Don’t be fooled: the EU referendum will be nothing like Scotland’s

Those who compare the Scottish referendum to the EU referendum are wrong. John Stepek explains why.


In/Out is a different question to your approval of Nicola Sturgeon

We're eurosceptics. Asked to vote in an EU referendum tomorrow, MoneyWeek would tick the "out" box. But on the topic of Scottish independence, we were (and are) pro-Union. Some view these stances as contradictory. How can we believe it would be good for the UK to break with Brussels, but not for Scotland to ditch Westminster?

On the CapX website last week, Scottish journalist Chris Deerin argued that those campaigning for 'Brexit' are little different to those who argued for Scottish independence. Their case for breaking up existing arrangements rest on impassioned arguments, promising unquantifiable yet huge gains from freedom, which appeal greatly when stacked against the dull pragmatism of the status quo backers.

Yet there are huge differences between the two. We're not making the case against Scottish independence here (we've done that before), or for leaving the EU (we'll make that case in more detail in an upcoming issue). But they are two separate issues, and it's perfectly consistent to oppose a "Scoxit" and be pro-Brexit.

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The currency

The most obvious difference is that Scotland shares the pound with Britain. To be independent, Scotland needs its own currency. Otherwise it would simply import monetary policy from the rest of the UK. We've seen the issues this causes in the eurozone, where Greece has been forced to follow EU-imposed political and economic policies in order to keep the euro. A new currency would bring its own problems, of course.

How would the "Scots pound" work? How would you make the move from sterling? And most crucially how do you avoid capital flight as worried sterling holders vote with their feet before said transition? Britain, on the other hand, with its own central bank and own currency, already has as much control over its monetary policy as is possible in a globalised world. Brexit makes no difference to this whatsoever.

The complexities of demerging

The UK is a fully integrated political unit with a common defence and foreign policy, total freedom of cross-border movement, and shared assets and liabilities. There's a lot of shared civil infrastructure that would need to be duplicated or divided following independence. Brexit is basically a matter of saying: "We don't want to go any further with integration. Let's come to some other arrangement."

The track record

Scotland has shared a monarch with England since 1603, and a parliament and currency since 1707. That's a lot of shared history. In itself, that's not a reason to maintain the union, but its staying power suggests both that it functions at least reasonably well for both parties, and that tearing it up won't be easy. Britain, on the other hand, only joined the European Economic Community (EEC) in 1973, and as Iain Martin put it in his response to Deerin's piece: "The idea that there is no alternative other than to be locked forever in this failing set of arrangements which in their current format are less than 25 years old is extraordinarily defeatist".

Brexit = Scoxit

One argument you hear all the time is that Scotland wants to stay in the EU, so a vote for the UK to leave would make a second independence referendum inevitable, and Scotland would leave this time. That may be true, though Nicola Sturgeon (pictured) would have to be very convinced indeed of winning before campaigning for a second referendum this time it really would have to be "the last in a generation". However, fear of a second Scottish referendum can't be the deciding factor in whether the UK leaves the EU or not.

In any case, Scotland's pro-Europe stance might shift if it starts to grasp that independence from Westminster would still leave plenty of policies outwith Scotland's control. For example, the Scottish tabloid, the Daily Record, reports that the SNP has recently jumped on the bandwagon campaigning for the VAT rate on tampons to be cut from 5% to 0%.

There's nothing wrong with this idea, but it's not a "Tory tampon tax", as the Record puts it, but an EU-imposed minimum rate for VAT, which cannot be changed unless all 28 EU members sign off on it. So even if Scotland was to split with Westminster, it still couldn't unilaterally zero-rate women's sanitary products while staying in the EU.

The balance of risks

Notes Deerin: "As Unionist Scots discovered last year, it's hard being restricted to reality, with its need for oxygen and underwear and day jobs, when you're up against the... unchallengeable certainties of the bug-eyed visionary in panting pursuit of their life's goal." He's right it's clear that in Scotland's case there were very real short-term risks in the form of potential capital flight and the economy's dependence on oil, which would have been a real problem amid the recent price crash. However, you can't apply this criticism to the "out" argument.

The short-term risks to Britain from leaving the EU (or sticking with it) are low. EU trade won't dry up if we leave, and equally there's unlikely to be an immediate blossoming of trade with the rest of the world. The main risk, as Roger Bootle of Capital Economics told Merryn Somerset Webb last year, is a long-term one that if we stay in, we'll be dragged ever further into the over-regulation and centralisation of power inherent in European politics.

In short, you might be a raging europhile or an ardent "outer" but your take on Scottish independence should make no odds either way.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.