What will happen to an independent Scotland if the worst happens - if we are faced with another banking collapse or global financial crisis? Will we be in a stronger position to face such a challenge if we are independent?
There are, of course, no guarantees for the future with either the Union or as an independent country. However, we can make an assessment based on likely risk and the steps Scotland can and should take to protect our nation in times of adversity.
Scotland is fortunate to have, for the next 40 years, revenues from oil & gas. The wholesale value of that oil & gas is over £1 trillion – that’s 10 times our share of the UK national debt. This is a massive safety net and one that gives Scotland, if we become independent, the sort of financial protection that very few other nations have.
You might have heard some people say that the oil isn’t actually Scotland’s. However, international law makes clear that fields generating around 90% of the revenues will be in Scottish waters. This figure is based on comprehensive analysis undertaken at Aberdeen University. The companies that currently hold the licenc es for the various oil fields will continue to operate as now, but the taxes they pay will come to the Scottish Exchequer rather than go to the Chancellor in London.
If the worst happens again, we will be able to use this resource to protect us from the sort of financial problems facing other nations today. How do we know this? In the 1970’s, at a time when many people were predicting North Sea oil & gas would run out within 20 years, the UK government was able to use future revenues from the North Sea as collateral to ensure that it could pay its bills. Scotland, with 40 years of revenues ahead of us would be in an even stronger position.
But of course, Scotland’s oil and gas is running out. It will not provide a safety net forever. But that’s true everywhere in the world and as oil becomes scarcer, the value will go up.
We have the opportunity to save just a portion of the revenues from the North Sea to put into a rainy day fund. This is the approach adopted by Norway 20 years ago, and in that time they have been able to build up an oil fund worth over £400 billion. That is enough to cover Scotland’s national debt - and the total cost to the UK of bailing out the banks – with plenty left over.
People also say that we should not base our future on just one resource. However, we are doubly fortunate in Scotland and are already moving away from reliance on oil & gas. As our oil reserves run out, we will be reaching peak production from offshore renewable energy. Scotland has up to 25% of the EU’s offshore tidal and wind power potential: a clean, green energy resource that will be in demand as the world moves to a low carbon future. The EU is already looking to build a North Sea electricity transmission grid to take green energy from Scotland and Norway to energy-dependent markets elsewhere in Europe.
Across the world natural resources are becoming more and more important. Not just energy, but also things like water (which Scotland also has in abundance). We have the opportunity to use our ample supplies of water to attract a range of businesses that rely on a steady and reliable source of water, creating a new source of tax revenues and jobs.
These are just some of the ways that we can extend the safety net, giving Scotland the sort of financial guarantees for the future that few other nations enjoy. And, more importantly, the opportunity not just to protect ourselves in difficult times, but also to use these resources to create more jobs and opportunities in Scotland in normal times.
As we are seeing from events in Spain, large countries can face severe economic hardship and financial difficulty just as much as small countries. Iceland was hit badly during the first stages of the financial crisis but was able to respond quickly, and with some agility, which means that now their economy is recovering strongly and, in terms of wealth per head, they are ahead of the UK.
In the 1990s Sweden, a country of similar size to Scotland, was hit with a banking crisis. Those were difficult times for that nation, but lessons were learned and steps taken to ensure the same could never happen again. What that meant was, when the global banking crisis hit a few years ago, Sweden’s banks were in a position to weather the storm. Scotland too has learned the lessons of the recent banking crisis and we can also ensure that our banks are never again in a situation where they need so much government support.
One of the main problems for Scotland was that the main UK financial regulators had little or no presence in Scotland. They were not close enough to our banks to see what was really going on. That same mistake would not be made in an independent country. However, it looks as though the same mistake is being repeated in the UK.
Some people say that Scotland could not have afforded to bail out the banks. You might have heard some huge figures suggesting that Scotland would have needed £470 billion or more to support RBS and HBOS. However, the total cost to the UK government of the bank bailouts was just £66 billion.
Andrew Hughes-Hallett, Professor of Economics at St Andrew's University and Virginia's George Mason University, has said: “By international convention, when banks which operate in more than one country get into these sorts of conditions, the bailout is shared in proportion to the area of activities of those banks, and therefore it’s shared between several countries. In the case of the RBS, roughly speaking 90% of its operations are in England and 10% are in Scotland, the result being that the rest of the UK would have to carry 90% of the liabilities of the RBS and Scotland 10%.“
It is also worth noting that RBS was supported financially by both the UK and US, and Fortis Bank, which is based in three countries, was supported by all three of those states - Belgium, the Netherlands and Luxembourg.
We have faced a once in a life-time financial crisis. We were unprepared as part of the UK and are continuing to pay the price today in terms of squeezes on family budgets, a double-dip recession and massive cuts to public spending. Will we make the same mistakes again as an independent country? As Harvard Kennedy School scholars, Price and Levinger, have argued: “while the US or the UK may conceivably witness a rerun of the events of the recent crisis, it’s highly unlikely that Icelanders or the Irish will ever make the same mistakes again, painfully embedded as they already are in national consciousness and institutional memory.” The same can be the case for Scotland.
As an independent country we will have a natural resource safety net to protect us from even the most catastrophic financial shock. We will have the ability to put in place a rainy day fund of the type that meant Norway was more resilient in the face of financial crisis than nations like the UK. We will be able to ensure the hard lessons recently learned are not forgotten and sit at the very heart of our policy choices. Together these provide three layers of protection - if we are faced with crisis once again they will put Scotland into a stronger position to endure and recover than we are in today.