Wednesday, 17 September 2014

Will Independence Bring Economic Benefits to Scotland?

by Beth Schofield

How long will the oil last?
If Scotland chooses independence tomorrow, it will inevitably have a significant impact on both the UK and Scottish economies. In deciding whether it will bring economic benefit to the Scottish people, both the short term and long term consequences should be considered.
Revenue is the income generated from the sale of goods and services before any costs or expenses are deducted to leave profit. Oil taken from the North Sea has provided the UK revenue to contribute towards public spending since the 1970s, but if Scotland becomes independent, it will be able to keep 90% of the revenue to help improve its balance of payments. However, although up to 24 billion barrels of gas and oil may still be left, the remainder is becoming increasingly harder to extract even with improvement in technology. With the oil revenue down a quarter last year and predicted to fall constantly into the future, the only consolation would come if oil prices rose more dramatically over the next few years. So in the long term, the increased share of oil profits is not a valid economic income as extraction costs increase, although the benefits it might produce would be equally distributed across the whole economy.

A benefit of independence would be that politicians could tailor new laws and policies to better fit Scotland’s specific needs without the restraint of them being valid for the rest of the UK. Despite this, some argue that the current union still allow Scotland a significant amount of control over the country, such as with its unique education spending. Also, being part of a union allows it to benefit from the stability of trading and banking on a larger scale, and allows all of the nations to better compete with the huge economies like those of China and the US. Therefore, although tailoring their own policies could increase their efficiency and possibly improve the welfare of Scottish people, I feel these benefits are outweighed by the fact that it would hugely decrease the size and power of both the economies.
In addition to this, fewer new businesses are being created in Scotland on average than in the rest of the UK, possibly due to the significant influence over jobs that large nationalised companies had over Scotland after it struggled to adapt after the decline of the UK’s manufacturing industry. Another point to consider is that Scotland will have less money ‘in the pot’ to invest, and might find borrowing for hard as their new economy has no independent history to prove their reliability to pay back debts. However, Scottish people may feel more ambitious and aspirational with independence and the country is renowned for investment into infrastructure and other long-term aggregate supply increasing projects, possibly reassuring potential lenders. This benefit, although long term, is definitely not guaranteed, and contrasted by the fact that Scotland still spends a lot more money than it has coming in, so its budget and inegibility to borrow could be significant issues it would have to find solutions to.

Another point is that Scotland would have to take their relative proportion-from-population of the UK’s deficit, meaning they would have to pay the rest of the UK roughly 1% higher interest on the debt until their 8.5% share of the deficit is paid off. This would make them significantly worse off, and the opportunity cost would have to be weighed up to the benefit of their freedom. Another issue would be with the currency union as Scotland wants to keep the pound, arguing that it wouldn’t turn out like the Euro-Zone Crisis as our two economies are so similar. However, if it is decided Sotland do not keep the pound, there would be a negative shock on the trading between the UK and Scotland as transaction costs would inevitably negatively affect Scotland’s new balance of trade as two thirds of its exports are to the rest of the UK.
Overall, I think it would be more beneficial for the Scottish if they remain part of the UK as there are probable short term costs only weighed up against possible long term benefits.

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