12 September 2014

Scotland’s last hope is that it turns out to be the economy, stupid, after all


“It’s the economy, stupid.” The mantra coined by James Carville for Bill Clinton’s 1992 election campaign and adopted by western politicians has largely lost credibility among analysts of next year’s British general election prospects; but it may be regaining relevance in the context of the current Scottish independence referendum.

Seldom has a solitary opinion poll showing a miniscule 2-point lead for the underdog in a referendum contest had so dramatic an impact as last Sunday’s YouGov survey, the first to record a lead for the Yes campaign. Its significance lay in the fact that it was the culmination of a relentlessly reducing No lead – from 22 points just a month previously – and markets drew a bleak conclusion. On Monday £3.5bn was wiped off the value of six stocks with heavy Scottish exposure. Then institutions and commentators belatedly began to address in earnest the basic financial issues of independence that should have been hammered out months ago but were largely ignored, with the honourable exception of Alistair Darling, leading the Better Together campaign to save the Union. Listening Scots (and unfortunately, in the current partisan atmosphere, they may be a dwindling minority) were bombarded with the dire consequences of a break from the United Kingdom. By Wednesday morning the pound had slumped to $1.6051. Over the past two months, during much of which the No camp was safely ahead in the polls, £1.24bn has flooded out of UK equity funds. If that is the response to uncertainty, what would be the market reaction to a Yes vote on 18 September? Alex Salmond is trying to divert attention from the leaked intention of RBS to relocate to London in the event of independence by shouting about the impropriety of the leak when what matters to most people is the potential departure of an iconic Scottish bank. TSB would follow suit and other major banks have already announced similar plans.

Capital flight is already a reality. Scottish depositors have quietly been shifting their funds to banks with little or no Scottish exposure and requesting an account with a London sort code. In recent weeks, when making offers for house purchases, Scottish lawyers have been inserting a new clause in the bid: “This offer is conditional on a No vote in the referendum.” Every day another wheel comes off the Salmond bandwagon – but still it trundles on. Sir Ian Wood, the most respected North Sea businessman, has warned there are only 15 years to go before the decline of the oil industry begins seriously to damage the Scottish economy. He did not dispute SNP assertions of further oil reserves beneath the North Sea, but said claims it was economically exploitable were “fantasy”. Both BP and Shell supported Sir Ian Wood’s statement, but the First Minister clung stubbornly, on no empirical evidence, to his rhetorical position that oil would guarantee Scottish prosperity.

For separatists, the news just gets worse and worse. Standard Life has announced its departure from an independent Scotland. Mortgage lending could dry up, with existing borrowers falling into negative equity under independence, amid a currency conundrum that is impossible to unravel due to Alex Salmond’s refusal to commit to a specific currency plan beyond stubbornly reiterating his determination to keep the pound. Of course he could, at least initially, but with the Bank of England setting interest rates in response to English, not Scottish, economic circumstances. Alex Salmond’s insistence that London would agree to a sterling currency union, despite cross-party pledges to the contrary, is severely deluded: English politicians are as inconsistent as any others, but in this case they would be constrained by an angry electorate that would interdict the creation of a mini-eurozone with England playing the role of Germany, to Scotland’s Greece.

Yet Salmond insists he intends to reapply for EU membership. For that, Scotland would have to join the euro, after first creating its own currency for a probationary period in ERM2. There is no coherence in any part of the SNP’s patchwork prospectus. An independent Scotland would expel Trident while simultaneously seeking Nato membership. The notion that the alliance would admit a nation that was in the process of inflicting more serious damage on it than Russia or any other geopolitical adversary has attempted is absurd – Nato’s secretary general has already dismissed this chimera; but even if Scotland could be admitted, it would have to sign up to the nuclear first strike policy that is a pillar of the alliance’s strategy, which would expose the gesture of shunting Trident a few hundred miles to the south as the moral humbug it is.

The overarching question is this: how has it happened that the biggest constitutional change any nation can contemplate, supported only by a melange of inconsistencies cobbled together on the back of an envelope and threatening the most appalling economic consequences, after almost three years of debate, enjoys sufficient electoral support for the outcome to be too close to call? This, too, in a developed western nation that is supposedly highly educated. The answer is that, for many Scots, it is not the economy, stupid. It is a cultural climate of grudge, based on a dependency culture that, since 1945, has emasculated what was once a nation of entrepreneurs. For decades now, a process of self-indoctrination has been at work in Scotland, symptomised by the ubiquity of the Saltire flag, the popularity of the kilt and a petty attitude of small is beautiful. Lately, everything north of the Border is “wee” (“Can I have a wee signature?”). A wee country is a natural progression.

Scottish identity has been confused with proletarianisation. It is a self-consciously proletarian vote the SNP will pull out of sink housing estates on polling day. Despite courting businessmen on the prawn cocktail circuit, Alex Salmond’s agenda is anti-entrepreneurial, high tax, big government, optimum welfare, for which the weasel euphemism is “a fairer Scotland”. A pseudo-bourgeoisie that is really a nomenklatura, employed by the state, does not challenge the infantile propositions of the separatists because it thinks it has nothing to lose. There may, however, be a dawning realisation (the latest poll returns No to a six-point lead) that the scale of the post-independence meltdown would liquidate even public spending. That is the one hope – that it’s the economy, stupid, after all.

Gerald Warner is a political commentator.