Scotland is voting for fiscal austerity, it just doesn't know it

In a speech this week, Danny Alexander, chief secretary to the Treasury, will warn of what he thinks of as the “myths” that surround the ideal of independence.

Many Scots assume that they will keep the pound, even though all three main parties at Westminster have said they will not allow it. Membership of the EU, together with Scotland’s share of the UK rebate, is also taken for granted, despite the fact that the European Commission has questioned both assumptions. One obvious spanner in the works is that EU accession states are obliged to have their own currency, progressing to membership of the euro. Where does that leave retaining the pound?

If not allowed to retain the pound on equal terms, says Mr Salmond, then Scotland may refuse its share of the national debt. Good luck with that one. Any country that begins its existence by defaulting on its debts is toast in international markets. There could be no surer way of destroying both the Scottish and the remainder of the UK economies, forced as the rest of us would be to shoulder the weight of Scotland’s debts on a smaller national income.

And, finally, they assume that North Sea oil will cushion the Government’s expenditures, even though these revenues have been falling for years. All credible independent forecasts are that they will continue to do so. Updated figures due to be published this week by HMRC, show such income sinking to as little as £4.7bn in 2013-14, from £6.1bn in 2012-13 and £11.1bn the year before. Admittedly, these falls are partially due to relatively high investment expenditure by producers, which creates jobs and other forms of tax revenue. But the long-term direction of travel is clear. According to the Institute for Fiscal Studies, an “independent Scotland would face unsustainably [high] levels of public sector debt over the next 50 years unless further tax increases or spending cuts were announced”.

In the event, proponents of independence pledge the reverse. The Scottish government has already promised to cut corporation taxes and air passenger duty to stimulate investment. There is no chance of the UK ignoring tax competition of this sort. Both countries would therefore raise less tax than if they set rates in co-operation, again a pretty good outcome if, like me, you believe in low taxes but wildly at odds with the Nats’ policy goals. The facts are very different from the rhetoric.

All this would seem bad enough; unfortunately, it gets worse. IFS research finds that if Scotland were to replicate the tax rises and spending cuts pencilled in for the UK as a whole for 2016-17 and 2017-18, this would require an additional £2.5bn (in today’s money) of measures on top of the ones already announced. If it also wanted to offset the decline in North Sea revenues by 2017-18 forecast by the Office for Budget Responsibility, it would require a further £3.4bn, making £5.9bn in total. For a small country, these are very big numbers. Undue dependence on North Sea oil would meanwhile introduce considerable volatility into the Scottish tax base, resulting in repeated rounds of stop/go fiscal policy.

All this and more is the subject of an exhaustive study of the fiscal consequences of independence currently under preparation at HM Treasury, the biggest assault yet by the Whitehall establishment on the case for independence.

And herein lies the irony, for the more the “no” campaign points out these economic inconveniences, the stronger the nationalist cause seems to become. Over the past year, the chances of a “yes” vote have moved from the extremely unlikely to the at least possible, if not yet probable.

Mr Salmond would possibly find comparison with Joseph Stalin more palatable than the Ukip leader Nigel Farage, but the parallels are strong, for each is dependent to a large degree on disillusionment with established Westminster rule, which is in turn what makes their appeal so difficult for the traditional political class to fight.

In both cases, this is about more than just protest votes. The Scot Nats draw much of their support from traditional blue collar and child rearing female Labour voters. For them, independence provides not just the chance permanently to purge Scotland of Tory rule from Westminster, but also to disentangle their affairs from the metropolitan types that have come to dominate the Labour Party south of the border. Many Scots, it would seem, would also rather throw in their lot with fiscally austere Europe than Eurosceptic England.

It is therefore quite wrong, and certainly somewhat patronising, to regard Scots as falling victim to some sort of Salmond Svengali, or series of myths about what’s in store for them should they vote “yes”. I’m quite sure that the risks are relatively well understood. Yet there certainly is a sense in which the politics of national identity seem to be triumphing over economic realities.

Independence means different things to different people. For old-style separatists such as Sir George Mathewson, former chairman of Royal Bank of Scotland, it was never about the social democratic model championed by today’s Scot Nats, but the reverse – freeing Scots of their culture of dependency and making them stand on their own two feet. We’ll forget that his own bank was to become powerfully emblematic of that state of dependence on English taxpayers. All the same, it is this much harsher form of independence that economic realities are likely to command should Scots vote “yes”, even if it is the very antithesis of the feather-nested Nordic future sold by Mr Salmond.

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