Alex Salmond leaves the Treasury following a meeting in May. © Alastair Grant/AP/Press Association Images
One electoral frenzy is out of the way. Next up: Scotland, a question that will be settled by a vote in September. Already the Westminster Government is out of the traps, with briefings taking place attacking the SNP. Treasury officials have made clear that they feel the case for independence is flawed and that an independent Scotland would find itself in a very poor fiscal position. So poor, in fact, that an independent Scotland would suffer substantial problems in paying its way. In short, the Treasury is suggesting, Alex Salmond's sums do not add up.
The biggest point of contention is oil, which is at the core of the SNP's pitch to the Scottish electorate (Salmond is a former Oil Economist at the Royal Bank of Scotland). In 2011, oil accounted for just over 6 per cent of Scottish GDP and the Scottish government's forecasts suggest that, in a worst case scenario, that rate of output will at the very least remain flat. But this is sharply at odds with data held by the Office for Budget Responsibility down in London, which suggests that by 2018-19 oil production will be the equivalent of no more than 2 per cent of Scottish GDP.
The suggestion that Scotland's oil is in more meagre supply than Salmond contends is extremely subversive to his economic narrative. Salmond has often put before the electorate the alluring prospect of a juicy Sovereign Wealth Fund, stuffed with revenues from North Sea oil sales, its returns used to invest in infrastructure and other government spending projects. Norway has such a fund, which is often cited as an example of what Scotland might achieve. Impossible, says the Treasury. Norway started saving oil money long ago, right at the peak of output in its own oil fields. That peak has long passed for Scotland's reserves, and the revenues from oil would not be remotely large enough for a Norwegian-style fund.
In addition to this, Scotland will face colossal expenses linked to setting up the institutions required by an independent country, the Treasury says. The benefits system, the tax system, the departments of state—the costs will keep coming. Added to which, the SNP's main commitments, to childcare, a reduction in corporation tax, and a cut in air passenger duty, will cost Scotland £1.6bn per annum.
It gets worse. The Scottish population is getting older. In 2012, there were around 310 pensioners in Scotland per 1,000 people of working age. By 2035, the Treasury suggests, that number will have risen to around 400. In addition, an independent Scotland would experience higher borrowing costs on international markets. An independent Scottish government bond would come with a higher coupon, says the Treasury, because a new market for assets denominated in the new currency would necessarily be less liquid. This premium on borrowing would weigh even further on an independent Scotland's coffers.
And so to the paradox—the Treasury has examined Scotland's economy as a discreet fiscal entity and has found it lacking. It is saddled with proportionately more debt than the rest of the UK, it has an ageing population, its resources are running dry and the Government is making spending commitments that it cannot honour. So says the Westminster government.
But even if true, the Treasury must be careful. It is attempting to “make a positive case”: that the UK is better with Scotland. But painting too grim a picture of the Scottish economy risks encouraging an alternative conclusion—that the rest of the UK would be better off without it.
