Scotland's Economy

Economic powers in an independent Scotland

DSC07709-400x270Exploding the Scotland will not be fully independent myth!

It is an often quoted ‘No’ claim that keeping the pound and allowing The Bank of England to set interest rates, means that Scotland won’t have control of its own economic policy after independence, or that it would not be truly independent.

Leaving aside the fact that this argument implies that France, Germany, Belgium and all the other eurozone countries are not fully independent, I thought the claim was worthy of fuller investigation.

Background: Interestingly the Bank of England operates independently of Government and does not control economic or fiscal policy in the UK at the moment. It has a key role of maintaining inflation at a low level, using interest rates. It does this independently from the Westminster Government but the inflation target is set by the Chancellor.

Economic policy as a whole includes things such as employment policy, social security policies, income tax rates, council tax rates, fuel duties, alcohol duties etc, all the revenues you can generate and the ability to control spending on areas such as defence and foreign affairs etc, so that you can balance the books and afford the economic policies that a government has an electoral mandate to implement. 

Here is a list of the key revenue generating powers, and who currently controls them. Also, find below the key spending areas we don’t have control over but would have in an independent Scotland. 

Currently Westminster controlled – 26 economic levers:

  1. Income tax: Westminster controlled but with the ability to increase or decrease by 2p.
  2. VAT
  3. National Insurance Contributions
  4. North Sea oil and gas revenue (geographical share)
  5. Corporation tax
  6. Fuel duties
  7. Capital gains tax
  8. Inheritance tax
  9. Tobacco duties
  10. Interest and dividends
  11. Alcohol duties
  12. Other taxes and royalties
  13. Vehicle excise duty
  14. Rent and other current transfers
  15. Export Duties
  16. Other taxes on income and wealth
  17. Insurance premium tax
  18. Air passenger duty
  19. Betting and gaming duties
  20. Climate change levy
  21. Aggregates levy
  22. The Crown Estate including shoreline and 11 miles out to sea (affecting wave and tidal power revenues)
  23. Quantitive easing (printing new money) (Currently outsourced to the independent Bank of England MPC)
  24. Issuing government bonds (Currently outsourced to the independent Bank of England MPC)
  25. Setting interest rates to control inflation (Currently outsourced to the independent Bank of England MPC)
  26. The ability to regulate banks and lenders. (currently under review at a UK/ EU / Global level)

Currently or about to be devolved to Scottish Government – five minor economic levers:  

  1. Council tax: devolved hence Scottish Governments council tax freeze. Prior to the freeze council tax increased 60% under the first two Scottish Parliament sessions (Labour) and if that were repeated it would equate to a £700 per household tax increase.
  2. Non-domestic rates devolved resulting in rent relief for small business from the Scottish Government.
  3. Stamp duties (limited): currently Westminster controlled but devolved via 2012 Scotland Act, should take effect in 2015.
  4. Landfill tax: currently Westminster controlled but devolved via 2012 Scotland Act, should take effect in 2015.
  5. Borrowing (currently Westminster only). Borrowing powers worth £5bn to be devolved as part of 2012 Scotland Act. You can borrow but you can’t control your revenues. Great care is required here!  

Note: Scottish specific tax rates will be collected by the Scottish tax office Revenue Scotland. So we will already have a tax collection system in place / under development, ready for independence.

Spending not devolved

There are also major areas of spending that are retained by Westminster and thus impact significantly on economic policy, such as:

  1. Defence. No control over who we go to war with, and the Scottish defence force estimated to cost £1.5bn a year less than we currently pay just from Scotland.
  2. International development
  3. Financial and economic matters
  4. Trade and industry
  5. Social security (currently being cut)
  6. Employment policy (will change significantly if UK votes to leave the EU)
  7. Control of Government Borrowing, currently interest payments on the UK debt costs Scotland £4.1bn a year.

All independent countries in common markets or currency zones, have to agree to integrate some of the policies and market conditions that they operate under in order to make the market/zone work as an optimum solution. It does not mean they give up sovereignty as they can always decide to change their minds unlike Scotland today where we have given up 100% sovereignty to Westminster on these issues.

It could even be described as xenophobic to suggest that countries that enter into integrated common markets and or shared currency agreements are not truly independent. Scotland by voting ‘Yes’ and staying within the EU would be gaining at least twenty eight new financial and economic levers, and have control over some of our major expenditures, while trading the ability to set an interest rate in order to maintain a free common market and currency zone with the rest of the UK.

Conclusion

So Scotland as an independent country would have control over its economic and fiscal policy in the same way that other independent countries such as Germany, France, Italy, the Netherlands etc enjoy,  but would crucially maintain the correct-levels of interconnectedness and open trading with the rest of the home nations.

Of course I could have saved myself some research time and just summarised the responses I received from my friends from eurozone countries when I asked them if their countries were not truly independent – they basically all said, ‘don’t be bloody stupid!’.

Apparently it’s not as complicated an issue as I thought. “Not really independent” the absurdity is in the proposition.

Further Reading:

Scottish Independence: Case for wider devolution – Scotsman

Sign the Business for Scotland Declaration – Read More

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

11 Comments

  • Thanks for your interesting article. As Germany is a strong economy, and in the Eurozone, would it not therefore benefit Scotland to adopt the Euro as it’s currency (assuming Scotland is accepted into the EU)?

  • I liked your article its well put together but i would like to add that most of the economics of independence has not been decided yet. Of course it would be fully independent but some of the numbers are very missleading as you have only included what would be better for Scotland without including the things that would become worse (more expensive). Good article but a little too pro-independence.

    • Can you please supply some evidence to back up what you believe to be worse for Scotland? The newspapers tend to spread negativity and fear – we debunk. Overall I think there is a massive positive for independence and any extra costs are significantly overcompensated for by the savings and benefits of independence. From time to time people post comments such as yours and when they supply examples of what they think is a problem there examples are more of a perception that reality.

      Thanks for your comment.

  • It’s also worth pointing out that Australia, New Zealand, South Africa, Ireland etc didn’t do too badly remaining in the Sterling zone post-independence. What we’re proposing is nothing new and in both Scotland and rUK’s best interest.

    That’s probably why you’ll hear the UK Government and Project Fear B Team yitter on endlessly about “no currency union”, but you’ll not hear Osborne or Cameron state it categorically on the record. The £ would nosedive.

  • Denmark is not a member of the Eurozone as they still have the Danish crown as currency.
    Nevertheless: Good luck from Germany for your rally to an independant Scottland! I would vote “yes” as well 🙂

    • Agreed, Denmark voted to keep their own currency in a referendum, but the Government decided to peg it to the Euro. I was trying to make the point that countries with Euro and even those with currencies pegged to the euro consider themselves to be fully independent, but wasn’t clear on that point. Have updated the article to clear up the confusion from my choice of words. I think though that the point that a country as small as Denmark has an opt out from the Euro currency is in itself an interesting point.

  • I like this plainly put understandable for nonpoliticos as well, something which is to often ignored. Great article

  • “stamp duties” are not being devolved it is simply stamp duty land tax. Stamp Duty and Stamp Duty Reserve Tax are not being devolved under Scotland Act 2012.

    Revenue Scotland does not yet collect any tax. Even by 2015 it will only have partial control over a few taxes.

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