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Scotland's Economy: the case for independence

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Introduction

In the independence referendum on September 18, 2014, Scotland will be faced with a choice between two futures.

A Yes vote will mean endorsing the view that people who live here - equipped with the powers that other countries take for granted - will do a better job of running Scotland than politicians in London.

If a majority vote Yes, Scotland's future will be in Scotland's hands.

A No vote will mean Westminster retaining control over key decisions that affect life here in Scotland.

This paper makes four key arguments that are at the heart of the economic case for independence:

1. Scotland can afford to be an independent country. As even those who argue against independence now acknowledge, the viability of an independent Scotland is not in any doubt.

The Prime Minister, David Cameron, has said:

"Supporters of independence will always be able to cite examples of small, independent and thriving economies across Europe such as Finland, Switzerland and Norway. It would be wrong to suggest that Scotland could not be another such successful, independent country."

The former Chancellor, Alistair Darling, has said:

"The question is not whether Scotland can survive as a separate state. Of course it could. The real question is what is best for Scotland's future."

Section 1 and the Balance Sheet attached at Annex A set out Scotland's strong financial foundations. They show Scotland in a stronger fiscal position than the UK as a whole over the last five years to the tune of £12.6 billion.

2. Scotland has enormous potential. Our natural resources, our world class university sector, our highly educated population, our strong national commitment to education, our global reputation, our strong growth sectors and our commitment to remaining part of the EU and the single market give us strong prospects for growth.

Section 2 sets out the strength that Scotland has in life sciences, tourism, creative industries, digital and ICT, energy, renewable energy, low carbon technologies, food & drink, financial and business services.

It makes the case that, equipped with the economic powers that other countries take for granted, there are few countries that should be more confident about their future than Scotland.

3. Section 3 addresses Scotland's future within the UK. It is clear that the status quo is not working. This section builds on the conclusions of the Fiscal Commission Working Group report and covers our long term growth rates; our economic performance compared to other similarly sized countries; the geographic imbalance within the UK that holds Scotland back; the growing income inequality that has a negative impact on growth and prosperity; and the weaknesses of current and past UK economic policy. It makes the case that Scotland is being held back economically in the Westminster system, and that the consequences of not becoming independent will be damaging for our economy in the future.

4. The powers of independence will better enable us to harness our economic strengths and fulfil our economic potential. Section 4 will set out the evidence that small countries have been particularly successful in recent decades. It will also set out the limitations of the economic powers that the Scottish Parliament currently has (and those it will get under the Scotland Act 2012.) It will set out why it is the best option for both Scotland and the Westminster government to agree to share the pound. And it will list the substantial additional economic powers that an independent Scotland will gain.

A competitive economy and a fairer society: two sides of the same coin

We believe our economy must be both more competitive and fairer. Indeed, we believe tackling inequalities will enhance our competitive position by increasing opportunity and participation.

In a report published in 2011, the OECD concluded:

"Income inequality among working-age persons has risen faster in the United Kingdom than in any other OECD country since 1975."[1]

The Fiscal Commission Working Group was clear about the impact of the growing gap between rich and poor:

"Such patterns of inequality will continue to have a negative impact on growth and prosperity over the long-term."[2]

The Westminster system has also generated another stark inequality: the gap between the best and worst performing areas of the UK - a gap which appears to be bigger than other comparable countries - with London becoming increasingly dominant.

In these circumstances it is the Scottish Government's contention that a "one-size-fits-all" economic policy has neither worked in the past nor is it the best prescription for the future.

It is essential to recognise that policies that are appropriate for a larger economy will often not be appropriate at all for a country of Scotland's size.

The UK government explicitly recognised this fact in its recent paper on currency and monetary policy, when it said:

"The dynamics of small economies are inherently different from larger economies such as the UK."

This paper is not designed to be a policy manifesto. However, it will highlight some of the key policy levers that an independent Scotland - acting at all time in accordance with the principles of fiscal discipline - could use to tackle income inequalities, create meaningful and rewarding employment, counterbalance the gravitational pull towards London and to stimulate growth in our key sectors and in the economy as a whole.

Economic policy-making: six examples of why Westminster isn't working for Scotland's economy:

- The failure to establish an oil fund for future generations. Norway has been able to use its oil wealth to establish an oil fund, now worth close to £450 billion, equivalent to approximately £90,000 per person. Using reasonable assumptions about investment returns the Fiscal Commission Working Group estimated that if an independent Scotland had been able to invest the net fiscal surpluses achieved since 1980 it would have accumulated assets equivalent to between 62% and 84% of GDP.

- The decision to allow the UK economy to engage in, in the words of the current UK Business Secretary, a "massive boom in credit and debt expansion" which allowed a "very dangerously unstable position" to develop.

Over the period 1996 to 2007, household indebtedness in the UK rose from 103 per cent of gross disposable income to 176 per cent in 2007 - a rise of 71 per cent - the highest level of all G7 economies. Although Italy saw a steeper rise over that period, - of 80 per cent - its household indebtedness as at 2007 was significantly smaller at 70 per cent of gross disposable income.[3]

It should be noted that households in Scotland have historically had a relatively stronger savings ratio compared to the UK as a whole.

- The decision to allow income inequality to grow dramatically. Research, based on United Nations findings, has shown that the UK has the fourth highest level of income inequality among the world's richest countries with a population of one million or more.[4]

- The decision to concentrate so much economic activity in London and the South-East of England, which, according to the current Prime Minister, is "fundamentally unstable and wasteful".

- The decision to impose a policy of austerity on Scotland, which according to the former Chancellor, Alistair Darling, is causing "immeasurable damage" to the economy.

- The decision to cut capital spending. In this paper the Scottish Government has modelled that had capital spending been maintained at 2009-10 levels in real terms it would have supported an additional 19,000 jobs.