[John Robertson in the Chair]
BBC
11:51 am

Mark Lazarowicz (Edinburgh North and Leith, Labour)

I will keep my remarks as brief as possible, given the number of hon. Members who want to speak. Dr Whiteford gave a comprehensive presentation of the SNP case for independence, but what struck me about it was something we increasingly see in the SNP arguments for independence: that on the one hand, independence is needed because it would make Scotland a better place; but on the other, independence would not change much, either. That is an inherent contradiction that we increasingly see in the SNP policy, precisely because there is a realisation that separation—full independence—is not attracting popular support, so the SNP and those supporting independence are trying to move back from it.

It is not just on economic issues that we have seen that. There is the famous quote, which I think is from the First Minister:

“on independence day…the Queen will be our Head of State, the pound will be our currency and you will still be watching your favourite programmes on the BBC.”

That is an example of how the argument is made that nothing much would change. Of course, on economic policy, fiscal policy and monetary policy, we see that even more.

Ann McKechin (Glasgow North, Labour)

Does my hon. Friend agree that it is very strange that the First Minister came down to London about a month ago to address the Institute of Directors and intimated to it, but not to the Scottish Parliament, that he intended to align income tax rates, after separation, with those in the rest of the UK? We must ask—why bother?

Mark Lazarowicz (Edinburgh North and Leith, Labour)

Indeed. That takes us to a point that I intended to deal with later but will deal with now. We are referring, with respect, to the arguments advanced by the hon. Member for Banff and Buchan, who is from the SNP. She seemed to be arguing at one point that Scotland would have a different approach to taxation and redistribution policy, suggesting, presumably, that it would be a higher-tax, higher-spending type of country. On the other hand, the First Minister is saying, as my hon. Friend Ann McKechin pointed out, that income tax in an independent Scotland would be the same as in the rest of the UK. Of course, for the past six years, the SNP Government could have used the existing powers, if they had wanted to, to increase tax in Scotland and increase public spending, but they have not. The SNP is apparently in favour of a lower corporation tax rate in Scotland, yet it tells us that it would maintain the free movement of labour, services and capital throughout the UK. If that is the case, it is difficult to visualise Scotland having a separate corporation tax rate.

The issue of sterling has been—

Michael Weir (Angus, Scottish National Party)

Will the hon. Gentleman give way?

Mark Lazarowicz (Edinburgh North and Leith, Labour)

With respect, I had better not, given the time.

The issue of sterling was raised. As we were reminded in an intervention, the Bank of England and monetary policy were of course made independent of politicians by the decision of a Labour Chancellor. However, the SNP Government have said that they want to see a seat for Scotland on the Monetary Policy Committee of the Bank of England. They are trying to have it every which way. There are many areas in which we see that type of contradiction. An important one is, of course, the suggestion that the Bank of England would continue to regulate the financial services industry, even in an independent Scotland. That is incredibly important. The financial services sector is important in Scotland, particularly in my constituency and the constituencies of many other hon. Members.

Decisions such as how banks can advertise financial products and the requirements to maintain stability in terms of their capital base would be regulated by an institution in another country, over which we would have no say if we were a separate, independent state. That leaves aside the question, raised by Scottish Financial Enterprise, of whether it would be legal under EU rules to leave the regulation of our financial services sector to a foreign—as it would then be—country.

We have heard those in the SNP say that they do not want regional pay rates for the civil service, but the biggest regional pay difference across the UK would be if we were a separate country and the rates were negotiated on, presumably, a Scottish basis only. We see contradictions in many areas. Because the SNP recognises that voters and the public do not want full separation, it wants

what some describe as independence-lite, but I describe as separation with a major democratic deficit, as my hon. Friend Mr Bain pointed out.

At best, the new Scottish Government could seek to negotiate with the Government of the remaining UK to have input on matters that affect Scotland’s interests, but they could not do that as a right, and would have to rely on the good will of a new UK Government. There is no reason why there would necessarily be ill will between the two successor states if Scotland separated; but obviously, a UK Government who no longer had Scotland as part of their state would have different interests and perspectives from one that still included Scotland. Scotland has MPs, Ministers and a voice in Parliament, where Ministers and the Chancellor can be held to account—for example, for actions in relation to the Bank of England. All of that will disappear after the separation of an independent Scotland.

It seems to be the worst of all possible worlds—a democratic deficit of no interest to Scotland, with no benefit to Scotland. Let us build on what we have with devolution, as expanded under the Scotland Act 2012 and current proposals, and improve it where we can. Let us get down to using the existing powers and not spend the next few years coming up with a new constitutional arrangement which, at the end of the day, will not even be independence in the full sense of the word, but, given the SNP arguments, will fall well short of it. It would be no good for Scotland or the UK.

John Robertson (Glasgow North West, Labour)

I intend to call the Front Benchers at six minutes past 12. I have two names here, so, gentlemen, sort it out.

Anas Sarwar (Glasgow Central, Labour)

It is a pleasure to serve under your chairmanship, Mr Robertson. Having known you through Glasgow politics, I will be very strict with my time; I do not want to incur your wrath. I congratulate my hon. Friend Graeme Morrice on securing the debate. The discussion today shows the passion and energy in the debate. I will take this opportunity to get to the facts of what Scotland would look like if it was a separate country.

I want to make a few quick points at the outset. The referendum is not about whether we think Scotland can survive; of course Scotland can survive as an independent country. It insults the intelligence of the Scottish people to suggest that it could not survive as an independent country. The choice on the ballot paper is not one of survival; it is whether we believe that Scotland is a fairer, more prosperous place as part of the UK or as a separate country. I believe the second, which is why I will make a positive case for Scotland remaining within the UK.

Scotland has played a key role in the success that is the UK. We have 300 years of shared history, security and prosperity. A Scot was the founder of the Bank of England, a Welshman created our national health service and an Englishman created our welfare state. Those are things of which we should be collectively proud, and that is why, in the run-up to the referendum, we will make the emotional, political, social and economic case for Scotland remaining part of the UK.

I want to touch on one point about the positive-negative case. It is often said that those who support the UK are negative about Scotland and those who support separation are positive about it. I argue the opposite. The people of Scotland are talented enough, creative enough, ambitious enough and innovative enough to be successful in the UK. It is for the separatists to tell us why they think that Scots are not.

We heard from Dr Whiteford, the successor to Alex Salmond, that a single-question referendum is her preference, so let us stop the games and get on with the substantive arguments. Another SNP Member is here, Mr Weir, and I am willing to take an intervention if he can tell us whether, if he put in a submission to the Scottish Government’s consultation, it was for one question or two. I am happy to take an intervention if he wishes.

Michael Weir (Angus, Scottish National Party)

I thank the hon. Gentleman, but if he had listened when I intervened on Graeme Morrice he would have heard that my preference was for one question.

Anas Sarwar (Glasgow Central, Labour)

There we have it: two SNP MPs saying that they have put in submissions, both saying that they would prefer one question. Perhaps they could get on the phone to their leader and pass on the message that he should stop being so feart and just get on with the referendum and let Scots make the choice.

I have one minute on the substantives of the economic debate, so I will be very quick. I genuinely believe that Scotland’s influence is greater as a permanent member of the United Nations Security Council and NATO, not for prestige, but to fight tyranny and repression around the world. We benefit from membership of the G8, where a Scottish leader, as Prime Minister of the UK, tackled the global economic crisis to stop a recession becoming a depression.

Scotland’s compassion is better demonstrated by being a partner in the Department for International Development, which is headquartered in Scotland, employing 490 people, with a budget of £7 billion. What would happen to those jobs if we were a separate country? We benefit from shared infrastructure, defence and foreign affairs, as does shipbuilding on the Clyde and jobs. We would not be in that position if we were a separate country.

We benefit from sharing the risks and rewards. We saw the collective strength of the UK in bailing out Scotland’s banks. Would that have been possible if we were a separate country? We benefit from the fact that we are a larger single market—our current biggest business partner is England. If we became a separate country, it would become our biggest competitor. We also benefit from being part of the strongest monetary union in history. Leaving would mean that we would have to have our own currency, join a weaker euro or leave a foreign country to set our interest rates and our borrowing and spending limits.

I could go on and on, but I see you, Mr Robertson, nodding at me to finish. Let us end the games about what a referendum will look like and get on with the big choice and have the debate. After the referendum, let us get on with making Scotland a fairer and more prosperous place.

William Bain (Glasgow North East, Labour)

It is a pleasure to serve under your chairmanship once again, Mr Robertson. I congratulate my hon. Friend Graeme Morrice on securing this important and timely debate, coming as it does in the week when support for separating Scotland from the rest of the UK has fallen to as few as three in 10 people.

Michael Weir (Angus, Scottish National Party)

rose—

William Bain (Glasgow North East, Labour)

I will give way to the hon. Gentleman a little later; I want to make progress first.

I commend my hon. Friend the Member for Livingston and other hon. Members who have participated this morning in helping to ensure that the discussion on Scotland’s constitutional and economic future is informative and comprehensive, as we head towards what the Scottish people want—a clear, decisive, legal, single-question referendum on whether to stay within the United Kingdom or leave for good.

There are three points that the debate this morning has crystallised in the minds of hon. Members and those we represent. At a time of economic uncertainty in the eurozone, with economic demand predicted to fall this year and 16 million people out of work, it would be an act of folly to separate fiscal, monetary and financial policy in the way that Scottish National party members have proposed. Both the eurozone and our economies are faced with a classic liquidity trap. Keynes was very clear that fiscal, monetary and financial policy must not work against one another in such circumstances. We in the Opposition have huge concerns about how the Government are avoiding any flexibility on fiscal policy to stimulate demand and kick-start growth at home. It is a failure of policy, not a failure of the state of which we are an integral part.

The overwhelming evidence from respected economic commentators, such as Martin Wolf and John Kay in evidence to the Select Committee on Scottish Affairs, is clear and unambiguous: separation would lead to higher borrowing costs for a separate Scotland. Even under the SNP’s purported split of oil and gas revenues, with 90% being apportioned to a separate Scotland—not the universally accepted position under international law—the national debt inherited by a separate Scotland would be 70% of GDP.

On a per capita split of oil and gas revenues, debt would rise to 80% of GDP by 2014. On the deficit, even using the SNP’s preferred measure, including a geographical split of oil and gas revenues, the average deficit would have been 4% over the past five years. Three leading credit agencies have indicated that Scotland would not inherit the UK’s credit rating on separation, which would increase borrowing costs.

The First Minister says that, with the oil and gas revenues, Scotland would be the sixth richest country in the world, but to achieve that the great centraliser would have to become the great nationaliser, and there is no prospect of even the present First Minister expropriating the assets of overseas oil and gas companies to which he is in such thrall.

Michael Connarty (Linlithgow and East Falkirk, Labour)

Is my hon. Friend aware of what was said at the meeting of the UK oil and gas industry group a few days ago—that it is likely that the gas price, because the US is

about to go into surplus in gas and the price is falling, may be set in the North sea area at a much lower level than now, which would undermine the revenues coming from the North sea to any future Government of the UK or Scotland?

William Bain (Glasgow North East, Labour)

Indeed, that is a powerful point. This year’s report by the National Institute of Economic and Social Research concluded that Scotland would be a significantly indebted nation on separation, with a substantial trade deficit, no insurance from risk sharing and no further fiscal transfers, which would leave us over-dependent on those very fluctuating oil and gas revenues. The strain would have to be put on borrowing or tax hikes to fund current spending.

As the economist, Brian Ashcroft, pointed out recently, the only tools available to a separate Scotland to manage aggregate demand would be of the limited fiscal variety remaining under the terms of a currency union treaty with the United Kingdom; so if inflation took off, there would have to be tax rises, a fall in public spending, or a combination of the two—hardly a recipe for economic stability or social fairness.

Those campaigning for separation never tell us what the size or role of the state would be in a post-separation world. They are keen to promise voters everything from higher benefits and pensions to lower taxes, but never with any viable fiscal prospectus to underpin such aspirations. Their ambition is to have Irish levels of taxation, but Scandinavian-style public services. That is a cruel deception to sell to the electorate, and that fatal flaw in the argument has contributed to the fall in support for separation in recent months.

Michael Weir (Angus, Scottish National Party)

Will the hon. Gentleman give way?

William Bain (Glasgow North East, Labour)

I will make this point and then give way to the hon. Gentleman.

Without a central bank to print money and control the money supply, a separate Scotland would find itself with higher long-term borrowing rates and higher interest payments on Government debt, whether with the Bank of England as lender of last resort or even with a less structured relationship with sterling. Those problems with rising costs of borrowing would manifestly worsen if oil and gas revenues continued to fluctuate as predicted. Martin Wolf wrote in the Financial Times on 19 January about the higher borrowing costs that a separate Scotland would face:

“It would need to lower its debts quite rapidly. This would require even greater austerity than in the UK as a whole. Given its close ties to the rest of the UK, Scotland could not get away with taxing corporations or skilled people more heavily than its neighbour. So the bulk of this extra austerity would surely fall on public spending.”

The First Minister came to London a few months ago and, as my hon. Friend Ann McKechin said, boasted to the Institute of Directors that he would always align income tax rates in a separate Scotland with those of the United Kingdom. He now says that his key fiscal policy would be to cut corporation tax to 20%. However, the Institute for Fiscal Studies said in its green budget report this year that increasing corporate tax competition between the nations of the UK would increase business compliance costs and lead to a race to the bottom on tax rates and

revenues collected. The Scottish Government’s own figures reveal that lowering corporation tax by just 1% results in a loss of revenue for the Scottish taxpayer of between £67 million and £83 million a year. So the First Minister is prepared to throw away up to £166 million of taxpayers’ money a year on a punt that Laffer curve economics works, when the evidence from the United States is that it fails every test of economic fairness.

Whatever happened to that young radical who interrupted a Tory Budget in 1988 to protest against the reduction in the top rate of tax by Lord Lawson? Whatever happened to his dream of a land of bountiful plenty with freedom from London rule? He wants London to regulate Scotland’s banks, insurance, mortgages and pensions, and to set Scotland’s interest rates—with no reference to the needs of our economy—and income tax rates. We are told that Scotland would have equality in the world, but that is instead a manifesto for complete economic instability.

With business investment slumping, the construction sector on its knees, infrastructure crumbling and our green jobs sector without the capital that it needs, how on earth can the First Minister believe that Scotland’s future lies in lining the pockets of the banks and big business, by promoting a fiscal climate that would encourage short-term profit taking instead of long-term investment? If he cannot identify crony capitalism as being as much a part of the problem in Scotland’s economy as it has been in the rest of the UK, no wonder he can never be part of the solution.

As my hon. Friend the Member for Livingston has said, having to join the euro would also damage Scotland’s economy. The evidence from most credible experts is clear: if Scotland were to be admitted to the EU as a new state, having left the United Kingdom, it would have to make an in-principle commitment to membership of the euro. That would mean compliance with the Maastricht convergence criteria, with further spending reductions to follow. The destination would be clear, and it would be bad for job creation and growth in Scotland.

At a time of uncertain economic prospects in the UK, we need strong fiscal and monetary union to support job creation and diversification of the Scottish economy. Scotland Office figures from January 2010 show that net fiscal transfers from the UK to Scotland over the two decades to 2008 were of the order of £75.8 billion, and, even factoring in every penny from oil and gas revenues, there was a net transfer of £30 billion over the same period.

We need a central bank that can fully support the Scottish economy, without ifs or buts. The best means of securing that is by maintaining the fiscal and monetary union that has been successful within the United Kingdom for three centuries. Some nationalists claim co-ownership of the Bank of England, even in the event of separation, and the Finance Secretary laughably even claimed to have the right to appoint a member to the Monetary Policy Committee, but that is the politics of denial. In quitting the United Kingdom’s fiscal and monetary union, Scotland would also abandon the unconditional guarantees provided to it by that financial system, including the Bank of England’s role in ensuring macro-economic stability for Scotland.

Paying another state to set interest rates and prop up part of the banking system, without a collective institution that could be held democratically accountable by Scotland’s

elected representatives, would be the worst of all worlds. Scotland’s parliamentarians would not be able directly to scrutinise or influence the Chancellor’s decision on the fiscal mandate or the definition of financial stability under the Financial Services Bill, which is vital in the precise remit that the Financial Conduct Authority will have in relation to our financial system. We would lose the potential to influence the Chancellor’s decisions on income tax, even though the First Minister has said that he would always follow them. There would be no influence over major macro-economic issues such as the Bank of England’s inflation target, set by the Chancellor in consultation with the Governor.

Labour Members consider it clear that Scotland benefits from fiscal, welfare, monetary and financial union with the rest of the UK. When other countries across Europe are bringing down obstacles to co-operation, it would be absurd for us to erect new barriers at home. We would survive as a separate state, but our ambitions should be higher than that for the people of Scotland. If we are to thrive and prosper, strong devolution within the United Kingdom, while meeting the current huge economic challenges together, is the best solution. I hope that the Minister will reflect the message that we have heard this morning and increasingly from the Scottish people about their future: we are far weaker as separate states, and far better together.

David Mundell (Parliamentary Under Secretary of State, Scotland; Dumfriesshire, Clydesdale and Tweeddale, Conservative)

As always, it is a pleasure to serve under your chairmanship, Mr Robertson. I congratulate Graeme Morrice on securing this debate on the economic consequences of Scottish separation, and on his detailed and positive case for why Scotland would be better off remaining part of the United Kingdom. I also want to thank all hon. Members who took part in the debate, including Jim Shannon who set out the positive Unionist case and talked about the support for Scotland staying within the United Kingdom that comes from other parts of the United Kingdom.

Mark Lazarowicz identified the increasingly perplexing issue of the separatists arguing on the one hand that everything would be different in a new Scotland, and, on the other, that everything would be the same—if we are in any way worried about any particular aspect of separation.

Anas Sarwar gave his usual erudite exposition of the issues, and was commendably brief. The nub of the matter is that we must get on with the debate about whether or not Scotland should remain a part of the United Kingdom, and about what would be better for Scotland.

Mr Bain made a persuasive case for Scotland remaining part of the United Kingdom. I will not repeat his points; suffice it to say that—other than his criticism of the Government—I agreed with everything he said.

The contribution of Dr Whiteford was brave because she mentioned independence—something that, as I understand it, is not encouraged nowadays in the Scottish National party. Then both she and Mr Weir

went on to say that they supported a single-question referendum. I am glad that they said that here in this debate.

Michael Weir (Angus, Scottish National Party)

I cannot understand both Unionist parties’ obsession with that issue. The SNP has made it clear that it is in favour of a single question. It is for others to put forward an argument for a second question.

David Mundell (Parliamentary Under Secretary of State, Scotland; Dumfriesshire, Clydesdale and Tweeddale, Conservative)

The hon. Gentleman must convey that message to Mr Salmond. If Mr Salmond is in agreement with members of the Scottish National party, he has the opportunity to proceed now with a single-question referendum. It is he who is prevaricating on the issue of the referendum, and not this Government, who have offered to facilitate the SNP manifesto commitment to a single-question independence referendum.

Michael Weir (Angus, Scottish National Party)

The Minister is missing the point completely. The referendum is for the Scottish people. There has been a consultation, of which we are awaiting the results, as to whether or not there is demand for a second question. It is about not the First Minister driving that demand but whether there is demand from the Scottish people.

David Mundell (Parliamentary Under Secretary of State, Scotland; Dumfriesshire, Clydesdale and Tweeddale, Conservative)

I tend to agree with the editorial of the Daily Record, which often, in my experience, reflects the views of the Scottish people. It has described Mr Salmond’s current tactics as a

“desperate-looking ploy that has left Salmond isolated and open to public ridicule.”

That is the case. Although separation is the Scottish Government’s policy and not ours, we have made it clear that, as a Government, we are prepared to facilitate a legal, fair and decisive referendum to settle this issue.

Michael Connarty (Linlithgow and East Falkirk, Labour)

Is not Mr Salmond feart of having a single-question referendum?

David Mundell (Parliamentary Under Secretary of State, Scotland; Dumfriesshire, Clydesdale and Tweeddale, Conservative)

I am sure that many people will make that analysis. The UK Government referendum consultation showed a strong majority in favour of a single question and robust reasons why that should be the case. Seventy-five per cent of respondents agreed with the UK Government that a single question would ensure a decisive outcome. The support for a single question is clear and growing, and today’s Scottish papers—if the SNP take any notice of them—confirm that.

All three pro-UK parties have made it clear that they support a single-question referendum. Even the SNP officially support a single question. Both campaigns in Scotland are in favour of a single question. Margo MacDonald and the Greens have now joined the call for a single question on independence. The coalition Government are offering the Scottish Government the opportunity to deliver a legal referendum by giving them the legal power that they do not currently hold. We are offering to deliver the SNP’s manifesto commitment.

The SNP won a majority at the 2011 Scottish Parliament election on the basis of a manifesto commitment to an independence referendum, not to further devolution, and it is on that single question that it can claim to have a mandate. Independence is of course the founding principle of the SNP; this is its big chance to hold the referendum that it has pledged to hold in successive manifestos. If the SNP now does a U-turn and demands a second question on the ballot paper, it will be an up-front admission of defeat and an acknowledgement that the First Minister believes that he cannot win a single-question referendum on separation.

Tom Greatrex (Rutherglen and Hamilton West, Labour)

Mr Weir probably let the cat out of the bag when he talked about the Scottish Government’s and SNP’s consultation. When the results of that are analysed, does the Minister think it would be interesting and useful to see how many contributions asking for a second question came after the May local government elections, and how many came from SNP councillors and SNP members on a standard format?

David Mundell (Parliamentary Under Secretary of State, Scotland; Dumfriesshire, Clydesdale and Tweeddale, Conservative)

That will indeed be an interesting analysis. It is quite clear that the SNP and the First Minister are prevaricating on the question of the referendum. We have been calling for talks with the First Minister to be resumed so that Scotland’s two Governments can work together to deliver a legal, fair and decisive referendum. We need to get the referendum process agreed as soon as possible, so that we can get on to the real debate about Scotland’s future and whether Scotland should remain part of the UK.

Anas Sarwar (Glasgow Central, Labour)

Did any SNP parliamentarians, or the SNP itself, put in a submission to the UK Government’s consultation, and if so, did they ask for one question or two?

David Mundell (Parliamentary Under Secretary of State, Scotland; Dumfriesshire, Clydesdale and Tweeddale, Conservative)

The SNP did make a submission to the UK Government consultation and we welcomed it. As SNP members have stated, the SNP’s position is to have a single-question referendum. The Daily Record editorial today said:

“Salmond should stop playing games and start campaigning on the issues if he still believes he has a chance of realising his lifelong dream of independence. We need a proper decision as soon as possible. Then Scotland’s leaders can get back to more pressing matters”,

such as the economy, employment and education. That is the UK Government’s position.

In stark contrast with the Scottish Government, we are committed to getting the referendum process agreed and to getting on with the real debate. We have announced a programme of work that will set out in the period leading up to the referendum the benefits of remaining part of the United Kingdom. I am convinced, as are many Members here, that we will convince the people of Scotland that we are better together as part of the United Kingdom.