Economics of Independence Scotland's Economy

Westminster debt is harming Scotland’s economy

deficit.png-largeBetter Together still talks about Scotland being safer within the strong UK economy. However, the facts show that the opposite is true. The UK economy is almost on its knees. George Osborne has been keeping up the pretence of his predecessors.

As the attached graph shows, despite “austerity measures” being put in place by the Coalition Government, the UK national debt has continued to rise even faster since they took office. They inherited a national debt of about £700 billion. Today it is over £1 trillion and rising more steeply. The figures are sourced from . This is the black hole into which Scotland’s oil wealth has been poured since the 1970s.

Public Sector Debt

Scotland’s massive surplus

A recent paper by Professor Brian Ashcroft of the Fraser of Allander Institute stated that had Scotland been independent over the last 19 years Scotland would have had a surplus of £68 billion. Assuming a modest interest rate on such an oil fund would have taken it up closer to £100 billion. It is not in the same league as Norway’s sovereign wealth fund although we clearly could have had one of those for ourselves. However, it would have been a great nest egg for Scotland and our people.

Only Ireland and Japan have greater debts than the UK as a percentage of GDP. In Ireland it is six and a half times GDP. In Japan it is 5 times GDP and in the UK it is almost 500% of GDP. In Europe the countries we think of as being almost bankrupt actually have much lower percentages of debt than the UK. The Greek debt is only about 300% of GDP. The sources of the data are Haver Analytics; Bank for International Settlements; national central banks; McKinsey Global Institute.

Scotland’s share of the UK national debt would probably be about £80 to £100 billion. It is obviously up for negotiation. However, our national debt would be well below our GDP of about £151 billion (from the 2012 GERS report). In addition, it should be said that Scotland would be entitled to our share of the UK assets. Some of those assets we may choose to sell off, for example our share of some of the more exotic embassies, the British Library, The Victoria and Albert Museum, to name but a few. Scotland’s share of some of the large pieces of UK military equipment is also worth tens of billions of pounds. By doing so we would be able to pay down our national debt.

Scotland has a lower deficit and a higher tax take

Both the UK and Scotland currently spend more than they take in taxes. The UK deficit is 7.9% of GDP. Scotland’s deficit is only 5% of GDP. However, it is interesting to note that last year Scotland’s deficit of £7.6 billion was in a large part due to the £4.1 billion we were charged for our share of interest payments on the UK national debt.

As has been reported this week, there is a surge of investment within the North Sea. The UK Oil and Gas Association now expect investment to be about £100 billion. It will produce more oil and gas due to new fields being exploited and due to improved technology in existing fields. That is more good news for Scotland and our expected revenues for a Scottish finance minister.


In addition, economic policies designed for Scotland, within Scotland (not for the SE of England) would ensure that the Scottish economy would thrive after independence. The sooner Scotland escapes from the UK, the better for Scotland. The UK’s time is running out. We’re not ‘better together’: the UK is a burden holding back Scotland’s development.

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About the author

Donald MacLean

Over the last 18 years Donald Maclean has built up the largest Scottish utility consultancy, Business Cost Consultants. He sees himself as a bit of a Scottish Robin Hood; he enjoys battling with large utility companies to win cost reductions and rebates for his clients.


  • How bad is it really?

    On one side you have articles like this

    In recorded economic history, every single country with debts as big as ours – every single one – has suffered a devastating economic collapse. There are NO exceptions.

    and on the other side articles like this

    one argument says that an increase in the national debt doesn’t cause any problems. What happens is that by borrowing we merely enable the present taxpayer to enjoy a higher disposable income now rather than in the future. A cut in the national debt, would mean higher taxes now, rather than later. Therefore, national debt is just a way to spread national output amongst different generations. To understand national debt, it is important to remember how it is financed. Government debt is essentially a transfer from one part of the population to another.

    How worried should I be?

    How bad is the state of the UK?

  • So

    If Scotland continued to pay £4.1 billion every year on our own share of the debt we take after Independence

    We are already paying 4.1billion a year to service UK debt

    Is there any problem with continuing to pay that 4.1 billion to service our own debt ?

    approx middle figure for debt we take on 100 billion for an independent Scotland

    2.7% of that in interest payments means a surplus of 1.3 billion to pay down the Capital

    Would that be roughly correct?

    • It is likely to be over £5bn next year if we vote no as the UK debt is increasing. Scotland doesn’t operate a deficit at all when you remove the payments to UK debt – Debt payments made up approximately 65% of our nominal deficit last year. When you deduct other overpayments to the UK that would not exist after independence then we wouldn’t be in deficit in a normal year.

  • Andy and Trav,

    I do not think there will be a serious migration of pensioners from England to Scotland for the sake of a few pounds a week. Older people normally prefer to live close to their families or in areas with which they are very familiar.

    The UK economy has moved from producing and exporting things to a service based economy, dependent on financial services mainly centred around London and shopping. That is not sustainable in the long term. Financial services are vulnerable and can be quite easily transferred to other financial centres such as New York, Frankfurt or Hong Kong. Compare that to the oil, gas and renewable energy assets, together with a strong balance of payments surplus which underpin the Scottish economy.

    The UK economy is totally unbalanced. London and the South East is growing and sucking in resources from all other parts of the UK. That includes large numbers of people and most of the UK expenditure on infrastructure and transport. Concentrating more and more people and resources in the South East of England is damaging Wales, Northern Ireland and other parts of England, as well as Scotland.

    Scotland has a much better balance in her economy. Oil and gas is only 15% of our GDP. In Norway it is 30%. We are strong in areas such as food and drink, agriculture, fisheries, bioscience, engineering and financial services. We have 5 universities in the top 200 in the world. That means we have more top universities per head of population than any other country in the world.

    All we need now is control over our own resources and policies designed to suit Scotland, rather than the SE of England. Northern Ireland and the north of England will gain some benefit as the Scottish economy powers ahead, following independence.

  • Barry,

    The scary fact is that no country with this level of debt to GDP has ever come back from such a position without a crisis. The UK debt is still rising and will reach £1.6 trillion before the Coalition Government leaves office, despite the austerity measures.

    There are many factors which affect interest rates on Government debt. What is certain is that if the markets were spooked, the current interest rate paid on UK Government bonds (which has been creeping up) would rise quickly to unsustainable levels and the UK would have to seek help from the IMF.

    This is why the Unionist politicians are simply blustering when they say that they might not offer a currency union to Scotland. Without Scotland and our large surplus of exports, there would be a crisis of confidence in the pound and it would drop like a stone.

    Mark Carney and his team at The Bank of England know this and will rush to embrace Scotland publicly, as soon as we win the referendum. In fact, if David Cameron did not come out quickly after the referendum and state he was entering into a currency union with Scotland, there would be a serious run on the pound.

  • For a non-economist, this is a very interesting read. However, out of interest, what would happen to the economies of England, Wales & N.Ireland if Scotland were indeed to go independent – how would their economies manage post-independence.

  • Donald,

    The note on unfunded obligations is interesting. That figure includes pensions currently payable to people in Scotland. The white paper is quite open in its expectation that the new Scottish state will be responsible for payment of pensions, and goes on to make the commitment that the rates will be at least equal to that in the roUK and then under the triple lock will then increase at a rate that exceeds the roUK.

    Given the requirement to be “Scotish” are limited to being British and living in Scotland on day one of independance, isn’t there a high risk of many pensioners, particularly those already living in the north of England, moving north of the border?

    The white paper explicitly acknowledges that a viable economy capable of supporting the social policy envisaged requires an increase in the proportion of working age citizens within the population, could the promises made on pensions do the opposite and in fact exacerbate the problem even further by shifting a much higher than anticipated proportion of the unfunded debt burden to Scotland?

  • That is a scary fact….I am pretty sure that I will be voting yes unless something big happens from the no campaign..
    The question I have is as follows:

    If the UK debt is so huge, how come we have not gone the way of Greece and collapsed? Is it just because we have kept up with our payments by borrowing more…similar to getting a new credit card to pay off an old one?

    • Good question – the answer is QE.

      In the UK, the Bank of England began its “asset purchases” a process known as quantitative easing QE in January 2009. QE is often referred to as the printing of new money but what actually happens is the BOE creates a new account fills it with electronic money (created out of thin air) and then buys Government bonds from large financial institutions etc which then increases the amount of money in the economy and should increase lending to firms from banks etc.

      Since 2009 the Bank of England has committed a total of £375bn to QE (for clarity the have injected three thousand seven hundred and 50 million pounds into the economy). This has stimulated growth (or rather halted the decline and kept tax revenues high enough for the Uk to service its debt.

      The EU Central bank has not allowed QE as in Europe it is likely to create inflation, here due to many circumstances and the staged approach to QU inflation pressures have not been unmanageable. However if we keep going inflation will go up and people will get poorer the way to tackle inflation is to put up interest rates but the people of the UK owe so much and the UK owes so much than even a half % increase in interest rates could start a massive trend in business and people going bankrupt hence the BOE committing not to raise interest rates and having to stop QE.

      In other words the treasury has driven up to the edge, slammed the breaks on and is hoping the cliff top doesn’t crumble.

      So in other words the UK treasury under Darling and Brown were not more competent that the Greeks its just that we have an escape route err well a stay of execution would be a better way of putting it. A collapse is coming if we don’t change direction and independence given Scotland greater GDP and revenue generating ability per head is the real escape route and would force the rest of the UK to take stock and change direction with us. Bigger isn’t better right now we are tethered to a drowning elephant!

      Going to add some stats to this and publish it as a blog next week:-)

      hope that helps.

    • Barry,

      It is scarey. Unfortunately it is only a matter of time.

      The figures I gave for UK debt in my article do not even include “unfunded obligations” – things like unfunded promises the government has made on public pensions. That takes the debt up to over 900% of our GDP.

      Westminster politician are still deluding themselves that we are world power. In fact we are broke. A country can either pay back its debts, or it cannot. The UK cannot repay what we owe. The austerity programme is only tinkering at the edges.

      One of the biggest burdens on the UK are public pensions. Since they were introduced in 1909, pensions were paid at age 70 for men when the average life expectancy of a working man was 48. Now average life expectancy is about 80. That is an increase in life expectancy of 67%. This has resulted in pension promises to its citizens of about £5 trillion.

      In 1982 Margaret Thatcher’s Government had to pay interest at 15% to borrow money. As has been said, this government was able to borrow at only 1.7%. That has gone up to 2.7%. The crisis will really hit home as interest rates keep rising. “Normal” government interest rates are about 5%.

      Scotland has been subsidising the UK for over 32 years. It is time we bailed out and made our own way in the world. We are very much better placed to do so than rUK. We are being held back in our economic development.

      • Its interesting though that the Neo-classical approach to economics does not assume that personal debt is a problem for a nation. I have always believed that it is is when a large part of the nations turnover is retail and consumer spend based.

        Interest rates can’t be used as a tool to curb inflation as personal debt levels are too high and and any increase in interest rates would start sharp increases in personal and SME insolvencies – so it is relevant to compare total debts of nations and not just public debt.

  • The cost of serving the UK’s debt burden is rising. George Osborne has been a bit quieter recently on his boasts of how the UK gets a good deal on the rates it pays.
    The UK rate on 10 year government bonds has risen by 1% in the last year. A 1% increase may not sound a lot, but moving from 1.69% to 2.71% represents an increase of 60.4%. So when you are only paying interest on your debt and are unable to make repayments of the capital sum and then the cost of meeting -just the interest – rises by 60% there is a problem as any businessman will understand.

    Given the scale of the debt the chart shows which started to really take off in the Thatcher years, rose further under Blair and Brown and has rocketed under Cameron and Clegg then untying the knot that binds us to this debt mountain has to be a priority for any businessman who is currently undecided on how to vote in the referendum. Scotland is in a much better position to manage its share of this unfortunate inheritance.

    Suggestions have been made that Scotland would pay a higher rate of interest on its share. Predicting future interest rates is not a science but what may surprise BfS readers is that Denmark, Sweden, Finland, The Czech Republic, Slovakia, Austria and Netherlands all pay lower interest rates on their 10 year government bonds at present.
    NOTE Interest rates on 10 years bond are the standard yardstick for measuring the rates a country pays on its debt. Source of figures quoted Trading Economics

  • Thank you Donald and Gordon.
    I get it about the surplus etc (eg Brian Ashcroft recently). I just thought that the UK paid a lot less than 5% to borrow (3% ish). Although maybe I’m completely wrong that we borrow money to service the interest on the national debt. Maybe we pay it from receipts. Thanks for your patient replies – I’m obviously not a business person nor an economist.

  • Interesting article Donald. There’s something I don’t understand though. You say that we paid £4.1 Bn as our share of national debt last year. If we’re responsible for just over 8% of a £1Trn debt, that £4.1 Bn amounts to a repayment level of roughly 5%. Are we paying back over the odds? What am I missing here?

    • Thank you for your comment, Rob.

      The £4.1 billion pounds Scotland paid last year was simply our share of the interest on the UK debt. The debt is so large that the UK cannot afford to repay any of the capital, only the interest charges each year. It is like an interest only mortgage.

      I hope that clarifies matters.

    • Hi Rob, i am sure that Donald will answer himself but the UK does not have enough money to pay back its debt, so it is only servicing the debt. It is not interest + capital we are paying back just the interest on the debt. Hence why the amount looks smaller in percentage terms, obviously in the future the capital has to be repaid from revenues of which we contribute (last year 9.9%), so although only 8.4% may be applied to Scotland’s accounts we will in reality pay 9.9% or thereabouts of the interest and capital back.

      The key point in Donald’s article though is that whilst this massive UK debt was building up over the last 32 years Scotland ran a surplus and would have borrowed nothing as an independent nation, ipso facto last years £4.1bn can be described as the cost of keeping the union (well part of the cost).

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