England is right to shake off its complacency about a disastrous Scottish Yes
IT’S A sad fact of modern life that, while divorce can be painful, the financial devastation that follows in its wake can be far more serious and long-lived. The effect of Scotland walking away from the rest of the United Kingdom would be no exception.
However, some in England have argued that we should welcome Scottish independence. Subsidies to Scotland would be cut and Labour would lose 40 MPs, making it virtually impossible for the party to put its anti-business agenda into practice. Unfortunately, that analysis is dangerously simplistic. Mature democracies never allow a single party to rule in perpetuity, and so – even with a chunk of its support lost – a more moderate Labour might find itself back in power at some point. Furthermore, while some fiscal transfers would inevitably end, they would be replaced by grave new threats.
The principal immediate threat would be to sterling and the stability of financial markets. The recent plunge in the value of the pound, which has come off the back of opinion polls showing the Yes campaign in the ascendancy, is a mere warning of what may come if the Scots actually do vote for independence. The loss of oil would not only reduce our energy security but also exacerbate the UK’s terrible current account deficit, leading to downward pressure on sterling. With our exports increasingly dominated by high quality products, the effects of a weaker pound on export volumes will be limited. Yet such a devaluation will likely be felt through higher import prices and, in particular, higher food prices.
The currency of an independent Scotland is, of course, highly uncertain. The SNP demands a sterling union, but this would mean learning nothing from the disastrous Eurozone experiment. A single currency without common political leadership, and joint fiscal and financial policy, is a recipe for terrible new instabilities.
Moreover, the Scottish economy is even more reliant on financial services than Ireland was before the crisis. If a Scottish bank required a bail out, the spillover effects could be so severe that it would force us to take action to prevent financial meltdown north of the border. This would place new liabilities on the taxpayers of the remainder of the UK.
The protracted nature of the post-referendum negotiations would also have a lasting impact on productivity growth in what was left of the UK, as firms both domestic and international wait before making long-term investment decisions. In addition to this, we would lose 5m Brits and the innovation and creativity that they bring. And this is to say nothing of how and if the national debt will be shared.
Perhaps less tangible is the effect that Scottish independence would have on our global reputation for stability. Our geopolitical influence and our attractiveness to foreign investors would both be damaged; sapping our soft power and reducing capital inflows.
A recent survey reported that more than half of divorcees regretted the break-up of their marriage. It is likely we will share this remorse if the Scots decide to leave us.