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Eight reasons why staying in the union could destabilise Scotland

September 17, 2014

As the establishment tightens the frighteners to Orwellian levels I thought I’d rejig my May post on Scottish independence.

The no campaign portrays Scottish independence as a leap into darkness. Within the union, the conventional reasoning goes, Scots know what they’re getting.

Project Fear thinks it only needs to periodically tweak the buttons on the scare-o-meter and Scots will scurry back to their tellys, allowing Westminster to carry on undisturbed.

Quite the contrary. For many Scots the union could prove more unpredictable than independence. Here’s why:

worried-cameron1. Europe is a source of immense uncertainty. I overestimated UKIP’s European election gains in my original post but they still did worryingly well. The danger isn’t UKIP itself: it’s a party of plonkers with quarter-baked policies. The real problem is that mainstream parties couldn’t wait to ape Farage. A month after the European elections senior Liberal Democrats tried to back the Tory proposal to hold an in/out referendum on Europe. This, from a party whose DNA is practically Belgian. The Lib Dems will hold a referendum if UK sovereignty is passed to the EU and won’t oppose the Tory motion on a referendum in the House of Commons.

Labour’s Ed Balls says “if there is any proposal in the next parliament for a transfer of powers to Brussels we will have an in/out referendum.” The website LabourForaReferendum.com features a couple of dozen of prominent party members. Last month UKIP predicted Labour will promise an in/out vote after the general election. And the Farage-o-philia is more than just a temporary trend. It’s the culmination of a long-term shift to the right in some areas and an expression of some peoples’ lack of voice.

All the parties continue to blurt out ill-considered statements on immigration and Europe. The prospect of UKIP getting even a seat or two in Westminster is horrifying, and holds open the prospect of Labour and the Tories continuing to out-Farage Farage. Who knows? Scottish politics is more predictable.

2. The promised referendum on EU membership means Scotland may be forced to choose between a union with England or with Europe: a source of scariness which Scots can’t do much about. Scots will go to the independence vote in the knowledge that England could quit the EU. Ditching Brussels might even create more instability than severing ties with Westminster. Contrary to what the No campaign says the EU is unlikely to freeze out Scotland. That’d be ridiculous given an independent Scotland’s democratic mandate and EU-compliant laws.

3. The London housing bubble will burst sooner or later. I was probably wrong in my original post to say definitively that the bursting of the bubble would cause another economic downturn – bubbles seem to linger for eons, and it’s possible the capital’s could be contained — but it’s certainly a source of potential instability. London house prices leapt by an average of 19.1% in the 12 months to July, with the average breaking half a million pounds for the first time. That means that in a year prices in the capital rose by enough to buy a decent semi in Dunfermline. The housing wealth of just 10 London boroughs could buy all the homes in Scotland, Wales and Northern Ireland combined.

Japan’s asset price explosion carries eerie parallels. In 1989 the land underneath Tokyo’s Imperial Palace was rumoured to have been worth as much as the entire state of California in the same year. We’re not quite there yet but the Japanese crash caused the economy to flounder for decades.

Scotland should distance itself from any similar calamity. Independence provides the opportunity to do so and to tackle the housing problem. A Scottish parliament could give councils the full powers to build new homes. It could change housing-specific taxation and in the very long-run a Scottish central bank could potentially follow Norway’s lead in deploying macroprudential tools like ceilings on loan-to-value ratios.

4. The London financial sector remains the biggest source of risk for the UK economy. Independence would reduce this source of instability for Scotland. City cheerleaders tout the square mile as a source of strength when in fact the banks avoid more tax than other industries, create fewer jobs, suck in talent which would be better employed in productive industries and over-concentrate economic activity. Finance caused the global crisis and has even been described as a curse. Most popular Scottish parties recognise the risks of over-reliance on finance.

5. Scotland plans to use North sea oil to foster stability. Scottish parties broadly support the oil fund and talk of the need to invest the proceeds from oil or use it to pay down the debt, unlike the Westminster parties which would continue to fritter it away. Nobel prize-winner Joseph Stiglitz was correct to say that Britain should have invested its oil revenues from the start instead of squandering them to prop up the shaky 1980s economy. Thatcher’s public spending cuts were only viable because of a readily-available stream of hard cash. If Scotland stays in the union there’s no reason to believe much would change.

6. Scotland’s electoral system improves policy certainty. The first-past-the-post system, as is well known, means Westminster parties can foist policies on to Scotland without having to bear the consequences. A certain well-known Chinese zoo animal is more common in Scotland than Tory MPs are, so the Conservatives can test out their inegalitarian schemes north of the border first without losing MPs. Think poll tax and privatisation. Who’s to say they’ll behave any differently if Scotland votes no on the 18th?

A winner-takes-all electoral system generates boom and bust. The Condem coalition is currently praying that it can sneak back in before the property bubble pops, a bubble it has purposefully pumped up in order to make its own electoral base feel richer. Holyrood is more consensual and gradualist – not because Scots are more touchy-feely, but because the system was designed that way. And the white paper is in effect the SNP manifesto (not that Scotland is voting for Salmond), bringing greater clarity to the debate than any Westminster party is able to.

7. Continued austerity makes everyone worry about the future, not just those whose benefits are being cut. All the Westminster parties have pledged to continue with the austerity agenda. The cuts have plunged tens of thousands of Scots into poverty, causing some with mental health issues to starve to death or kill themselves. One charity boss called this a “crime against humanity”. According to the BBC over a hundred thousand more Scots fell into poverty in 2012-13, bringing the total to 820,000. Nearly a fifth of children live in poverty. How is this possible in one of the world’s richest economies? How stable are the futures of those children?

At a less extreme level, unemployment benefits calm people’s fears about their prospects and allow the temporarily jobless to look for work: it’s called social security for a reason. Independence would create the opportunity to build a fairer society. More equal societies are usually more stable, with less poverty and crime, better education and more cohesion. Greater equality is in the interests of the rich as well as the poor.

8. Economic stagnation throws doubt over jobs and wages. Even if you’re lucky enough to have a job, you’re likely to be worse off now than six years ago given that on average real wages have fallen. News today showed that the number of people who aren’t in the UK labour market increased again even though unemployment has fallen to 6.2%, which is still an unacceptably high rate.

Economists talk of ‘secular stagnation’ – code for permanent slump. All the signs are that any independent government would reflate the economy and tackle unemployment. Government spending will more than pay for itself in the long run in the form of higher tax receipts and lower social security payments.

An independent Scotland won’t be paradise. Few sensible economists predict a starry future immediately after independence. But there’s little doubt that the economy will be viable and that Scots can be wealthy enough.

Osborne’s ultimate economic scare story – that he wouldn’t let Scotland keep the pound – is just bluster. It’s not likely to be his decision anyway, and why would England purposefully cripple one of its main trading partners? Trident and the share of the debt constitute powerful bargaining chips. Even if Scotland were excluded from a currency union it could use the pound if it wanted to in the first years after independence, just as Ireland did, and much like the 20 or more countries which use the dollar or peg their currencies to it without Washington’s say-so.

Don’t believe the scaremongers. In a sense the union has always been a source of uncertainty for most working Scots. They’d be safer distancing themselves from the southern stramash and crafting sane policies which Scotland actually voted for.

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