Scotland considers economic benefits of breaking up with Britain

Ending Britain’s 306-year rule would allow Scotland to reverse generations of economic mismanagement and free its lawmakers to boost economic growth, say Scottish nationalists campaigning to split from the UK.

Independence would not only bring the long-standing and sometimes-troubled union to an end, but allow tax cuts and investment focused on boosting exports to spur growth on the Scottish side of the border.

In an attempt to sour support for independence ahead of a Scottish referendum in September 2014, Britain’s rulers have issued a flurry of warnings in recent months about the dangers of Scotland scrapping its union with England.

Scotland, according to the British government, would have trouble keeping the pound, its economy would be dangerously exposed to the vicissitudes of the oil market and its banking sector would be vulnerable to a Cyprus-style debt crisis.

But the Scottish government hit back at those gloomy views with a report entitled “Scotland’s Economy: The Case for Independence” which said years of shoddy London policies had cost Scotland 19,000 new jobs and hampered growth for decades.

“The UK government’s economic policies have been holding Scotland back for generations,” said Scotland’s Deputy First Minister Nicola Sturgeon. “Only with the powers of independence can Scotland meet its full potential.”

Scotland’s $190 billion economy – roughly the size of New Zealand’s – makes up about 8 percent of Britain’s $2.4 trillion economy, according to most international measures and Scotland’s own economic forecasts.

Opinion polls show about one-third of Scottish voters want independence, while nearly 60 percent want to stay part of Britain.

Keep the pound

Scotland said that if granted independence it wanted to keep using the British pound under a currency union arrangement and strengthen ties with the European Union, steps that it said could increase exports 50 percent over four years.

“A currency union would provide the full flexibility to vary tax and spending decisions to target key opportunities and challenges in Scotland,” the report said.

It cited tourism, food and drink and manufacturing as some of the industries that would benefit from independence and the freedom to deal directly with partners in Europe and beyond.

Opponents of independence in London have warned Scotland it would have to renegotiate European Union membership as a separate sovereign state and that its share of North Sea oil revenues would also be the subject of discussion.

Alistair Darling, a Scottish politician who served as finance minister under the Labour government between 2007 and 2010, said the economic case for an independent Scotland was “totally unconvincing.”

He said oil, gas and renewable energy sectors were dependent on large UK subsidies and that Scotland’s financial sector relied heavily upon access to the rest of the British market.

The remaining oil and gas reserves of the North Sea could be worth up to $2.28 trillion according to Scottish government analysis, and the report backs creating a Norwegian-style oil wealth fund to cushion the blow of any future economic shocks.

“Nothing lasts for ever but we know that oil and gas resources are going to last a long time,” said Alex Salmond, Scotland’s first minister and leader of the Scottish National Party.

An independent Scotland could attract investment by cutting corporation tax, simplifying regulatory structures and providing incentives for companies to invest in training their workers.

A 3 percent cut in corporation tax could boost economic output 1.4 percent and raise employment 1.1 percent by attracting investment over the next 20 years, the report said.

Scotland could also save money with a trimmed down regulation system compared to that of Britain, that created greater certainty for industries and higher levels of protection for consumers, the report said.

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Editing by Guy Faulconbridge and Mike Collett-White.

Copyright (2013) Thomson Reuters.