Scotland has wide-ranging financial spending freedom now!

Despite the rhetoric in the Yes/No campaign the Scottish Government has been able to spend what they like on a whole host of areas for the last 10 years so I really can’t understand why they’re saying that independence will allow them to spend more money on health education social work and housing etc. The Scottish government have also had tax-raising powers which they never used. Perhaps they’re frightened that this will lose them an election!

Perhaps the ‘feel good’ factor for Scotland’s government (free university places etc) in recent has been brought about by the formula which is used to calculate the amount of money the Scottish government has full control over. Scotland has a much larger allocation than England, – just over £10,000 per head, whilst England has about £8,500 per head.

For 10 year now, the Scottish Parliament has had full financial management over many areas, include:

• Health
• Education and training
• Local government
• Law, including most aspects of criminal and civil law, the prosecution system and the courts
• Social work
• Housing
• Tourism and economic development
• Some aspects of transport, including the Scottish road network, bus policy, and ports and harbours. (Capital expenditure on railway is still centrally funded).
• Planning and the environment
• Agriculture, forestry and fishing
• Sport and the arts

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The UK Parliament control includes:

• Constitutional matters
• UK defence and national security
• UK foreign policy
• Immigration and nationality
• UK economic and monetary policy (other than Scotland's tax-varying power)
• Energy: electricity, coal, gas and nuclear power
• Employment legislation
• Social security payments  (the DWP - Department for Work and Pensions)
• Some aspects of transport, including railways, safety and regulation
• regulation of certain professions such as medicine and dentistry

In the UK Parliament Scotland has 59 MPs.  

Current Financial Facts

The main source of finance for the Scottish Parliament is still the block grant from the Treasury. This is worked out according to the 'Barnett Formula.' This allocation of money pays for all the spending programmes for Scotland, such as health and education. Because of the 'Barnet Formula', Scotland receives a proportionally greater share of the money available - more than the share received by England. About 19% more currently!  

The Scotland Act (2001), which drew up the conditions of devolution, granted the Scottish Government some tax raising powers  allowing Government to vary income tax by plus or minus 3%. This has never been used by the current SNP or the previous Labour administration in Edinburgh. Currently the block allocation shows that £10,152 per head is provided to the Scottish Government for spending on public services. This is £1,623 more than in England.  

The 2011 census shows that the population of Scotland is: 5.295 million so one can see the Scottish budget is a sizable at well over £50 billion.  

Future financing of an independent Scotland

If Scotland decides to become independent Scotland will have to raise its money from the number of people employed (part-time or full-time) which is about 2.547 million (2012 figures). They will also raise income on businesses and other things like North Sea oil.

The dilemma for Scottish government really relates to taxing businesses. They really can’t up the tax for working people very much as this might cause people to move their job from Scotland to England. The amount of money they can raise through inheritance tax and taxing rich people is tiny compared to what they can raise from businesses. However they have a dilemma – if they raise corporation tax too much businesses will just migrate south as many of them already have offices in England. If they raise taxes too high on the North Sea oil revenues then it might dissuade the big oil companies from investing in exploration. Therefore I believe they are between a rock and a hard place and they have three Achilles heels:

1.   North Sea oil revenues – if the world price of oil goes down then it makes extraction from the North Sea less attractive for the oil companies and therefore revenues will fall as the oil companies will go elsewhere.

2.   Recession – with all the turbulence in the world we could still have another recession. As we found in Iceland, Ireland and other small countries recession hits hard. If Scotland were independent they would not be able to call upon the extra borrowing power they would need internationally to sustain a fall in tax income.

3.   Currency – Alex Salmond doesn’t want to let a new Scottish currency float freely on the international markets as he secretly knows that this would lead to a heavy devaluation of the Scottish pound thus making all imports to Scotland massively expensive. It might make exports cheap but that won’t affect the North Sea oil which is based upon the international dollar rate. So Alex Salmond wants to link the Scottish pound to the UK pound and he says he can do it freely without asking us. Yes he can, but if they do this they will have to operate in a similar way to countries like Panama who have no international borrowing status and who rely solely upon holding massive reserves to protect their country. Without any formal agreement Scotland will not be able to borrow on international markets nor will it be able to operate independent banks.

So, the other option for Alex is to link the Scottish pound to the English pound in a currency union. Well, will the English want this? That means to say that if Scotland spends unwisely then the British government will have to pick up the tab. We have seen examples of the lack of controls but retaining the common currency in places like Greece. In the end Europe in the form of Germany has had to pick up the tab. I’m not so sure that the English taxpayer will want to pick up the tab for Alex Salmond’s spending in Scotland. 

The people of England haven’t had the opportunity to be asked as to whether they want to give free rein to Alex Salmond on the currency issue but I’m sure they would give a resounding no!

There are many other side-effects of Scotland becoming independent which I don’t think have been thought through by Alex Salmond and his colleagues. Who is going to pay for all of the Scottish embassies around the world? Will they come to the UK government, cap in hand, and say ‘please can we have a room in your embassy’? Is Scotland going to have a defence force? How are they going to fund it? How long will it take for Scotland’s application to join the EU take? Whether or not they join the EU they will have to do agree terms similar to those which countries like Norway have had to agree to which means that they have to comply with all the EU regulations and make the necessary payments to the EU without having a say at the Council of ministers or in the European Parliament.

My conclusion in all of this is that Scottish independence will not benefit the people of Scotland financially and may actually make them a lot poorer. Certainly it will cost English taxpayers who will have to bear the brunt of the cost of the decade or so it will take to unravel the departments of government and other organisations and will take up a lot of unnecessary parliamentary time to make sure the correct provisions are made when we should be concentrating on other more important world affairs and economic development for all of us.