The Scottish independence report which highlights a lack of maturity in the Brexit debate

Published on 3 September 2018

When it comes to big decisions around Brexit and independence it is dangerous to pretend that the political choice does not require some serious economic choices too, says IFS Director Paul Johnson in The Times.

South of the border, the whole political class is fixated on dealing with the fallout from the Brexit referendum. It’s taking up all available attention. North of the border, the other recent referendum, the one that didn’t result in Scottish independence, is still fresh in people’s minds. A second referendum on this question may well be more likely than a second on our membership of the European Union.

If that happens, then no doubt we will see a reprise of the economic debate. The unionist camp perceives the economic arguments to have been decisive in winning the Scottish referendum first time around. That perception played a key role in the economic focus of the Remain side in the Brexit campaign.

The parallels don’t end there. The economic case built by some of those campaigning for Scottish independence was pretty misleading. They didn’t come up with a convincing strategy on what to do about the currency post-independence. Over-optimistic projections about oil revenues were supposed to make up for what otherwise would have been a big funding gap. These projections have, predictably, already proved well wide of the mark. As the most recent Scottish government figures, produced this month, demonstrate, Scotland receives a big fiscal transfer from the rest of the UK. Public spending in Scotland is about £1,600 per person higher than in the UK as a whole, while tax revenues are around £300 per person lower. That’s a very big difference. An independent Scotland would lose this transfer.

The economic case for Brexit was equally misleading. The claim that there would be a dividend of £350 million a week to spend on the NHS, or indeed anything else, was straightforwardly untrue. The idea that making trade with the rest of the EU more difficult and more expensive could ever make us economically better off was always fantastical.

For similar reasons, while Brexit might make the political case for Scottish independence stronger, it will make managing an independent Scottish economy harder rather than easier. It’s the Irish border problem all over again. If the rest of the UK leaves the single market and customs union, then it would be hard for Scotland to remain in, or to re-enter, them while maintaining frictionless trade with England. Both matter to Scotland, but on present patterns trade with England matters more.

Given all that, what has happened since the two referendums has perhaps been surprising. You might have thought that the losers in Scotland would double down on their economic analysis. After all, it won’t be tested any time soon. And the simple message that independence could end austerity could continue to be peddled as a prelude to another referendum. Equally, you might have thought that the winners in the Brexit referendum, faced with the reality of leaving the EU, would have left the rhetoric behind and started some serious analysis of the options and their costs.

If anything, the opposite has happened. There is little convincing sign that the highest-profile Brexiteers are really grappling with the economic challenges faced by the UK. By contrast, the debate in Scotland has shown some signs of moving in a more serious direction. A bumper report, commissioned by Nicola Sturgeon and the Scottish National Party, was published this summer. Its remit was to look at the economic policy options available to an independent Scotland. Its authors are broadly pro-independence and include senior members of the ruling SNP.

As you would expect, the report, welcomed by Ms Sturgeon, takes a broadly optimistic view of a post-independence future. Nevertheless, it is rooted in the reality of Scotland’s fiscal position and in an understanding of some of the difficulties that would be faced, especially with respect to the currency. It makes clear that there would be costs and trade-offs associated with independence. It does not stick with unrealistic fiscal projections and says that spending would have to come down as a fraction of national income over time.

In terms that are all too foreign to the debate in England, the report addresses the serious problems of population ageing and even includes one section entitled The Imperative of Population Growth. Scotland has a bigger issue with ageing than does the rest of the UK and hence, on this analysis, a greater need for inward migration of working-age people. Challenges of productivity, inequality, education and much else are acknowledged and, at least to some extent, addressed. The currency issue maybe is fudged — with a proposal to keep the pound sterling “for a possibly extended transition period”, with all the associated risks — but there are also the rudiments of a transition plan towards an independent currency.

Now it would be silly to pretend that this analysis has gone down well with the whole pro-independence movement. Indeed, there has been something of a backlash against it. It has opened up fierce debate, not to say divisions. Given the tough economic choices that independence would bring, it is probably inevitable, healthy even, that such a debate rages.

What seems so odd in the Brexit context is that the debate and division still seem to be almost entirely between those who were on different sides of the referendum in the first place. Surely support for Brexit, like support for Scottish independence, is essentially a political choice about where sovereignty should lie. It is absolutely right that that the political choice should trump the economics. But to ignore the economics, to pretend that the political choice does not require some serious economic choices, too, is plain dangerous.

Paul Johnson is director of the Institute for Fiscal Studies. Follow him on @PJTheEconomist. This article was first published by The Times and is reproduced here in full with permission.