Struan Stevenson: Seven questions Sturgeon and Forbes must answer on the future of Scotland’s economy

The SNP lamely claim that whatever the annual figures show, “GERS does not represent the finances of an independent Scotland – it shows the situation now under Westminster control.” This ludicrous attempt to blame Scotland’s massive deficit on Westminster, rather than 14 years of SNP incompetence and maladministration, lays bare the grudge and grievance machine that is regularly fired up to deflect public opinion from the real culprits.

This year’s GERS statistics revealed a deficit of over £36 billion, showing the vast scale of the financial black hole that would be created by separation from the rest of the UK. Standing at 22.4% of GDP, Scotland’s deficit is at its highest ever and by far the biggest in Europe, more than double that of Spain at 11%, the EU’s worst.

A budget deficit occurs when government spending exceeds its revenues. According to GERS, public spending in Scotland rocketed to almost £100 billion last year, with the SNP government spending £36.3 billion more on public services than it raised in taxes, an increase of £21 billion on the previous year, due to the pandemic.

Nicola Sturgeon immediately claimed that Scotland’s dire fiscal position “was a result of how we are governed in the UK", despite the fact that Westminster finance secured us a net ‘Union dividend’ gain of £2,210 per man, woman and child more than they get in England.

Kate Forbes, the SNP government’s finance secretary, even made the astounding statement “I think the arguments for independence are strengthened through the pandemic”, ignoring the tens of billions in furlough payments and financial support from the UK Treasury that enabled Scottish businesses to keep trading and saved millions of jobs. The UK’s world leading vaccine scheme and Chancellor Rishi Sunak’s huge aid package proved decisively how Scotland benefits from the pooled and shared resources of the Union. At a time of unprecedented economic and health crises, the value of all the nations and regions of the UK acting together, must surely be apparent even to the most resolute separatists.

Sadly, clear headed economics is an alien concept to the SNP. Challenged as to how an independent Scotland could handle such a massive deficit, Nicola Sturgeon insisted that she would “completely reject any austerity approach”, while Kate Forbes claimed Scotland could use quantitative easing to help manage the debit. The Finance Secretary conceded that such a scenario would require Scotland to create its own central bank and its own currency, which could take some years to achieve, but she floundered when asked what interest rates the international markets would charge on such hefty borrowing and wholesale printing of money. Andrew Wilson, the SNP’s economic guru, has warned that switching to a new Scottish currency could lead to devaluation, hitting incomes, pensions and mortgages and leading to a capital flight from the banks.

With its respected and solid reputation in world markets, the Bank of England has managed to secure the vast levels of borrowing required during the pandemic at exceptionally low interest rates of around 0.1%. The Institute for Fiscal Studies (IFS), the UK’s leading economic think-tank, said: “A structural deficit of the scale of Scotland’s would not be sustainable on an ongoing basis. It would need to be tackled by some combination of spending cuts and/or tax rises, in the absence of much stronger economic performance, which is unlikely.”

So, the prospect for independence would be bleak, involving eye-watering cuts in spending on health, education and social services, together with gigantic leaps in taxation. How either solution would lead to a major economic boost is a mystery confined to the darkest recesses of the SNP’s playbook.

Of course, the separatists dislike intensely having Scottish interest rates set in London by the Bank of England. They would rather Scotland joined the EU and handed over control to a group of bankers in Frankfurt! The fact that Scotland’s soaring deficit would place us at the bottom end of a waiting list of aspiring EU Member States, is casually brushed aside, as is the catastrophic impact for business, industry, mortgages, pensions and income of switching from the pound to a new Scottish currency and ultimately to the Euro. Three currency changes over perhaps ten years would be devastating.

It is all very well for Nicola Sturgeon and Kate Forbes to brush aside the economic minefield that an independent Scotland would stumble into, but their determination to hold a second referendum within the next three years requires some clear answers on at least seven questions. If the SNP say they will reject austerity, how will they cut the deficit? If by rejecting austerity they mean to maintain public spending at current levels, what would the likely impact be on tax rises? What would it cost to set up a Scottish central bank? What would the international markets charge in interest on Scottish borrowings? How long would it take to create a new Scottish currency? How long would it take to reduce Scotland’s deficit to a level acceptable for EU membership? What would be the impact on the Scottish economy of three currency changes over a relatively short period?

If the pandemic taught us anything, it taught us the value of working together throughout the UK to protect jobs and public services. The UK Government provided the war chest that Scotland needed to fight Covid, support our NHS and finance Scotland’s economic recovery. Casting that aside to achieve the ill-defined dream of separation would be an historic error. Leaving the UK is the very last thing Scotland needs right now and to suggest otherwise is to ignore the scale of the challenges we have faced as a Union and will continue to face for some time to come.

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