In today’s paper, third paper in our Building a New Scotland serie, we make the economic case for independence.
Fundamentally, we argue that a stronger, fairer, more sustainable economy is more possible for Scotland with independence, than it ever will be with Westminster control.
By combining Scotland’s many economic strengths and abundant resources – particularly our vast renewable energy potential – with the policy levers that come with independence;
An economic model built on social partnership, and good, stable governance, we can build a wellbeing economy that works for all.
We also address key questions on currency, fiscal sustainability and trade, and I will say more on these topics shortly.
In 2014, the choice before the Scottish people was framed by Westminster parties as the strength and stability of the UK on the one hand, and the uncertainty of independence on the other.
The reality in the years since has been very different. It is glaringly obvious now that the UK does not offer economic strength and stability, or financial security.
On top of an already crippling cost of living crisis, calamitous decisions taken by a government Scotland did not vote for have sent mortgage rates through the roof and brought pension funds to the brink of collapse.
We now face another round of austerity cuts that will damage our public services – perhaps existentially; push more people into poverty; and further shred the safety net that is so essential to any decent society.
That is the so-called ‘certainty’ continued Westminster governance now offers us.
While recent events have brought this into sharper focus, this crisis has been long in the making.
And it is not a temporary phenomenon.
The UK economy is in long term decline. The UK economic model is failing – badly. The facts speak for themselves.
The UK is poorer than many of its international comparators.
Indeed, as the first paper in this series demonstrated, it is substantially poorer than independent European countries comparable to Scotland.
It has lower national income per head.
Wider inequality, higher rates of child and pensioner poverty, and lower productivity. More and more the UK looks like an outlier in economic policies, performance and social outcomes.
Brexit has turbo-charged these trends.
Over time – and compared with EU membership – Brexit will wipe billions of pounds from the Scottish economy and the tax revenues that support public services.
Yet – inexplicably – all the main Westminster parties now back it.
There is no route for Scotland – as part of the UK – back to the EU, or to the single market or customs union.
If we stay as we are as part of the Westminster system, the outlook for Scotland is this:
Austerity, low growth, wages and living standards stagnant – at best. High – and growing – inequality, rising rates of poverty, economic damage, reduced trade and narrowed horizons as a result of Brexit.
All of it exacerbated by increasingly dysfunctional Westminster decision-making.
The price of this for people across Scotland will be heavy.
I know, however, that there are many people who, even though they agree with that analysis, still have big – and fair – questions about independence.
Questions like –
Why now, in these tough times?
Is a stronger, fairer economy really possible with independence?
What currency will we use? How will we deal with any debt and deficit we inherit?
How can we protect trade across the UK if we are back in the EU?
This paper addresses these questions.
First, why now?
There is an understandable human instinct to hunker down in the face of a storm and hope for calmer times.
But for the UK this is not just a passing storm.
The UK economy is fundamentally on the wrong path, and there is no real alternative on offer within the Westminster system.
The establishment consensus on Brexit – despite the harm it is causing – illustrates that.
For Scotland, not being independent means we are being dragged down the wrong path too: one people in Scotland did not vote for.
To build a more stable, sustainable economy – with fairness and human wellbeing at heart – independence is therefore essential.
That is the fundamental point we make in this paper.
Independence is not an abstract argument separate from people’s daily lives. It has at its heart the ambition – and crucially, it equips us with the essential tools – to build a fairer, wealthier, greener, happier country.
I know, however, that it’s not enough to show that the UK economic model is failing. We must demonstrate that independence offers a better alternative.
Independence is not a miracle cure. There are no guarantees of economic success for any country.
For Scotland – like every other independent nation – our success will depend on the quality of the decisions we take. It will be hard work.
But this paper sets out the reasons for believing we can succeed.
After all, we know that for other independent countries of our size, or smaller, independence already works.
Why would it not for Scotland?
Especially as we have so many economic strengths that many of them don’t.
Vast renewable energy resources. Internationally competitive industries: from food and drink, to technology, from tourism to life sciences and the space sector. More world class universities, proportionately than almost any other country on the planet. A creative, skilled and highly educated population.
The policy tools we get with independence will allow us to make the most of these strengths.
As in any democracy, different governments will make different choices. But in this paper, we set out some of the opportunities that the economic powers of independence would open for us.
For example, with powers to reform the energy market, we could ensure that our renewable resources deliver security of supply and lower costs – while also tackling the climate emergency.
We could ensure fairer work. European style labour market policies, in place of Westminster anti-trade union laws, could bring government, business and trade unions together in a social partnership, underpinned by greater worker involvement and stronger collective bargaining.
This is the kind of approach increasingly championed by organisations like the
OECD as the best route to high wage, productive economies that are sustainable and more inclusive.
With employment law powers, we could do more to tackle the gender pay gap and age discrimination – ensuring, for example, that young people receive the same minimum wage rate as everybody else.
It is an approach based on human wellbeing – lifting people up so they can contribute fully, not waiting for wealth to trickle down while the inequality gap grows.
With independence, we can re-join the EU and be back inside the world’s biggest trading block.
As an EU member state in our own right we would, for the first time, be in a position not just to benefit from EU trade deals, but help shape them.
We would have an immigration policy tailored to our needs. And we would have the stability of knowing that the governments making the decisions that shape our economy have actually been elected by us.
These are just some of the opportunities independence would open up.
Another – overarching – question I know people have though is this one.
How do we get from here to there? In this paper, we take that head on.
As events of recent weeks have underlined – whether we like it or not – fiscal credibility and market confidence are essential to the wellbeing and living standards of all of us. That understanding is central to the approaches we set out.
Firstly, we describe in this paper the new financial institutions that will be required to help ensure credibility and confidence.
On that, it is worth noting that we are much more advanced than in 2014.
Back then, Scotland didn’t have its own tax or social security agencies. We do now. Indeed there have surely been few, if any, nations in history better prepared for independence than we are.
To add to those institutions already in place, we will create an independent Scottish Central Bank, a Debt Management Office, and significantly strengthen the Scottish Fiscal Commission so that it effectively replicates the Office for Budget Responsibility.
These institutions would operate independently of government and help ensure financial stability, transparent economic forecasting and performance monitoring, and a responsible, purposeful and efficient use of borrowing powers.
Second, we address the issue of currency.
We confirm that the policy of the Scottish Government is to establish a Scottish pound. We would seek to do this as soon as practicable.
The precise timing would be determined not by a fixed timetable, but by a set of objective requirements and criteria, guided by advice from the central bank, and subject to a decision by Parliament in the overall interests of the country.
The paper sets out in detail a careful and responsible phased approach, as well as the arrangements necessary to support a new currency and, in the shorter term, our continued use of sterling.
The paper also sets out the approach we would take to securing fiscal sustainability. Again, this recognises the vital importance of confidence and credibility in public finances.
The deficit and debt an independent Scotland will start out with will be derived from and influenced by the overall UK position.
In the case of debt, it will also be determined by negotiations that follow a vote for independence.
As was established in 2014, Scotland would not have legal responsibility for UK debt. We do, however, in my view, bear a moral responsibility.
In light of that, and our desire for strong future partnership between Scottish and UK governments, we would seek a fair settlement on both debt and assets.
Given the turmoil engulfing the UK’s finances at this time, it is not possible to make an estimate of our starting fiscal position – though the IFS has suggested that in 2022/23, Scotland’s deficit is likely to be similar to or lower than the UK’s.
We do confirm that we would set clear fiscal rules to put and keep public finances on a sustainable path.
We would intend these to align with the broad principles of the European Growth & Stability Pact, which is currently being reformed.
We intend to have fiscal rules that keep day to day spending within sustainable limits and debt on a sustainable path, but still permit governments to properly support public services and borrow to invest.
We reject austerity as both morally wrong and economically counter-productive. Further, we do not accept that austerity is necessary in a country as wealthy as Scotland, and with our abundance of resources. It is, ultimately, the creation of a sustainable, inclusive economy that delivers fiscal sustainability.
Neither austerity nor tax cuts for the wealthiest will deliver that. It will come instead from investment in people and infrastructure.
That is why we propose in this paper the Building a New Scotland Fund.
Oil and gas is a declining asset, and our obligation to the planet means we must move away from fossil fuels as quickly as possible. But oil and gas can’t be switched off overnight, so Scotland could benefit from these revenues for some time yet.
If we invest remaining oil revenues – and use our new borrowing powers responsibly and for a purpose – we can invest up to £20 billion in the first decade of independence.
This investment will help accelerate the transition to net zero and transform communities.
And crucially, it will help kick start the inclusive growth that will help get our newly independent nation on a fiscally sustainable path, while building the fair society we all want.
Lastly, the paper considers borders and trade.
There are two important points to underline at the outset.
Firstly, independence opens the door to Scotland rejoining the EU and single market. That will allow us to grow and diversify our trade in the way Ireland did after joining the EU.
Trade across the UK is important, but that must not be the limit of our ambition – not when we have a market seven times the size of the UK on our doorstep.
Second, Scotland will remain in the Common Travel Area with the rest of the UK and Ireland. That means any talk of passports to visit relatives in England is utter nonsense. Free movement of people across our islands will continue as before.
An independent Scotland back in the EU will also regain free movement across 27 other countries too.
What Brexit does mean, though, when Scotland returns to the EU, is that border arrangements will be required to ensure continued trade in goods and services across the UK.
None of this is insurmountable – but it is does require proper planning.
Most of Scotland’s trade with the rest of the UK is in services and we set out the arrangements that will need to be in place to ensure that continues.
As far as manufactured goods are concerned we actually export more to the rest of the world than to the rest of the UK.
Nevertheless, we set out here the mechanisms by which necessary checks can be carried out in a way that allows smooth trade to continue – and makes clear that we would provide support to traders to adapt.
It is important to note that for the purposes of this paper we assume that the UK/EU relationship will be governed by the current Trade & Co-operation Agreement.
However, over time it is possible that economic reality – if not common sense – will lead the UK to greater alignment with the single market and to agreements that reduce the requirement for checks.
In the time available to me today, I’ve only been able to summarise this paper. I encourage everyone with an interest to read it in full at gov.scot/newscotland.
In the coming weeks and months, we will publish further papers on EU membership, energy, pensions and social security.
Today, though, marks a milestone in the conversation about how we can build a better Scotland.
There can’t be many – if any – who look at Westminster right now and think this is as good as it gets.
But in relation to an independent Scotland, people want to know – have a right to know – this:
Can we do better? Do we know how to do it? And will it be worth it.
I believe, with the right vision and a lot of hard work, the answer to all these questions is Yes.