmlnsLer CovernmenL. Cn Lhe
oLher hand, ScoLLlsh CovernmenL proposals Lo remaln wlLhln a passporL-free
Common 1ravel Area LogeLher wlLh Lhe resL of Lhe uk and lreland would requlre
some level of negoLlaLlon wlLh Lhe Lwo oLher governmenLs, and Lhls coordlnaLlon
could place some consLralnLs on lmmlgraLlon pollcy even for an lndependenL
ScoLland.

What does es say?
Cn Lhe ?es slde of Lhe lndependence debaLe, Lhe ScoLLlsh CovernmenL has argued
LhaL ScoLland would beneflL from Lhe auLonomy Lo make lLs own pollcy and has
made a case for encouraglng lmmlgraLlon, parLlcularly hlghly-skllled workers. 1he
ScoLLlsh CovernmenL has conslsLenLly sald LhaL more lmmlgranLs could be a key
drlver of boLh demographlc and economlc growLh ln ScoLland. lLs offlclal opulaLlon
1argeL alms Lo maLch populaLlon growLh ln ScoLland wlLh Lhe average for Lhe
Luropean unlon over Lhe perlod 2007-2017. ScoLland has a modesL raLe of naLural
lncrease of populaLlon (blrLhs mlnus deaLhs), so mlgraLlon ls Lhe prlmary means
Lhrough whlch Lhls LargeL can be achleved. MosL of ScoLland's galns from
lmmlgraLlon come from lnLernaLlonal mlgraLlon, as opposed Lo lnflows from Lhe resL
of Lhe uk. 1hls means LhaL lmmlgraLlon pollcy has a slgnlflcanL bearlng on populaLlon
change ln ScoLland.
1he argumenLs puL forward for ScoLland merlLlng a separaLe pollcy appear
credlble glven ScoLland's hlsLorlcal neL losses of populaLlon Lhrough emlgraLlon, a
relaLlvely small mlgranL populaLlon Loday and rellance on mlgraLlon for demographlc


76
sLablllLy. 1hese demographlc Lrends mean LhaL ScoLland 'needs' mlgranLs Lo a
greaLer degree Lhan many oLher parLs of Lhe uk. ScoLland has LradlLlonally losL more
people Lhan lL has galned from mlgraLlon, meanlng LhaL lLs forelgn-born populaLlon
(7) ls smaller Lhan Lhe uk as a whole (13). uesplLe havlng a relaLlvely small
mlgranL populaLlon, a low raLe of naLural lncrease means LhaL ScoLland ls much more
rellanL Lhan oLher parLs of Lhe uk on lmmlgraLlon ln order Lo keep lLs populaLlon
sLable or growlng. ScoLland's populaLlon ls also agelng more rapldly Lhan Lhe resL of
Lhe uk's, meanlng LhaL lmmlgraLlon may play a parLlcularly slgnlflcanL role ln
boosLlng Lhe populaLlon of worklng age people relaLlve Lo reLlrees.
As well as lmmlgraLlon belng deslrable for demographlc reasons, Lhe ?es slde
argues LhaL ScoLland ls pollLlcally relaLlvely well sulLed Lo an lmmlgraLlon pollcy LhaL
seeks Lo aLLracL and reLaln mlgranLs. ALLlLudlnal surveys lndlcaLe LhaL Lhe general
publlc ln ScoLland ls less hosLlle Lo lmmlgraLlon Lhan ls Lhe case ln oLher parLs of
8rlLaln (aslde from London). So whllsL an argumenL could be made LhaL lmmlgraLlon
beneflLs Lhe uk generally, Lhe publlc ln ScoLland may be more LoleranL of pollcy
efforLs Lo aLLracL mlgranLs Lhan ls Lhe case elsewhere. 1hls ls parLlcularly Lrue for
hlgh-skllled labour mlgraLlon and for lnLernaLlonal sLudenLs, Lwo of Lhe mlgranL
groups LhaL ralse Lhe fewesL ob[ecLlons from members of Lhe ScoLLlsh (and Lngllsh
and Welsh) publlcs.
8uL whlle ScoLland appears Lo be more welcomlng Lhan Lngland, surveys show
LhaL a ma[orlLy of ScoLs sLlll supporL reduced lmmlgraLlon. 1hls senLlmenL could
become more prevalenL and voclferous should Lhe ScoLLlsh CovernmenL be
successful ln lLs efforLs Lo lncrease levels of lmmlgraLlon Lo ScoLland, or lf, ln an Sn-
led governmenL, opposlLlon parLles began Lo campalgn more sLrongly for resLrlcLlons
on Lhe number of people comlng lnLo Lhe counLry.
A flnal polnL ln favour of ScoLland havlng a separaLe lmmlgraLlon pollcy ls Lhe vlew
LhaL uk pollcy ls drlven by Lhe percelved 'overheaLlng' of London and Lhe SouLh LasL
of Lngland. 8esLrlcLlve lmmlgraLlon pollcles, as a consequence, may sulL Lhose
reglons buL have negaLlve demographlc and economlc lmpacLs for oLher parLs of
8rlLaln. 1he ScoLLlsh CovernmenL would argue LhaL lndependence would glve
Polyrood Lhe pollcy levers requlred Lo pursue lmmlgraLlon pollcles LhaL are beLLer
sulLed Lo ScoLland's parLlcular economlc and demographlc needs. Cplnlon polls have
shown LhaL Lhere ls wldespread publlc supporL for Polyrood raLher Lhan
WesLmlnsLer as Lhe key declslon-maklng body for lmmlgraLlon pollcy (60) and
asylum pollcy (38) for ScoLland.

What does No say?
WhaLever Lhe ouLcome of Lhe referendum, ScoLland wlll face some slgnlflcanL
challenges ln Lerms of developlng a more auLonomous lmmlgraLlon pollcy. Cn Lhe no
slde of Lhe argumenL, Lhe uk CovernmenL has expressed scepLlclsm abouL ScoLland's
demographlc and economlc case for lncreased mlgraLlon, buL has focused more on
Lhe dlfflculLles of lmplemenLlng a more open lmmlgraLlon sysLem ln an lndependenL
ScoLland LhaL shares a border wlLh Lhe resL of Lhe uk, and Lhe poLenLlal clash wlLh
uk lnLeresLs and preferences.
ln parLlcular, Lhe no case hlghllghLs Lenslons beLween an lndependenL ScoLLlsh
lmmlgraLlon pollcy - parLlcularly one almed aL populaLlon growLh - and Lhe sLaLed
lnLenLlon of Lhe ScoLLlsh CovernmenL Lo remaln wlLhln Lhe Common 1ravel Area


77
(C1A) LhaL currenLly blnds Lhe whole uk wlLh lreland (as well as Lhe SLaLes of !ersey
and Cuernsey and Lhe lsle of Man) ln a 'borderless' zone ln whlch people are free Lo
move wlLhouL rouLlne passporL checks. 1he C1A ls slmllar Lo Lhe Schengen area LhaL
lncludes much of Lhe Lu, alLhough lL ls less formal and noL based on a LreaLy among
lLs members. 1he WhlLe aper, however, makes lL clear LhaL ScoLland would pursue
Lu membershlp buL noL Schengen membershlp, as lL would prefer Lo remaln ln Lhe
C1A. lL ls noL posslble Lo be ln boLh Lhe C1A and Schengen.
An lndependenL ScoLland may Lherefore face pracLlcal, pollLlcal consLralnLs on lLs
ablllLy Lo make lLs own lmmlgraLlon pollcy from boLh Lhe Lu and Lhe uk. 1he uk
CovernmenL's poslLlon ls LhaL an lndependenL ScoLland, lf lL remalned ln Lhe C1A,
would need Lo co-ordlnaLe mlgraLlon pollcy wlLh Lhe resL of Lhe uk and lreland. 1he
uk CovernmenL's 5cotlooJ Aoolysls paper on borders and clLlzenshlp asserLs LhaL: 'lL
ls slmply noL posslble Lo collaboraLe wlLh oLher sLaLes ln a borderless Lravel
arrangemenL and aL Lhe same Llme Lo have an lmmlgraLlon pollcy LhaL dlffers
slgnlflcanLly from, or undermlnes Lhe pollcles of, Lhe oLher members.'

Is there a consensus |n expert op|n|on?
1here are lnformed, experL vlews Lo conslder on each of Lhe lssues ralsed above -
and areas of more or less agreemenL. lL seems clear LhaL ScoLland lndeed dlffers
from Lngland ln lLs demographlcs, economlc slLuaLlon, and publlc aLLlLudes Loward
mlgraLlon (Lhough London ls an excepLlon ln Lngland). lL ls also clear LhaL
lndependence would shlfL formal power over lmmlgraLlon pollcy ln ScoLland from
WesLmlnsLer Lo Polyrood, alLhough lL can be argued LhaL Lhere ls room for ScoLland-
speclflc pollcles on lmmlgraLlon even wlLhouL lndependence.
Several polnLs are less clear. llrsL, Lhere can be dlsagreemenL abouL how much
lmmlgraLlon pollcy can do Lo boosL Lhe ScoLLlsh economy and compensaLe for lLs
agelng populaLlon, especlally ln Lhe long-run. lL ls generally agreed LhaL mlgraLlon
adds Lo growLh, buL some sLudles have found lL reduces wages for low pald workers,
and can lncrease unemploymenL durlng perlods of recesslon. MlgraLlon may help Lhe
problem of an agelng populaLlon, buL experL analysls suggesLs lL ls noL a compleLe
cure. lL can be dlfflculL Lo conLrol Lhe number of people comlng ln and Lhe number of
people leavlng Lhe counLry cannoL be conLrolled. lnLernal movemenL, wlLhln Lhe
counLry, can also shape Lhe lmpacL of mlgraLlon on exlsLlng populaLlons and
lnfrasLrucLure. lf lmmlgraLlon was aL a level sufflclenL Lo reverse populaLlon agelng, lL
ls llkely Lo run lnLo pollLlcal and oLher pracLlcal dlfflculLles.
A second polnL of conLenLlon surrounds Lhe C1A, and how much an lndependenL
ScoLland would have Lo harmonlse lLs lmmlgraLlon pollcy wlLh Lhe resL of Lhe uk and
lreland. 1hls would be Lhe ouLcome of pollLlcal negoLlaLlons LhaL cannoL be predlcLed
ln advance. 1he uk CovernmenL has warned LhaL lL would aLLempL Lo llmlL Lhe
dlfferences ln lmmlgraLlon pollcles across Lhe C1A, lncludlng an lndependenL
ScoLland. ln parLlcular, Lhe uk regards an lmmlgraLlon pollcy almed aL populaLlon
growLh as agalnsL lLs own prlorlLles and suggesLs LhaL lf pushed far enough Lhls could
lead Lo a declslon Lo seL up a border wlLh passporL conLrols beLween ScoLland and
Lngland.
Cn Lhe oLher hand, Lhe ?es slde has polnLed ouL LhaL a 'hard' border of Lhls Lype
would be agalnsL Lhe lnLeresLs of Lhe uk as well as ScoLland, and so mlghL be Loo
cosLly a sLep Lo Lake or credlbly LhreaLen. lL has also been argued, even wlLhln Lhe


78
uk, ScoLland could operaLe a more dlsLlncLlve lmmlgraLlon pollcy by varylng Lhe
lncenLlves allowed ln Lhe presenL polnLs-based sysLem Lo encourage hlgh-skllled
mlgraLlon Lo ScoLland. So Lhe llkely level of auLonomy for ScoLland's mlgraLlon pollcy
ls noL flxed buL would be Lhe ouLcome of pollLlcal negoLlaLlons, elLher ln
lndependence or ln conLlnued unlon. ln any case Lhls dlscusslon could all be mooL lf
Lhe Lu lnslsLed LhaL ScoLland [oln Lhe Schengen area as a condlLlon for Lu
membershlp for ScoLland (Schengen membershlp would preclude ongolng C1A
membershlp). MosL commenLaLors assume LhaL Lhls ls noL llkely.
llnally, Lhe pollLlcs of lmmlgraLlon pollcy have a bearlng on Lhe ?es and no
argumenLs. 1he ?es slde anLlclpaLes a more open lmmlgraLlon pollcy, and LouLs Lhe
hlgher levels of Lolerance among Lhe ScoLLlsh publlc. 1hls ls Lrue, buL only Lo a polnL.
lmmlgraLlon ls less of a pollLlcal lssue ln ScoLland Lhan ln Lngland - Lhere ls a less
heaLed pollLlcal debaLe and negaLlve vlews of lmmlgraLlon are noL as wldespread.
Powever, mosL ScoLs sLlll say Lhey would prefer less lmmlgraLlon (alLhough only a
mlnorlLy wanLs a reducLlon ln hlghly-skllled workers and lnLernaLlonal sLudenLs
comlng ln). 8uL would Lhe currenL, relaLlvely mlld sLaLe of pollLlcal debaLe conLlnue ln
an lndependenL ScoLland LhaL ls responslble for lmmlgraLlon pollcy-maklng? lf Lhe
governmenL enacLed more open lmmlgraLlon pollcles, Lhere would be sLrong
pollLlcal lncenLlves for opposlLlon parLles Lo aLLack Lhese pollcles ln an efforL Lo galn
supporL from voLers who prefer less lmmlgraLlon.

Assessment
Cverall, Lhe case LhaL ScoLland would beneflL from a dlfferenL, auLonomous
lmmlgraLlon pollcy has conslderable merlL: ScoLland's slLuaLlon ls dlfferenL, boLh
economlcally and demographlcally. MlgraLlon ls noL a panacea ln elLher case, buL lL
can conLrlbuLe Lo growLh and Lo mlLlgaLlng populaLlon agelng. And a ma[orlLy of Lhe
ScoLLlsh publlc prefers Polyrood Lo WesLmlnsLer as Lhe key declslon-maker on
mlgraLlon and asylum pollcy. Cn Lhe oLher hand, membershlp ln Lhe C1A may llmlL
Lhe auLonomy of lmmlgraLlon pollcy even ln an lndependenL ScoLland, Lhe ouLcomes
of negoLlaLlons are unknowable, buL Lhe uk CovernmenL would push back agalnsL
pollcles deslgned Lo lncrease lmmlgraLlon numbers. So an lndependenL ScoLland
Lrylng Lo meeL economlc and demographlc alms Lhrough mlgraLlon pollcy would
have Lo deal wlLh consLralnLs from C1A (and/or Lu and Schengen) membershlp and
poLenLlally from lLs domesLlc pollLlcs as well.
llnally, lL ls concelvable LhaL even lf lL were Lo conLlnue as parL of Lhe uk,
ScoLland's dlsLlncL slLuaLlon could be sLlll accommodaLed Lhrough uslng flexlblllLy ln
uk lmmlgraLlon pollcy.




79
uest|on 14: What wou|d happen to pens|ons |n the event of a es or a No vote?

uavld 8ell and uavld Llser

Introduct|on
1he ScoLLlsh CovernmenL has been keen Lo sLress LhaL penslon rlghLs and beneflLs
wlll noL be affecLed by lndependence. lLs deslre Lo reassure people ls undersLandable
- penslons are among Lhe mosL lmporLanL flnanclal conLracLs LhaL lndlvlduals enLer,
and people ln ScoLland wlll be keen LhaL Lhey recelve Lhe rlghLs and enLlLlemenLs
LhaL Lhey have bullL up - wheLher Lhese are rlghLs Lo Lhe SLaLe enslon bullL up
Lhrough naLlonal lnsurance paymenLs or conLrlbuLlons Lo an occupaLlonal scheme.
lL ls useful Lo dlsLlngulsh beLween Lhree Lypes of penslon:
1he SLaLe enslon, whlch ls a paymenL Lo all Lhose of penslonable age, wlLh
Lhe paymenL dependlng on naLlonal lnsurance ConLrlbuLlons (nlCs) made over Lhe
llfeLlme,
ubllc secLor penslons (workplace penslons for Lhose who have worked ln Lhe
publlc secLor), and
rlvaLe secLor penslons.
1here ls no obvlous reason why Lhe condlLlons around any of Lhese should change
radlcally on lndependence. 1he ScoLLlsh CovernmenL plans Lo keep Lhe SLaLe enslon
largely ln lLs currenL form (alLhough wlLh a couple of mlnor changes - maklng lL
sllghLly more generous for cerLaln people and Lemporarlly delaylng Lhe lncrease ln
Lhe SLaLe enslon age). MosL publlc secLor penslons ln ScoLland are already managed
as ScoLLlsh (raLher Lhan uk) schemes.
1he maln long-run penslon challenge ls Lhelr affordablllLy as Lhe populaLlon ages.
1hls ls a challenge regardless of Lhe consLlLuLlonal poslLlon, alLhough lL ls sllghLly
more acuLe ln ScoLland Lhan ln Lhe resL of Lhe uk. 1he affordablllLy lssue ls perhaps
more llkely Lo resulL ln hlgher conLrlbuLlons for currenL workers (and Laxpayers) Lhan
for pensloners Lhemselves. Ad[usLlng penslons already belng pald ls usually a lasL
resorL. 1here are also some lssues Lo resolve abouL how exlsLlng penslon llablllLles
mlghL be spllL beLween ScoLland and Lhe conLlnulng uk. llnally, Lhere ls an lmporLanL
quesLlon abouL who would provlde penslons, glven LhaL one of Lhe greaL sLrengLhs of
ScoLland's flnanclal secLor ls lLs penslons companles.

What w||| happen to the State ens|on |f there |s a No vote?
1he SLaLe enslon ls an lmporLanL source of lncome for pensloners. 1he average
SLaLe enslon paymenL ls 130 per week ln ScoLland, approxlmaLely Lhe same as ln
oLher parLs of Lhe uk. 1he SLaLe enslon ls a ma[or componenL of LoLal governmenL
spendlng, cosLlng 6.8 bllllon ln 2012/13 ln ScoLland, equlvalenL Lo around 40 of all
spendlng on beneflLs and Lax credlLs, and 10 of LoLal publlc spendlng for and on
behalf of ScoLland. Changes ln SLaLe enslon pollcy can Lhus have lmporLanL
lmpllcaLlons boLh for pensloners and for Lhe publlc flnances.
1he SLaLe enslon age for men ls 63, for women lL has LradlLlonally been 60 buL
slnce 2010 lL has been lncreaslngly gradually and wlll reach 63 ln 2018. 8eLween
2018 and 2020 Lhe penslon age for men and women wlll lncrease Lo 66, and Lo 67 by
2028.


7:
What w||| happen to the State ens|on |f there |s a es vote?
1he ScoLLlsh CovernmenL has been keen Lo sLress LhaL Lhere wlll be llLLle upheaval ln
arrangemenLs for Lhe SLaLe enslon, should ScoLland become lndependenL.
Powever, lL does ouLllne a number of areas where pollcy ln an lndependenL ScoLland
may dlffer from LhaL ln Lhe uk.
A delay ln Lhe rlse ln Lhe penslon age Lo 67 unLll 2034. 8eLween 2028 and
2034, people ln ScoLland would be enLlLled Lo Lhe SLaLe enslon one year
earller Lhan people ln resL of Lhe uk.
8eLenLlon of Lhe Savlngs CredlL elemenL of enslon CredlL - an lncome-
relaLed beneflL Lop-up for pensloners on low lncomes who have saved some
money for Lhelr reLlremenL. lL currenLly beneflLs 9,000 pensloners ln ScoLland
Lo a maxlmum of 18 per week. 1he uk CovernmenL plans Lo abollsh Lhls
credlL afLer 2016.
An lncrease Lo Lhe Slngle 1ler SLarL 8aLe (Lhe Slngle 1ler enslon ls a slmpllfled
sLaLe penslon sysLem based on 33 years naLlonal lnsurance conLrlbuLlons
whlch wlll be lnLroduced ln 2016), whlch would be seL aL 160 per week ln
ScoLland, 1.10 hlgher Lhan ln Lhe uk, and wlll be upraLed each year by Lhe
so-called 'Lrlple-lock,' whlch means LhaL Lhe sLaLe penslon wlll lncrease by Lhe
maxlmum of: (l) Lhe lncrease ln earnlngs, (ll) Lhe lncrease ln prlces or (lll)
2.3, whlchever ls hlgher.
1hese pollcy proposals are cosLly. uelaylng an lncrease ln Lhe SLaLe enslon Age ls
parLlcularly cosLly for Lhe publlc flnances, as lL means reduced revenues from labour
Laxes and lncreased penslon paymenLs. 1he ScoLLlsh CovernmenL has clalmed LhaL
Lhe delay ls affordable because llfe expecLancy ls lower ln ScoLland - penslons cosL
less ln ScoLland because people on average dle earller and so do noL recelve Lhem
for so long.
Powever, a more relevanL quesLlon ls Lo conslder spendlng on Lhe SLaLe enslon
relaLlve Lo Lhe worklng age populaLlon, because Lhe worklng age populaLlon pays Lhe
Laxes whlch fund penslons. 8eLween now and 2033, ScoLland's populaLlon ls
pro[ecLed Lo 'age' more qulckly Lhan LhaL of Lhe uk. lgnorlng Lhe effecLs of Lhe pollcy
change dlscussed above, spendlng ln ScoLland on Lhe SLaLe enslon wlll, by 2033, be
around 400 mllllon hlgher Lhan lf ScoLland had Lhe same age dlsLrlbuLlon as ln Lhe
resL of Lhe uk. 1hls ls equlvalenL Lo a cosL of 142 per worklng age lndlvldual ln
ScoLland.
1he uk ueparLmenL for Work and enslons has esLlmaLed Lhe cosLs of Lhe SLaLe
enslon proposals ln Lhe WhlLe aper aL an addlLlonal 1 bllllon per year by 2032.
1helr lmpacL ls Lo lncrease Lhe slze of ScoLland's SLaLe enslon fundlng gap, relaLlve
Lo Lhe worklng age populaLlon, by a furLher 210. (1he mosL cosLly pollcy proposal ls
Lhe delay ln Lhe age lncrease, whlch ls esLlmaLed Lo cosL 0.8 bllllon, buL only applles
for Lhe years 2028-34). So whlle Lhe SLaLe enslon mlghL be more generous ln an
lndependenL ScoLland, Lhe revenues Lo pay for Lhls wlll have Lo be found elLher
Lhrough Laxes or reduced governmenL spendlng elsewhere.
lL ls llkely Lo be admlnlsLraLlvely dlfflculL Lo esLabllsh wheLher Lhose recelvlng Lhe
sLaLe penslon bullL up Lhelr naLlonal lnsurance conLrlbuLlons ln ScoLland or ln Lhe
resL of Lhe uk. 1hls ls clearly lmporLanL ln deLermlnlng where Lhe llablllLy for SLaLe
enslon paymenLs lles. lf Lhe daLa ls unavallable, some rough rule of Lhumb ls llkely
Lo be negoLlaLed, such as Lhe llablllLy for paylng Lhe SLaLe enslon lylng wlLh Lhe


8;
counLry ln whlch Lhe pensloner ls resldenL. ueLermlnlng who would be llable for
paymenL of Lhe penslons of Lhe 1.1mllllon uk pensloners who llve abroad would be
even more problemaLlc.

ub||c Serv|ce ens|ons
Around one mllllon people ln ScoLland currenLly have a dlrecL lnLeresL ln one of Lhe
flve maln publlc servlce penslon schemes (for Leachers, nPS workers, local
governmenL, pollce, and Lhe flre servlce). elLher as members, as pensloners or as
dependanLs. ln 2009/10, Lhe flve schemes pald ouL 2.8 bllllon Lo pensloners whlle
publlc bodles conLrlbuLed 2.2 bllllon and employees pald 814 mllllon Lo meeL Lhelr
expecLed long-Lerm cosLs. 1here are boLh funded and unfunded publlc servlce
penslon schemes ln ScoLland. 1he Local CovernmenL enslon Scheme ls Lhe maln
funded scheme (where paymenLs are flnanced ouL of Lhe conLrlbuLlons LhaL
pensloners Lhemselves made when Lhey were worklng), Lhe nPS, Leachers, clvll
servanLs, pollce and flre-flghLers' penslons are all unfunded (penslons pald Lo currenL
pensloners are flnanced from conLrlbuLlons pald by currenL workers).
WheLher ScoLland becomes lndependenL or remalns ln Lhe unlon, Lhe key
challenge ls Lhe affordablllLy of Lhese schemes. rlor Lo Lhe recesslon ln 2007/8, Lhe
ScoLLlsh penslon schemes recelved more ln conLrlbuLlons Lhan Lhey pald ouL Lo
reLlrees. 1hls poslLlon Lhen deLerloraLed, and ln 2011/12 Lhese schemes (funded and
unfunded) pald ouL over 300m more Lhan was recelved. 1hls Lrend reflecLs a
reducLlon ln reLurns on lnvesLmenL, comblned wlLh real Lerms lncreases ln paymenLs
whlch have noL (for unfunded schemes) been equally maLched by an lncrease ln
conLrlbuLlons.
1he flve schemes are already managed as separaLe ScoLLlsh penslon schemes, and
Lhus arrangemenLs for Lhelr managemenL are noL expecLed Lo change radlcally on
lndependence. 8uL mosL shorLfalls ln Lhe unfunded schemes ln any glven year are
meL by Lhe uk CovernmenL and Lhus funded by uk-wlde LaxaLlon. ScoLLlsh Laxpayers
wlll obvlously become fully responslble for such shorLfalls should ScoLland become
lndependenL.
ubllc secLor penslons form a ma[or parL of governmenL's fuLure llablllLles. ln facL,
publlc secLor penslons are Lhe largesL uk llablllLy, accounLlng for 1 Lrllllon of Lhe
uk's LoLal of 2.6 Lrllllon. ScoLland ls exposed Lo broadly lLs populaLlon share of
publlc secLor penslon llablllLles (abouL 86 bllllon). Powever, as Lhere are no
separaLe clvll servlce or armed forces schemes ln ScoLland, negoLlaLlons would have
Lo Lake place around how Lhe uk's llablllLles for Lhese penslons mlghL be spllL on
lndependence. 1he llablllLles do noL reflecL Lhe penslon LhaL may be pald Lo currenL
employees for any furLher years of servlce LhaL Lhey may add or for fuLure
employees. Pence lL represenLs only a parLlal assessmenL of how penslons wlll affecL
Lhe publlc flnances ln Lhe fuLure. noneLheless, Lhe value of Lhese penslons clearly
adds Lo Lhe overall lndebLedness of Lhe publlc secLor.
1he lssue of meeLlng Lhese penslon commlLmenLs ls noL dlrecLly relaLed Lo Lhe
consLlLuLlonal lssue. lL wlll arlse lrrespecLlve of Lhe referendum ouLcome. ubllc
servlce penslon schemes should broadly balance, ln oLher words Lhe employee and
employer conLrlbuLlons over a perlod of Llme should maLch paymenLs Lo pensloners.
1hroughouL Lhe 2000s, Lhe expanslon of publlc secLor employmenL helped keep
publlc servlce penslon schemes solvenL. A shrlnklng publlc secLor could pose ma[or


8"
challenges Lo Lhe fundlng of publlc penslons, parLlcularly Lhose LhaL are 'unfunded,'
for whlch currenL paymenLs are meL from currenL conLrlbuLlons. ShorLfalls ln such
schemes could be meL elLher by lncreaslng currenL conLrlbuLlons (from employers,
employees, or boLh), or Lhrough general governmenL revenues.
lllllng a gap Lhrough general governmenL revenues would lmply an lncrease ln
LaxaLlon or reducLlon ln spendlng on publlc servlces. LlLher would lnvolve a
redlsLrlbuLlon of revenues from Lhe general populaLlon Lo publlc secLor pensloners.
ScoLland has a sllghLly hlgher proporLlon of publlc secLor workers Lhan Lhe resL of Lhe
uk (23.6 v. 23.1) and Lhls explalns lLs relaLlvely larger llablllLy (relaLlve Lo lLs
populaLlon share of 8.3) for unfunded schemes.

Cccupat|ona| ens|ons
1he WhlLe aper sLaLes LhaL 'CccupaLlonal and personal penslon rlghLs and accrued
beneflLs wlll noL be affecLed by ScoLland becomlng lndependenL.' 1he ScoLLlsh
CovernmenL proposes Lo conLlnue pollcy Lo encourage prlvaLe penslon savlng,
lncludlng Lhe roll-ouL of auLomaLlc enrolmenL.
8uL Lhere are lmporLanL quesLlons around how penslon fund asseLs held by ScoLs
mlghL be lnvesLed ln governmenL bonds, and Lhe lmpllcaLlons for reLurns. 1hls ls
especlally Lhe case lf ScoLland were Lo adopL a separaLe currency.
enslons are funded by purchaslng asseLs whlch earn a reLurn. 8ecause Lhey
produce a safe and predlcLable reLurn, governmenL bonds almosL always form parL
of Lhese asseLs. Whlle penslon funds may hold bonds from a number of counLrles,
Lhey Lend Lo concenLraLe on holdlng domesLlc governmenL bonds. 1hls ls llkely Lo be
a markeL LhaL penslons companles undersLand well and where Lhere ls no rlsk
assoclaLed wlLh currency flucLuaLlons, whlch mlghL be Lhe case wlLh forelgn
governmenL bonds. Cur analysls suggesLs LhaL ln 2013, ScoLs held around 163
bllllon of penslon fund asseLs, of whlch around 44 bllllon was held ln uk
CovernmenL bonds.
Powever, Lhese funds are held by uk penslon companles on behalf of all Lhelr uk
cusLomers: any dlsLlncLlon beLween ScoLs and resL of Lhe uk fund members ls noL
relevanL aL presenL. AfLer lndependence, Lhe exlsLlng conLracLs would presumably be
honoured. 8uL lf an lndependenL ScoLland adopLed lLs own currency, ScoLLlsh
pensloners mlghL galn or lose dependlng how Lhls currency fares ln relaLlon Lo
sLerllng. 1hls would llkely ralse dlfflculL legal lssues, glven LhaL Lhe penslon conLracL
was lnlLlally made ln sLerllng.
lor Lhose currenLly lnvesLlng ln a penslon, Lhe markeL for ScoLLlsh CovernmenL
bonds would be more relevanL. 1he ScoLLlsh CovernmenL wlll need Lo sell such
bonds lmmedlaLely posL-lndependence ln order Lo fund lLs publlc servlces. lf
ScoLland ls sLlll parL of a currency unlon, Lhese bonds would have Lo be more
aLLracLlve Lhan uk bonds ln order Lo aLLracL penslon fund buyers. 1hls mlghL requlre
LhaL ScoLLlsh bonds offer a hlgher raLe of reLurn Lhan uk bonds, and Lhls may be Lhe
case lf Lhe ScoLLlsh CovernmenL faces a hlgher raLe of borrowlng on lLs debL Lhan Lhe
uk CovernmenL does. 1hls 'llquldlLy premlum' may allow ScoLLlsh penslon funds Lo
purchase a larger fund for reLlremenL Lhan uk counLerparLs. lf ScoLland had lLs own
currency, lL ls less clear LhaL Lhere would be any dlvldend for ScoLLlsh penslons and
Lhere would cerLalnly be debaLe abouL Lhe lmpllcaLlons of recelvlng a penslon ln a
forelgn currency.


8#

Conc|us|ons
ln Lhe case of a ?es voLe, Lhe ScoLLlsh CovernmenL has lndlcaLed LhaL lL would
provlde a sllghLly more generous SLaLe enslon, and delay Lhe uk CovernmenL's
planned rlse ln Lhe SLaLe enslon age Lo 67 by around elghL years. 1he more
generous SLaLe enslon wlll affecL Lhe affordablllLy challenge posed by an agelng
populaLlon and would have Lo be funded Lhrough general LaxaLlon.
AffordablllLy wlll also be affecLed by Lhe facL LhaL ScoLland has a hlgher proporLlon
of publlc secLor workers and a more rapldly agelng populaLlon. under currenL
arrangemenLs, shorLfalls ln ScoLland's unfunded penslon schemes are meL Lhrough
uk LaxaLlon, whereas under lndependence, shorLfalls would clearly have Lo be meL
Lhrough ScoLLlsh Lax recelpLs alone.
lor boLh Lhe SLaLe enslon and uk-wlde publlc secLor penslons (clvll servlce and
armed forces penslons), lndependence would Lrlgger Lhe need for dlscusslons
beLween Lhe uk and ScoLLlsh CovernmenLs as Lo how Lo spllL llablllLles for penslons
for people who have accrued enLlLlemenLs ln a dlfferenL sLaLe from Lhe one ln whlch
Lhey reLlre.
lor Lhose lnvesLlng ln occupaLlonal penslon schemes, Lhe prospecL of an
lndependenL ScoLland adopLlng lLs own currency ralses lssues: ScoLLlsh pensloners
who had lnvesLed ln uk schemes may flnd Lhe value of Lhelr penslon flucLuaLlng
dependlng on Lhe exchange raLe beLween sLerllng and Lhe new ScoLLlsh currency. Cn
Lhe oLher hand, lndependence may enable ScoLLlsh workers Lo secure a larger
penslon fund for Lhelr reLlremenL, lf Lhe ScoLLlsh CovernmenL has Lo pay more Lo
borrow Lhan Lhe uk.
1he fundlng of sLaLe and publlc secLor penslons wlll be dlfflculL whaLever Lhe
consLlLuLlonal ouLcome. 1he ScoLLlsh CovernmenL has been keen Lo sLress LhaL
penslon arrangemenLs wlll change llLLle lf aL all under lndependence. noneLheless,
alLhough condlLlons may noL change much for pensloners, Lhe challenges posed by
an agelng populaLlon are llkely Lo requlre some comblnaLlon of lncreased
conLrlbuLlons and/or general LaxaLlon ln order Lo fund exlsLlng llablllLles. AlLhough
Lhls challenge wlll exlsL whaLever Lhe consLlLuLlonal poslLlon, Lhe affordablllLy
challenge ls llkely Lo be more acuLe for ScoLland Lhan lL ls for Lhe resL of Lhe uk.




84
8us|ness & compet|t|on







85

uest|on 1S: Wou|d a es vote be good for bus|ness? Wou|d a No vote?

8rad Mackay

Why |s |t |mportant?
Cne of Lhe mosL lmporLanL deLermlnanLs of any counLry's fuLure economlc
prosperlLy, and a key baLLleground ln Lhls referendum debaLe, ls whaL consLlLuLlonal
arrangemenL ls beLLer for buslness compeLlLlveness and growLh. 1he ?es slde argues
LhaL havlng more powers Lo Lallor economlc pollcy Lo Lhe needs of ScoLLlsh buslness
wlll help Lo enhance producLlvlLy and growLh. 1he no slde argues LhaL Lhe success of
ScoLLlsh buslness ls underplnned by Lhe scale of Lhe uk slngle markeL. undersLandlng
Lhe lmpllcaLlons of Lhe referendum debaLe for buslness can Lherefore be an
lmporLanL gulde Lo Lhe economlc consequences of Lhe voLe, and lLs lmpllcaLlons for
employmenL, ScoLland's flscal poslLlon, and lLs wealLh creaLlng poLenLlal.
AbouL Lhree-quarLers of ScoLland's employmenL ls ln Lhe prlvaLe secLor. Accordlng
Lo ScoLLlsh CovernmenL sLaLlsLlcs, small buslnesses (0-49 employees) accounL for
98.3 of Lhe 343,103 prlvaLe secLor enLerprlses operaLlng ln ScoLland, Lhey make up
42.3 of prlvaLe secLor employmenL and generaLe 23.6 of prlvaLe secLor Lurnover.
1he 2,270 large buslnesses operaLlng ln ScoLland, by conLrasL, only make up 0.7 of
Lhe LoLal number, buL accounL for 43.3 of prlvaLe secLor employmenL, and cruclally,
generaLe 63.3 of prlvaLe secLor Lurnover. Pow Lhe voLe lmpacLs on buslness
declslons Lo lnvesL, re-lnvesL, expand, wlLhdraw, locaLe or relocaLe buslness acLlvlLy
wlLhln or ouLslde ScoLland, Lherefore, ls crlLlcal for ScoLland's economlc prospecLs
followlng Lhe referendum.

What the es s|de says
1he ScoLLlsh CovernmenL argues LhaL ScoLland has a hlghly skllled workforce, world-
class buslnesses, an lnLernaLlonally recognlsed brand, a repuLaLlon for lnnovaLlon,
and subsLanLlal naLural resources. lL suggesLs LhaL lndusLrlal manufacLurlng has
suffered decades of neglecL. 1he uk economy, lL says, ls domlnaLed by London and
Lhe SouLh LasL. Many of Lhe pollcy levers for creaLlng [obs and wealLh ln ScoLland are
reserved powers for WesLmlnsLer. 1hey sLaLe:

'ConLrol of LaxaLlon, publlc spendlng llmlLs, regulaLlon of buslness and
lndusLry, and compeLlLlon pollcy all resL ln London. Successlve devolved
ScoLLlsh governmenLs have had conslderable success ln reduclng
unemploymenL, lncreaslng employmenL and promoLlng lnward lnvesLmenL.
8uL Lhe fundamenLal economlc declslons LhaL affecL ScoLland are Laken ln
WesLmlnsLer, ofLen by governmenLs LhaL have no popular mandaLe ln
ScoLland, and ln Lhe lnLeresLs of an economy and socleLy wlLh dlfferenL
prlorlLles from ScoLland.'

lndependence, Lhe ScoLLlsh CovernmenL malnLalns, wlll allow lL Lo reduce Alr
assenger uuLy by 30, buslness raLes for small buslnesses, and corporaLe Lax by
Lhree percenLage polnLs Lo counLer Lhe gravlLaLlonal pull of London and Lhe SouLh-
LasL. Compllance cosLs for buslness wlll be reduced Lhrough a slmpllfled Lax sysLem,


86
and, comblned wlLh greaLer conLrol over lmmlgraLlon and caplLal lnvesLmenL ln
lnfrasLrucLure, wlll lmprove producLlvlLy. Llnks beLween buslnesses, fundlng
provlders, publlc secLor agencles and unlverslLles wlll be lmproved wlLh a coherenL
sLraLegy and shared prlorlLles. A package of employmenL measures deslgned Lo
enhance employee represenLaLlon and female parLlclpaLlon on company boards and
Lo creaLe coheslon and opporLunlLy ln Lhe workplace wlll help Lo lmprove falrness
and company performance. 1he economy wlll be rebalanced Lhrough pollcles Lo
lmprove lnnovaLlon and exporLs and re-lndusLrlallsaLlon. 1hey argue:

'An lndependenL ScoLland wlll have Lhe opporLunlLy Lo pursue pollcles
deslgned Lo grow Lhe economy and creaLe [obs. WlLh responslblllLy for Lhe
full range of pollcy levers, Lhe governmenL of an lndependenL ScoLland wlll be
able Lo creaLe a more supporLlve, compeLlLlve and dynamlc buslness
envlronmenL.'

ln addlLlon, Lhey malnLaln LhaL: ScoLland wlll be a member of Lhe Lu aL
lndependence, lL wlll be ln a moneLary unlon wlLh Lhe uk, and share Lhe pound
SLerllng, Lhere wlll be a slngle energy markeL, [olnL procuremenL for defence
conLracLs, and fundlng counclls for unlverslLles wlll be shared beLween Lhe Lwo
counLrles. 1he ?es slde vlews lndependence as Lhe buslness opporLunlLy of a
llfeLlme. 1he ScoLLlsh CovernmenL belleves LhaL Lhe pollcy levers avallable Lo Lhem
wlLh lndependence would allow Lhem Lo Lransform Lhe economy Lhrough pollcy
cholces LhaL beLLer reflecL Lhe prlorlLles of ScoLLlsh households and buslnesses, and
Lo creaLe a falrer socleLy.

What the No s|de says
1he uk CovernmenL argues LhaL ScoLland has flourlshed as parL of Lhe uk, lL ls one of
lLs wealLhlesL parLs. ScoLland's economy has ouLperformed many small lndependenL
Luropean sLaLes. 1he uk, Lhey malnLaln, ls one of Lhe mosL lnLegraLed slngle markeLs
ln Lhe world, and ScoLLlsh buslnesses have become successful wlLhln LhaL pollcy and
regulaLory conLexL. ScoLland's sLrong secLors ln defence, energy and flnanclal
servlces rely on Lhe uk markeL where a ma[orlLy of Lhelr Lrade ls. As parL of Lhe uk,
ScoLLlsh buslnesses have a markeL of 63 mllllon people. An lndependenL ScoLland
would have a populaLlon of 3.3 mllllon. 1hey argue LhaL some 70 of ScoLLlsh
exporLs go Lo Lhe resL of Lhe uk. ln addlLlon, goods, servlces and people can move
freely LhroughouL Lhe uk. lurLhermore, buslness and consumers beneflL from Lhe
sLablllLy of Lhe pound, shared lnsLlLuLlons, regulaLlons, lnfrasLrucLure and a slngle
labour markeL. CosLs and lnvesLmenL ln, for lnsLance, energy, are shared by Lhe uk
as a whole. Moreover, cosLs for buslnesses and consumers are kepL lower by Lhe
repuLaLlon of uk lnsLlLuLlons and Lhe scale of Lhe uk. 1hey argue:

'As lL sLands, Lhe uk ls a Lrue domesLlc slngle markeL - wlLh free movemenL
of goods and servlces, caplLal and people. 8uslnesses are able Lo Lrade freely
across Lhe whole of Lhe uk, consumers beneflL from a greaLer number and
varleLy of goods and servlces aL lower prlces, and workers are able Lo access
a greaLer number of [obs allowlng Lhem Lo maxlmlse Lhelr skllls and reallse


87
Lhelr range of asplraLlons. lL ls one markeL wlLh no lnLernal barrlers Lo Lhe
flow of goods, caplLal and labour.'

lf ScoLland were Lo become lndependenL, Lhe uk would co-operaLe ln areas of
muLual lnLeresL, as lL does wlLh oLher lndependenL sLaLes. 1here would noL be a
moneLary unlon wlLh a shared currency wlLh ScoLland. ScoLland would have Lo
supporL lLs own flnanclal secLor durlng crlses. ScoLLlsh buslnesses and consumers
would no longer beneflL from Lhe same borrowlng raLes avallable Lo Lhe uk. ScoLLlsh
flrms would no longer be ellglble for blddlng on conLracLs from Lhe uk MlnlsLry of
uefence (Mou). CosLs and lnvesLmenL ln, parLlcularly, energy, would no longer be
spread across Lhe uk as a whole, buL borne by ScoLland. ScoLland would have Lo seL
up lLs own fundlng counclls for unlverslLles. 1rade mlghL also be reduced by 'border
effecLs' caused by Lrade barrlers beLween Lhe uk and ScoLland. 1hey say:

'1he uk's shared buslness framework helps drlve growLh and
compeLlLlveness across Lhe uk, and ls aL Lhe cenLre of ScoLland's success ln
creaLlng buslnesses LhaL can compeLe on Lhe world sLage. 1hls uk-wlde
framework and guaranLeed access Lo Lhe whole of Lhe uk's domesLlc markeL,
underplns lorelgn ulrecL lnvesLmenL ln ScoLland.'

1hey conclude LhaL ScoLLlsh buslness has Lhe besL of boLh worlds: Lhey have Lhe
beneflL of Lhe slze and sLrengLh of Lhe uk, ooJ Lhey are also supporLed by Lhe
focused and LargeLed efforLs of Lhe ScoLLlsh CovernmenL uslng devolved powers.

Is there a consensus expert op|n|on?
Lvldence from lndependenL, pollLlcally-neuLral sLudles of buslness leader's aLLlLudes
Lowards Lhe lndependence debaLe ls relaLlvely conslsLenL. lL ls Lhe uncerLalnLy over
and above Lhe normal buslness uncerLalnLy LhaL buslness leaders are used Lo deallng
wlLh, and have an undersLandlng of, whlch poses Lhe largesL challenge for
buslnesses. 1he mosL problemaLlc lssues for buslnesses are Lhe currency (wlLh a
sLrong preference for Lhe pound SLerllng), regulaLlon, corporaLe and personal Laxes,
Lu membershlp (wlLh a sLrong preference for remalnlng ln Lhe Lu), Lhe buslness
envlronmenL and Lhe cosLs of a LranslLlon perlod. 1he vasL ma[orlLy of buslnesses
lndlcaLe LhaL lndependence poses slgnlflcanL rlsks Lo Lhelr buslness operaLlons and
sLraLegles. 1he rlsks expressed by buslness leaders are hlghly speclflc and dlrecLly
concern buslness acLlvlLy.
When asked abouL whaL opporLunlLles lndependence mlghL presenL, on average,
research shows LhaL only half of respondenLs ln sLudles lnLo buslness aLLlLudes
Lowards lndependence are able Lo ldenLlfy opporLunlLles. Cf Lhose Lhey do ldenLlfy,
Lhey Lend Lo be less speclflc or unspeclflc compared Lo rlsks, and Lhey Lend Lo relaLe
more Lo Lhe economlcs and pollLlcs of Lhe debaLe. 1he oLher half of respondenLs
cannoL ldenLlfy any opporLunlLles LhaL lndependence would presenL for Lhelr
buslnesses. Cnly a very small mlnorlLy can ldenLlfy where lndependence mlghL
presenL an opporLunlLy for buslness growLh.
A large ma[orlLy of buslness leaders lndlcaLe LhaL Lhe cosLs and rlsks of
lndependence Lo buslness ouLwelgh Lhe percelved beneflLs and opporLunlLles LhaL
mlghL occur. unsurprlslngly, large 'LC' companles headquarLered ln ScoLland


88
appear Lo be more affecLed Lhan companles headquarLered ouLslde of ScoLland.
Companles supplylng Lo Lhe Mou also reporL LhaL lndependence could pose a
challenge Lo Lhelr buslness prospecLs. A slgnlflcanL number of medlum and large
companles have Lhe ma[orlLy of Lhelr Lrade ln Lhe resL of Lhe uk (Lyplcally 90 and
10 ln ScoLland), and appear far more affecLed Lhan companles whose Lrade ls
malnly ln ScoLland, or ls dlverslfled globally.
Medlum-slzed, prlvaLely owned companles appear more wllllng Lo absorb
downslde rlsk Lhan LCs, whlch are also concerned abouL shareholder value.
Medlum-slzed, forelgn-owned companles Lradlng predomlnanLly ln a global markeL
lndlcaLe Lhey are less affecLed by Lhe consLlLuLlonal debaLe Lhan LCs Lradlng
prlmarlly ln Lhe resL of Lhe uk.
8uslness leaders of smaller medlum-slzed, prlvaLe companles exporLlng globally,
and smaller flrms whose Lrade (boLh cusLomers and suppllers) ls predomlnanLly ln
ScoLland are Lhe mosL llkely Lo emphaslse Lhe opporLunlLles presenLed by Lhe
posslblllLy of ScoLLlsh lndependence.
SLudles conslsLenLly show LhaL up Lo 10 of buslness leaders lndlcaLe Lhey may
move buslness acLlvlLy ouL of ScoLland ln Lhe evenL of a ?es ouLcome.
1he consensus of experL oplnlon, prlmarlly based on Lhe vlews of buslness leaders
Lhemselves, ls LhaL Lhe rlsks posed by lndependence for buslness ouLwelgh any
opporLunlLles lL mlghL presenL. Whlle some, prlmarlly smaller buslnesses mlghL
beneflL from more Lallored pollcy by an lndependenL ScoLLlsh governmenL, for Lhe
ma[orlLy of successful companles ln ScoLland Loday, Lhelr success has been achleved
wlLhln Lhe pollcy and regulaLory conLexL of a hlghly lnLegraLed uk slngle markeL. lf
Lhls changes, so does Lhe foundaLlons on whlch Lhelr success has been bullL.

Assess|ng the arguments
So whaL can we conclude from Lhe evldence? 1he case for buslness really depends
on whaL mlghL maLerlallse ln negoLlaLlons followlng Lhe referendum. lf negoLlaLlons
are compllcaLed and Lhe LranslLlon Lo lndependence ls cosLly, confuslng and lengLhy,
and lf Lhe ScoLLlsh CovernmenL ls unable Lo dellver a deal on currency, unlnLerrupLed
membershlp wlLh Lhe Lu, and removlng 1rldenL from laslane, up Lo 10 of
buslnesses lndlcaLe ln varlous sLudles LhaL Lhey could Lake caplLal, buslness acLlvlLy
and head offlce operaLlons ouL of ScoLland. lorelgn companles looklng Lo lnvesL ln
ScoLland would also llkely defer Lhose lnvesLmenLs unLll ScoLland's economlc fuLure
became clear. 1hls could resulL ln a slgnlflcanL reducLlon ln economlc ouLpuL ln Lhe
shorL Lerm, and damage ScoLland's economlc prospecLs ln Lhe medlum Lerm. Whlle
as a smaller counLry ScoLland mlghL become more flexlble and nlmble, lL would lose
scale. AmblLlons Lo relndusLrlallse Lhe counLry would Lake Llme, and lL could Lake
decades Lo recover Lhe losL economlc ouLpuL assumlng LhaL a hlgher raLe of growLh
ln ScoLland could be achleved followlng lLs LranslLlon Lo lndependence.
Cn Lhe oLher hand, lf negoLlaLlons were relaLlvely consensual and Lhe LranslLlon
Lo lndependence shorL, lf Lhe ScoLLlsh CovernmenL was able dellver a deal on Lhe
currency, lf lL was able Lo negoLlaLe conLlnulng and unlnLerrupLed membershlp ln Lhe
Lu, lf lssues such as 1rldenL were accommodaLed ln Lhe negoLlaLlons, lf ScoLLlsh
unlverslLles were able Lo malnLaln Lhe same level of fundlng as Lhey currenLly have,
and lf Lrade durlng Lhls LranslLlon perlod was Lo be relaLlvely unlnLerrupLed, some of
Lhe rlsks Lo buslness mlghL be mlLlgaLed. 1here would llkely sLlll be some loss of


89
economlc acLlvlLy ln, for lnsLance, lndusLrles llke flnanclal servlces and some
headquarLers of larger lndusLrlal companles ouL of ScoLland, and Lhls would llkely
resulL ln a drop ln prlvaLe secLor economlc ouLpuL and employmenL, however
modesL. 8uL lL mlghL be recovered relaLlvely qulckly assumlng ScoLland could achleve
a hlgher raLe of growLh followlng lndependence.
Clearly a no voLe ln Lhe referendum also carrles wlLh lL uncerLalnLles. Cf Lhose
clLed by buslness leaders ln samples and surveys, Lhe mosL common Lend Lo be Lhe
posslblllLy of an 'ln-ouL' referendum on Lhe uk's conLlnulng membershlp ln Lhe Lu,
domlnaLlon of Lhe uk by London and Lhe SouLh-LasL, Lhe prospecL of fuLure
referendums, or 'neverendums,' Lhe flscal poslLlon of Lhe uk as a whole, llngerlng
dlvlslons beLween camps followlng Lhe voLe and scepLlclsm abouL wheLher
commlLmenLs of more devolved powers Lo ScoLland wlll be honoured. Some
buslness leaders also polnL ouL LhaL Lhe devolved powers comlng lnLo effecL wlLh Lhe
ScoLland AcL 2012 also pose uncerLalnLles lf, for example, Lax raLes ln ScoLland
dlverge from Lhose ln Lhe resL of Lhe uk, and Lhe compllcaLlons LhaL could creaLe for
Lhe buslness envlronmenL. Whlle such uncerLalnLles also pose rlsks Lo buslnesses,
Lhey are relaLlvely speclflc and undersLood, and Lherefore manageable.




8:

uest|on 16: What wou|d |ndependence mean for energy markets?

CranL Allan, aLrlzlo Lecca, eLer McCregor, klm Swales

Why |s th|s |mportant?
Lnergy ls essenLlal Lo supporL modern lndusLrlal and domesLlc acLlvlLy. ulsrupLlons Lo
power supplles can harm peoples' llves and Lhe prlce LhaL people have Lo pay affecLs
Lhelr sLandard of llvlng. 1he prlce of power lmpacLs dlrecLly on Lhe compeLlLlveness
of buslnesses ln ScoLland, and so on Lhe level of ouLpuL and employmenL. 1he way ln
whlch energy ls used and generaLed across Lhe world has a ma[or lmpacL on global
warmlng, whlch consLlLuLes a long-Lerm LhreaL Lo Lhe populaLlon of ScoLland, for
example, ln Lhe form of lncreaslngly exLreme weaLher. llnally, Lhe energy secLor ls
lLself an lmporLanL source of economlc acLlvlLy - of employmenL and lncomes ln
ScoLland. 1he energy secLor ls expecLed Lo grow and generaLe addlLlonal economlc
acLlvlLy.
1he ScoLLlsh CovernmenL has a number of pollcy alms:
Lo ensure secotlty of sopply - Lo 'keep Lhe llghLs on,'
Lo Lry Lo ensure Lhe offotJoblllty of energy (and Lo llmlL fuel poverLy),
Lo lmprove Lhe eovltoomeot and combaL CllmaLe Change by llmlLlng
emlsslons and leadlng by example,
Lo explolL Lhe ecooomlc qtowtb poLenLlal of Lhe energy secLor, especlally ln
Lerms of renewables, as lL seeks Lo move Lowards a low carbon economy.
1he promoLlon of renewables, Lhe reslsLance Lo new nuclear generaLlng capaclLy
and Lhe adopLlon of legally blndlng cllmaLe change LargeLs are examples where
successlve ScoLLlsh admlnlsLraLlons have used devolved powers Lo pursue a
dlsLlncLlve ScoLLlsh energy pollcy. Powever, many key aspecLs lncludlng markeL
regulaLlon and LaxaLlon, are, under currenL consLlLuLlonal arrangemenLs, beyond Lhe
conLrol (Lhough noL necessarlly Lhe lnfluence) of Lhe ScoLLlsh CovernmenL.

What does es say?
1he ?es campalgners argue LhaL:
1he lnLegraLed 8rlLlsh markeL ln elecLrlclLy and gas wlll be malnLalned and
operaLe preLLy much as lL does now, buL wlLh Lhe ScoLLlsh CovernmenL
havlng a blgger say ln lLs operaLlon. ScoLland wlll Lherefore conLlnue Lo be a
ma[or exporLer of elecLrlclLy Lo Lhe resL of Lhe uk. (CurrenLly around 23 of
ouLpuL ls exporLed, and Lhe ScoLLlsh CovernmenL expecLs Lhls share Lo grow
slgnlflcanLly.)
1he uk CovernmenL wlll conLlnue Lo lmporL elecLrlclLy generaLed ln ScoLland
on slmllar Lerms Lo Lhose LhaL currenLly prevall because lL wlll be ln lLs own
lnLeresL Lo do so, slnce lL would oLherwlse experlence a problem of securlLy
of supply and be unable Lo meeL lLs legally blndlng Lu emlsslons LargeLs for
2020.
ScoLLlsh resldenLs would noL conLrlbuLe Lo Lhe cosLs of Lhe new nuclear
provlslon.
1he Lu LargeLs for 2020 wlll remaln as Lhey are for Lhe uk as a whole.


9;
AddlLlonal ScoLLlsh CovernmenL powers over energy pollcy wlll faclllLaLe
growLh of Lhe energy secLor.

What does the No s|de say?
1he no campalgners Lake Lhe vlew LhaL:
1here wlll conLlnue Lo be an lnLegraLed neLwork, buL LransacLlons wlll be
sub[ecL Lo new, and purely commerclal, conLracLs. ScoLland may sLlll exporL
elecLrlclLy Lo Lhe resL of Lhe uk, buL Lhese exporLs wlll noL be prlvlleged and
wlll be dependenL on compeLlLlveness.
1he resL of Lhe uk ls noL dependenL on ScoLLlsh lmporLs for securlLy of
supply, Lhey consLlLuLe less Lhan 3 of LoLal consumpLlon.
1he resL of Lhe uk wlll be able Lo meeL lLs Lu LargeLs wlLhouL lmporLlng
elecLrlclLy from ScoLland.
LxlsLlng paymenLs of 8enewable CbllgaLlon CerLlflcaLes (8CCs) would cease,
and ScoLLlsh renewables ouLpuL would be sub[ecL Lo an uncerLaln prlce.
ScoLLlsh resldenLs wlll be hlL by a dramaLlc hlke ln energy prlces as Lhe whole
of ScoLLlsh renewables lnvesLmenL and producLlon wlll have Lo be funded
enLlrely by ScoLLlsh Laxpayers.
1he Lu emlsslons LargeLs for 2020 wlll have Lo be renegoLlaLed and Lhls ls
llkely Lo resulL ln ScoLland belng sub[ecL Lo LlghLer LargeLs, and Lhe resL of Lhe
uk's LargeLs belng reduced.

Is there an expert consensus?
A number of experL vlews have been offered, buL Lhere ls no consensus and Lhere
has been no sysLemaLlc aLLempL Lo assess Lhe lmpacL of lndependence on Lhe ablllLy
of Lhe ScoLLlsh and Lhe resL of Lhe uk CovernmenLs Lo meeL Lhelr energy pollcy
goals. We now seek Lo address LhaL gap.

Secur|ty of Supp|y
1here ls a range of ways LhaL Lhe resL of Lhe uk could address Lhls lssue, reflecLed ln
ever LlghLer capaclLy marglns - and Lo some exLenL already ls - by expandlng
generaLlon and lnLerconnecLor capaclLy souLh of Lhe border (lnduced ln parL by
governmenL supporL), lmporLlng fuels, noLably gas, and lnvesLlng ln new nuclear
generaLlon. So, lL seems dlfflculL Lo argue LhaL Lhe resL of Lhe uk ls a 'capLlve markeL'
for ScoLLlsh elecLrlclLy. Powever, glven Lhe Llmescales requlred Lo alLer generaLlon
and lnLerconnecLor capaclLles (for example nuclear cannoL come on llne unLll 2023),
lmporLs from ScoLland are llkely Lo form parL of Lhe resL of Lhe uk's soluLlon ln Lhe
shorL and medlum runs.
Longer-Lerm Lhe resL of Lhe uk could no doubL make arrangemenLs LhaL would
ensure lLs sLandalone securlLy of supply. lL ls looklng aL Lhe whole range of
Lechnologles, lncludlng nuclear and large scale blomass, alLhough Lhere ls recenL
shlfL agalnsL renewables, and are lmplemenLlng Lechnologles LhaL wlll faclllLaLe
demand slde managemenL pollcles (noLably smarL meLers).
Cverall, Lhere ls a securlLy of supply lssue for Lhe resL of Lhe uk, buL Lhe ScoLLlsh
CovernmenL oversLaLes Lhe dependence on ScoLLlsh exporLs, aL leasL over Lhe longer
Lerm. lrom Lhe perspecLlve of Lhe uk as a whole lL would be exLraordlnarlly


9"
lnefflclenL for ScoLland and Lhe resL of Lhe uk Lo address securlLy of supply lssues
separaLely.

C||mate change, em|ss|ons and renewab|es
1he ScoLLlsh CovernmenL has adopLed very amblLlous, legally blndlng LargeLs for
cuLLlng emlsslons (42 by 2020 and 80 by 2030 on 1990 levels). 1he long-Lerm
decarbonlsaLlon of Lhe elecLrlclLy generaLlng secLor ls a key elemenL of ScoLLlsh
CovernmenL's cllmaLe change pollcy desplLe conLrlbuLlng noLhlng lmmedlaLely Lo lLs
emlsslons LargeLs. 1he maln Lypes of pollcles LhaL lmpacL on emlsslons are: Lhe prlce
of carbon, Lhe promoLlon of renewables, and Lhe encouragemenL of greaLer energy
efflclency.

es camp
1he ScoLLlsh CovernmenL argues LhaL currenL markeL arrangemenLs wlll conLlnue,
lncludlng Lhe sharlng of Lhe cosL of renewables developmenL, and of new
lnfrasLrucLure. 1he uk looks Lo be sLruggllng Lo meeL lLs legally blndlng Lu LargeL,
even wlLh ScoLland's subsLanLlal conLrlbuLlon. So, ln effecL, Lhe resL of Lhe uk wlll
have llLLle opLlon buL Lo conLlnue Lo purchase 'green energy' cerLlflcaLes from
renewable elecLrlclLy generaLlon ln ScoLland and effecLlvely conLlnue Lo subsldlse
generaLlon here.

No camp
1he ueparLmenL of Lnergy and CllmaLe Change belleves LhaL afLer lndependence Lhe
cosL of renewables developmenL wlll fall enLlrely on ScoLLlsh consumers, so LhaL
prlces Lo ScoLLlsh consumers would have Lo rlse dramaLlcally above Lhose charged ln
Lhe resL of Lhe uk.

Such would be Lhe scale of Lhe lncreased charges LhaL Lhere would
lnevlLably be a quesLlon mark over Lhe feaslblllLy of achlevlng ScoLland's cllmaLe
change and renewables LargeLs.

Assessment
1he ScoLLlsh CovernmenL's clalm of Lhe resL of Lhe uk's dependence on ScoLland Lo
meeL lLs blndlng emlsslons LargeLs may be exaggeraLed, alLhough oLher opLlons prlor
Lo 2020 may be falrly llmlLed. CLher domesLlc opLlons may be more aLLracLlve posL-
lndependence, lncludlng developlng offshore wlndfarms and lmporLlng more. 1he
resL of Lhe uk could also choose Lo Lrade ln green cerLlflcaLes (eg wlLh lreland) Lo
meeL lLs Lu LargeLs.
1he uk CovernmenL exaggeraLes Lhe LhreaL of lndependence Lo ScoLLlsh
renewables. ln Lerms of Lhe conLrlbuLlon of ScoLLlsh renewables, an lndependenL
ScoLland could pursue pollcles LhaL would ensure meeLlng lLs amblLlous 2020
renewable energy LargeL of producLlon equlvalenL Lo 100 of ScoLLlsh consumpLlon.
8uL Lhe cosLs would lncrease elecLrlclLy prlces by around 7.3.

Affordab|||ty
Whlle Lhe asplraLlon Lo make energy 'affordable' may be laudable, Lhe CovernmenL
of a small, open economy llke ScoLland has llmlLed conLrol over Lhls Lo Lhe exLenL
LhaL energy prlces depend on Lhe cosL of lmporLed fuels. lurLher, slnce fuels are a
decllnlng resource Lhe pro[ecLed Lrend of Lhelr relaLlve prlces ls upward. Cf course,


9#
Lhe move Lo decarbonlsaLlon reduces LhaL rellance Lhrough Llme. ln facL, Lhe ScoLLlsh
CovernmenL also has more demandlng LargeLs Lhan Lhe uk Lo reduce fuel poverLy,
deflned as a slLuaLlon ln whlch households spend more Lhan 10 of Lhelr lncome on
fuel.

es camp
1he ScoLLlsh CovernmenL adopLs Lhe raLher opLlmlsLlc vlew LhaL conLlnuaLlon of Lhe
lnLegraLed 8rlLlsh sysLem lmplles LhaL LhaL lndependence pet se wlll have llLLle
lmpacL on Lhe cosL of renewable energy, parLly because of Lhe vlew LhaL Lhe resL of
Lhe uk ls a 'capLlve markeL.' lurLhermore, slnce Lhere wlll also be no conLrlbuLlon Lo
Lhe lncreased cosLs of nuclear power by ScoLLlsh consumers, affordablllLy should, lf
anyLhlng, be lmproved relaLlve Lo remalnlng wlLhln Lhe uk.

No camp
no asserLs LhaL Lhe flnanclng of ScoLLlsh renewables enLlrely wlLhln ScoLland wlll
lmpose a huge burden on ScoLLlsh consumers slnce Lhe prlce hlkes would need Lo be
subsLanLlal Lo compensaLe for Lhe loss of Lhe conLrlbuLlon of Lhe 27 mllllon
households ln Lhe resL of Lhe uk: Lhe enLlre burden would have Lo be borne solely by
Lhe Lhree mllllon households ln ScoLland (assumlng LhaL fundlng occurred enLlrely
Lhrough cusLomers' bllls, as aL presenL). lndeed Lhe scale of Lhe changes may be
pollLlcally lnfeaslble, LhreaLenlng Lhe deploymenL of renewables ln ScoLland and Lhe
ScoLLlsh CovernmenL's ablllLy Lo meeL elLher lLs renewables or emlsslons LargeLs
longer-Lerm.

Assessment
1he LruLh lles somewhere beLween Lhese Lwo poslLlons. lf ScoLland ls lndependenL
Lhe CovernmenL of Lhe resL of Lhe uk would almosL cerLalnly base declslons abouL lLs
lmporLs on a much more sLralghLforwardly commerclal basls. 1here would lnevlLably
be pressure on affordablllLy from reduced fundlng for renewables from Lhe resL of
Lhe uk. Powever, Lhere would undoubLedly be some legal challenge Lo Lhe ldea LhaL
Lhe CovernmenL of Lhe resL of Lhe uk could sLop fundlng renewables schemes ln
ScoLland LhaL were agreed prlor Lo lndependence. lf Lhe requlremenL for lnLernal
fundlng of renewables only applles Lo new capaclLy from lndependence, Lhe lmpacL
on ScoLLlsh consumers would be much reduced, aL leasL lnlLlally. Powever, Lhe
commlLmenLs would lmply lncreased elecLrlclLy prlces, even ln Lhe shorL- Lo medlum
Lerms, Lhough lL ls posslble LhaL Lhls lncrease could be less Lhan lf ScoLland remalned
wlLhln Lhe uk and had Lo fund lLs share of nuclear.

Lconom|c deve|opment potent|a|
Successlve ScoLLlsh CovernmenLs have emphaslsed Lhe economlc developmenL
poLenLlal of low carbon Lechnologles ln general and renewables ln parLlcular. 1he
concenLraLlon of renewable resources ln ScoLland, boLh onshore and offshore,
renders Lhelr explolLaLlon parLlcularly aLLracLlve here as Lhey offer Lhe opporLunlLy
slmulLaneously Lo reduce emlsslons and sLlmulaLe economlc acLlvlLy. lew pollcy
lnsLrumenLs offer Lhls klnd of 'double dlvldend': ln general emlsslons move dlrecLly
wlLh economlc acLlvlLy. So renewables are one posslble way of Lackllng Lhe Lrade-off


94
beLween Lhe envlronmenL and economlc growLh so as Lo achleve susLalnable
economlc growLh.

es camp
1he ScoLLlsh CovernmenL's LargeLs for renewable energy developmenLs are ofLen
expllclLly Lled Lo Lhe developmenL lmpacL LhaL meeLlng Lhe LargeL may confer on Lhe
ScoLLlsh economy. 1he renewable energy roadmap, for lnsLance, menLlons LhaL Lhe
ScoLLlsh CovernmenL's LargeL of Lhe equlvalenL of 100 of ScoLLlsh elecLrlclLy
consumpLlon produced from renewable elecLrlclLy ln ScoLland ls: 'A LargeL LhaL ls
necessary Lo relndusLrlallse ScoLland Lhrough 21sL cenLury Lechnologles.'

No camp.
no ls scepLlcal of Lhe ablllLy of an lndependenL ScoLland Lo fund Lhe scale of
lnvesLmenL LhaL ScoLland's renewable LargeLs lmply.

Assessment
1he ScoLLlsh CovernmenL ls probably unduly opLlmlsLlc abouL Lhe ease of
developmenL of ScoLLlsh renewables, especlally offshore. Powever, esLlmaLes LhaL
we referred Lo earller suggesL LhaL 1he uk CovernmenL's vlew ls unduly pesslmlsLlc
on Lhe prospecLs for ScoLLlsh renewables. And wlLh pressures on energy prlces Lo
rlse because of domesLlc energy pollcles for boLh ScoLland and Lhe resL of Lhe uk,
Lhe key Lo lnLernaLlonal compeLlLlveness, whlch wlll lnfluence Lhe ablllLy Lo exporL
elecLrlclLy and Lechnologles (ln Lhe case of marlne), wlll be how energy prlces
elsewhere develop.

Conc|us|on
lL ls falrly clear LhaL: cooperaLlon beLween ScoLLlsh and Lhe resL of Lhe uk
CovernmenLs ls llkely Lo be beneflclal Lo boLh sldes for mosL, lf noL all, of Lhelr
energy pollcy goals, affordablllLy ls golng Lo be a ma[or lssue for boLh CovernmenLs,
boLh yes and no camps are prone Lo exaggeraLlon. Powever, our analysls does noL
amounL Lo anyLhlng approachlng a full cosL beneflL analysls of Lhe llkely lmpacL of
lndependence.



95
Iurther Informat|on



1he luLure of Lhe uk and ScoLland programme, funded by Lhe Lconomlc and Soclal
8esearch Councll, brlngs Lhe besL of uk soclal sclence Lo Lhe debaLe abouL ScoLland's
consLlLuLlonal fuLure and lLs lmpllcaLlons for Lhe resL of Lhe uk.
hLLp://www.fuLureukandscoLland.ac.uk/programme

WhaL ScoLland 1hlnks provldes lmparLlal, up-Lo-daLe lnformaLlon on publlc aLLlLudes
Lo ScoLLlsh lndependence lncludlng Lhe laLesL ScoLLlsh Soclal ALLlLudes survey
flndlngs.
hLLp://whaLscoLlandLhlnks.org/

ScoLland SepLember 18 - daLa, evldence and facLs ln relaLlon Lo Lhe referendum.
hLLp://scoLlandsepLember18.com/abouL/

uavld Pume lnsLlLuLe, promoLlng lnformed debaLe on publlc pollcy
hLLp://www.davldhumelnsLlLuLe.com/