Motion to Take Note

Part of The Economic Implications for the United Kingdom of Scottish Independence – in the House of Lords at 6:26 pm on 26 June 2013.

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Photo of Lord Wallace of Tankerness Lord Wallace of Tankerness Lords Spokesperson (Attorney General's Office), The Advocate-General for Scotland, Lords Spokesperson (Scotland Office) 6:26, 26 June 2013

My Lords, the Ministry of Defence, as I am sure the noble Lord, Lord West, knows, makes contingencies for many things. As for saying any more on issues of our nuclear deterrent and matters of national security, I am not prepared to go there.

The noble Lord, Lord McFall, referred to Michael Ignatieff and his point that we can have different identities. There is a British identity, although I appreciate that some, if not all, feel a European identity, and there is a Scottish identity. Having made my adopted home in Orkney for the past 30 years, I can share and feel affinity with that Orcadian heritage. I am sure that the point that was being made was that we do not want to choose between these. What we wish to secure by winning this referendum is that we are not forced to make that choice—something that I reflect on after my noble friend Lord Caithness’s comment as to whether I would have to choose between an Orcadian and Scottish identity and a British identity and affinity. Issues of the heart will be involved, but this debate has focused on the importance of the arguments of the head as well.

There are important things that we can say. The United Kingdom Government are producing an increasing amount of information, and I will say more about the communication of that later. We know that the United Kingdom is one of the most successful monetary, fiscal and political unions in history. It is a union that has brought economic benefits to all parts of the United Kingdom, because taxation, spending, monetary policy and financial stability policy are co-ordinated across the United Kingdom.

We know that Scotland and the rest of the UK are economically well placed as members of a single market and a single currency area in the current United Kingdom arrangements. Data published by the Scottish Government suggested that in 2011 nearly 60% of Scottish exports went to the rest of the United Kingdom and that 70% per cent of Scottish imports came from the rest of the United Kingdom. We know that Scottish independence would create an international border between Scotland and the rest of the United Kingdom. International experience shows that there is a border effect. It reduces flows of product, money and people.

We know that the current currency and monetary policy arrangements within the United Kingdom serve Scotland well. Perhaps I can take issue with what my noble friend Lord Caithness said about the First Minister setting out his case very clearly. As my noble friend Lord Forsyth pointed out, within the past five years the Scottish National Party has supported the euro. We were told that sterling was a millstone around Scotland’s neck, but then it supported sterling, either by a currency union or by so-called sterlingisation. Some people in the yes campaign have called for an independent Scottish currency.

The paper that we produced on the currency identified the four options. First, there is an independent Scottish currency. Secondly, there is the euro. Thirdly, there is a sterlingisation, where the Scots keep sterling but are not part of a formal monetary union. Fourthly, there is formal monetary union. None of these is as successful and workable as having our current arrangements within the United Kingdom. The alternative currency arrangements open to an independent Scotland would be less economically suitable for Scotland and the rest of the UK.

We know that the Chancellor, when launching the Treasury paper on currency, said:

The SNP asserts that it would be in everyone’s interests for an independent Scotland to keep the pound as part of a Eurozone-style sterling zone. … Let’s … look at the evidence… Could a situation where an independent Scotland and the rest of the UK share the pound and the Bank of England be made to work? Frankly, it’s unlikely”.

While the Scottish Government might like to tell people what they think that they want to hear, we are focused on telling people what the evidence says, what the options are and what the consequences of those options are. You do not have to know too much about economics or look too far to see that the eurozone cannot exactly be described as dream currency union. This was reflected in what my noble friend Lord Maclennan of Rogart said. It was mentioned too by the noble Lord, Lord Hollick, who said that you cannot have monetary union without fiscal union. Countries with the euro are witnessing closer fiscal integration at a time when the Scottish Government would have you believe that you could sign up to a currency union and achieve political and fiscal independence.

It is not just Scotland’s overall economy and currency that we know about. We know that in Scotland we have a strong and vibrant financial services industry as part of the United Kingdom. Financial services contributed £8.8 billion to the Scottish economy in 2010, more than 8% of Scottish onshore economic activity. The sector directly employs 85,000 people in Scotland and a further 100,000 indirectly, which is around 7% of total Scottish employment. We know that our firms and individuals benefit from a world-leading financial services sector and a large integrated domestic market. Our consumers benefit from the UK’s protection and compensation bodies that are able to pool risk across a large and diverse market.

Noble Lords who have contributed to the debate have reflected on the fact that the United Kingdom Government came to the rescue when the Royal Bank of Scotland and HBOS experienced their catastrophic difficulties. In evidence to your Lordships’ committee, Mr David Nish, the CEO of Standard Life, said that what he benefited from today was having a single regulator in a geographical area and that he did not think that there was a working model of cross-border regulation that he could find.

I pick up on the point made by my noble friend Lord Lyell that 70% of pension products bought by Scottish consumers are from firms based in the rest of the United Kingdom, and work by the Institute of Chartered Accountants of Scotland shows that if Scotland were to become independent, the,

“potential impact on funding requirements for employers operating defined benefit or hybrid schemes across the UK is likely to be substantial”.

Another important industry for Scotland is oil and gas. My noble friend Lord Shipley and the noble Lords, Lord Lipsey and Lord Hollick, referred to this. They made the point that wherever this valuable resource is, the revenues are volatile and in long-term decline. The UK has a broad and diverse enough economy to be able to absorb this volatility, but it would loom larger in a Scottish economy that would be less able to absorb it. My noble friend Lord Forsyth asserted that the First Minister would clearly want the United Kingdom to bear the decommissioning costs and quoted the Minister who, when asked on 25 April last year whether Scotland would take these costs on, said that the answer was yes. That contrasted with what his Energy Minister, Fergus Ewing, said on 17 April, which was that the UK had a moral and certainly a legal obligation to be responsible for the decommissioning of these rigs. Within a period of 10 days, there had been a diametrically conflicting view of what the position would be on these costs. It is incumbent on the Scottish Government to be a bit more direct in giving answers to these questions.