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Scotland Makes a Last, Desperate Bid for Self-Destruction

Nicola Sturgeon Announces Plans To Hold A Second Scottish Independence ReferendumNicola Sturgeon Announces Plans To Hold A Second Scottish Independence Referendum
Rubbing saltires in the wounds of Brexit.Jeff J Mitchell Getty Images

If Scotland manages to avoid economic self-destruction, at least no-one will be able to say they didn’t try.

Independence is on the docket again for the U.K. country. First Minister Nicola Sturgeon has said she will prepare a new referendum for independence from the U.K., barely three years after one was defeated by a 10-point margin of 45%-55%. The trigger for this action is what Sturgeon calls a “material change” in the circumstances, namely the U.K.’s vote to leave the European Union last year.

Sturgeon is quite right to say that Scotland wants to stay in the EU—it voted 62%-38% to Remain, while the U.K. as a whole voted 52%-48% to Leave. And she is perfectly within her rights, as the elected head of the devolved Scottish government in Edinburgh, to call another vote.

Moreover, she is reacting to a clear (if only recent) shift in opinion polls that reflect increased support for independence if the alternative is to be a “hard” Brexit, with Scots losing cherished automatic rights of travel and work all over Europe. And her timing—no later than spring 2019—is extremely clever. By then, the U.K. and EU will be down to the wire as they rush to finalize the terms of the divorce settlement, so the referendum will take place just as the brinkmanship over the separation talks reach a climax, ensuring that no-one is unaware of how much the U.K. risks losing from Brexit.

None of that changes the fact that it’s a monumentally bad idea. So bad, you might think it was triggered by a bout of sour grapes after the Scots got a proper shellacking from England in an annual rugby tournament at the weekend. Breaking away from the U.K. will leave Scots materially worse off—the same factor that led to them rejecting it the last time. None of the key factors has changed, namely:

  • Scotland’s generous public sector provisions are still dependent on subsidies from England (spending is some 19% higher per capita under the U.K. Treasury’s rule of thumb).
  • The North Sea oil and gas basin is in decline, and unable to generate meaningful tax revenue in an oil price environment of $50 a barrel. The above factors would effectively force massive austerity if Scotland is to stay within EU rules limiting budget deficits to 3% of gross domestic product.
  • Scotland has even less chance of keeping sterling as its currency in a post-Brexit world that is likely to involve significant new austerity in England. It would be required to create its own currency—an entirely new one with no international track record—until it met the EU’s requirements for adopting the euro.
  • Scotland’s financial sector is huge, relative to its economy (thanks largely to the Royal Bank of Scotland (RBSPF), the scandal-plagued bank that was rescued by U.K. taxpayers in 2008 at a cost of 43 billion pounds, and hasn’t made a profit since). As such, Scotland would be unable to fund any future bailouts without asking the EU for help (Cyprus says ‘Hi!’).
  • Scotland’s trade with the rest of the U.K. is four times as important as its trade with the EU (hat tip to InFacts’ Hugo Dixon), and Scots are more likely to seek work in the U.K. than anywhere else in Europe due to the fact that they speak the same language. And leaving the U.K. means putting up—for the first time in over 400 years—a hard border between England and Scotland (and between Scotland and Northern Ireland).

In other words, from a business point of view, if Scotland wants to be in a union with anybody, it should stay right where it is, and continue to do what it has done with more success than the opposition Labour Party in recent months: articulate a cogent and sincere opposition to the government of Theresa May, and not just throw in the towel complaining of what Sturgeon has called a “brick wall of intransigence.” (May’s position is far less intransigence and much more a reflection of the fact, affirmed in the 2014 referendum, that the U.K. is a single state).

In short, while there may be some room for doubt as to how much worse off the U.K. will be after Brexit (with the most likely outcomes ranging between “a little” and “quite a bit”), the range of outcomes for Scotland outside the U.K. is narrow indeed. It will either be a disaster, or something worse.