Though there are a number of legal obstacles in the way, it looks almost certain that there will be a second referendum on Scottish independence towards the end of 2018 or into early 2019. Brexit has fundamentally changed the context of the vote, and the UK can no longer present itself as the stable and secure option in the way that it could in 2014. That said, the arguments for independence are in many ways weaker now than they were then.
It is unquestioned that Scotland has a lot of oil in its territorial waters and that that oil is very valuable, both in terms of the revenues it generates and the jobs that it supports, both directly and indirectly. However, the recent slump in the global price of oil has meant that Scotland would have suffered an enormous collapse in its revenue stream had it been an independent country. As it happens, it was the UK that had to shoulder that slump, but the UK is far less reliant on oil revenues than an independent Scotland would be. According to annual Government Expenditure and Revenues Scotland report, the report upon which the Scottish Government based its figures in its blueprint for independence at the last referendum, Scotland, if independent today, would be running a fiscal deficit of 10.1% of GDP. Compared to the UK’s deficit of around 4%, the impact of declining oil revenues is plain to see.
The other longstanding SNP policy that declining oil revenues impacts upon is that whereby Scotland would set up a Norwegian style sovereign wealth fund from the proceeds of oil. A difficult feat in 2014, this looks simply impossible in the current climate. This is not to say that the Scottish Government is oblivious or ignorant of the fiscal challenges that it faces. Indeed, the government commissioned Andrew Wilson, former SNP finance spokesman in the Scottish Parliament, to deliver a report on the economic prospects of an independent Scotland looking ahead. Wilson himself has stated that the work he has overseen as discounted oil revenues completely from the report’s analysis, and this document will be available in the coming weeks.
Currency continues to be a major issue. A Sterling zone will not be possible this time around, assuming of course that an independent Scotland remains in the EU. Indeed, should Scotland elect to remain in the EU then it will have to sign up to the Exchange Rate Mechanism in preparation for its obligation to join the Euro in future. Delaying such a move is not without precedent, Sweden being the prime example, but this adjustment would have an immediate impact upon an independent Scottish currency. The Scottish Government would seek to borrow money on the international money markets, and it is unlikely, at least in the short term, that borrowing would occur with a very favourable credit rating. Indeed, Scotland would have to demonstrate to the markets that it was willing to get its deficit under control, a situation that would require a combination of deep spending cuts and increases in taxation.
The economic outlook for an independent Scotland is difficult, but should Brexit prove to derail the UK economy somewhat in the next year or two then it will likely play into the SNP’s hands. Furthermore, despite the repeated warnings about the economic trouble that Brexit would bring, 52% of the UK population still voted for it. Economics are important in referendums, but they are not everything.
Dr Craig McAngus is a politics lecturer at the University of Aberdeen.