Why Scotland's nationalists should give every “no” voter a kiss

Scotland has dodged a bullet, says Merryn Somerset Webb. The economic case for independence has collapsed into the North Sea with the oil price.


Go on... give her a hug

If you live in Scotland and voted to separate from the rest of the UK in last year's referendum, you might want to go out, find a "No" voter and give them a big hug. Because if the Yes vote had won, Thursday would have been independence day in Scotland and things would have been about to get nasty up north.

The best analysts of Scotland's finances have been celebrating the day too but not, I think, with much kissing. Looking at the volume of numbers and reports they have been churning out, I can't see that they would have had time for it.

On my desk is one report from the Institute for Fiscal Studies (IFS). This notes that, thanks to the collapsed oil price, Scottish tax revenues per capita (which include a geographical allocation of oil revenue) have fallen below those of the UK for the first time in 30 years. That makes Scotland's effective budget deficit for 2016/17 a slightly scary 9.4% of gross domestic product. The equivalent number for the UK as a whole is an estimated 2.9%. By 2019/20, says the IFS, Scotland will be running a deficit of 6.2% of GDP and the UK a surplus of 0.5% of GDP.

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It's worth remembering, by the way, that the EU defines a deficit as "excessive" when it goes over 3% of GDP.

The next in my pile is from Scotland in Union: it points out that public spending per head is £12,800 in Scotland and £11,300 in the rest of the UK. It also suggests that had Scotland voted Yes to separation, it would have cost an extraordinary £10.4bn in the first year alone, once you take into account everything from the loss of renewable subsidies to the end of the UK's EU rebate, and the cost of having to give English students free university tuition.

Then there is one from Kevin Hague, commissioned by the Scottish Conservative party (of which Mr Hague is definitely not a member). This is the longest and the most comprehensive of the lot. And it comes to a similar conclusion as the others: in 2014/15 Scotland's deficit was 9.7% of GDP. "Only Greece, Ireland (at the peak of the financial crash) and, more recently, Slovenia have shown worse deficits over the last 14 years", he says.

Mr Hague puts the amount that a fully independent Scotland would have to find every year to keep its show on the road at around £9bn. That's more than the entire education and training budget. It is equivalent to 13% of all Scottish public spending and it would use up some 77% of the total Scottish income tax take. Yikes. "Yes", voters if you have found your "No" voter, add a kiss to the hug. And perhaps buy them a drink for good measure. They deserve it.

Clearly, the economic case for an independent Scotland, such as it ever was, has gone. It collapsed into the North Sea with the oil price. Still, it shouldn't necessarily have to stay that way.

The SNP has used independence enthusiasms into a huge transfer of power from Westminster to Holyrood. It is perfectly reasonable to think that they might have plans to use those powers to stimulate Scottish growth, so they can once again make the case for independence on economic grounds (there are other grounds for independence, but you can read about those elsewhere).

This isn't going to be easy. Mr Hague reckons that to close the deficit gap with the UK "to get to a situation where becoming independent wouldn't make Scotland immediately worse off" the country would have to outgrow the rest of the UK by 17%. Use the assumptions on the SNP's pre-referendum white paper and that "would take over 90 years".

Nonetheless, one might expect the SNP to be hatching plans to give this a go. Perhaps they will do something dramatic to raise tax revenues? Something to slash the gap between Scottish and UK spending per capita? Something to attract first class businesses and brilliant people to the north?

They aren't. This week we heard from Nicola Sturgeon, SNP leader and first minister, on how she intends to use her ability to charge whatever income taxes she fancies. We thought she might move the 45% threshold down, introduce a new top band at £500,000, add a penny on the bottom band or maybe even bring back the 50% rate. I wouldn't have approved of any of those things, but I'd have least been interested to see action: I've lived in Scotland for seven years and I still haven't really got the faintest idea what beyond independence and a consensus that everything is Westminster's fault the SNP wants for its country.

So what is she going to do to help me out here? Almost nothing, really. There is to be no increase in the rates charged on any tax bands, and there are to be no new bands. The only little thing that will make tax north of the border different from tax south of the border is that George Osborne's rise in the 40% band to £45,000 won't be implemented something that will cost Scots with incomes over £43,387 up to £323 more in tax a year.

I suspect this will turn out to be whopper of a political mistake. Sturgeon likes to point out that only 10% of working Scots are in the 40% band. But that number isn't static: people move in and out of the band over a working life. And what of all the people married to or dependent on a 40% taxpayer? That £323 matters to them too. My guess is that many multiples of 10% of the population touch 40% one way or another.

But whatever it means politically, it barely touches the sides economically. It isn't exactly bold. And this I think is where Scotland is going. It's going to be the same as the rest of the UK but a bit more expensive. Income tax will be a bit higher, stamp duty a bit higher, council tax a bit higher and so on. But there won't be any major change. All that bitterness, all that anger, all that time wasted on social media and taking selfies with Nicola? It's just given us something mostly the same but a bit worse. Sigh.

This is, technically speaking, a personal finance column. So let me leave you with some advice on that. Maybe £323 a year doesn't sound much. But compound that at 5% a year (as perhaps you could in an Isa) for 20 years and it comes to over £12,000. If you want to keep your personal finances as intact as possible, don't move to Scotland.

This article was first published in the Financial Times

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.