Negotiations after a Scottish referendum Yes vote

In just over a week’s time, Scottish voters will choose whether Scotland should become an independent country outside the United Kingdom, or remain a devolved part of the UK. It’s a big decision, but they should not think that the referendum vote is the end of the matter. In reality, it is only the beginning. The pro-union parties have long made it clear that a No vote will start the process of delivering a form of enhanced devolution; a Yes vote will trigger a process leading to independence, about which there are few other certainties.

Much of the campaign in the last few weeks has been about creating a different sort of politics, and a different approach to social policy, within Scotland. But at least as important for Scotland as an independent state is the nature of its relations with the remaining part of the United Kingdom (rUK) – its much larger southerly neighbour, its main economic and trading partner, with which the Scottish Government aspires to share a currency, ‘social union’ and much more. All those plans are predicated on a close and amicable relationship with rUK, with Scotland able to enjoy the continuing benefit of a number of services that the UK presently offers to all its citizens.  The question is: can that vision actually be delivered? Even if that model t is the interests of an independent Scotland, why is it in the interests of rUK, if Scotland chooses a future outside it? If it is not, why should rUK comply with independent Scottish wishes – why is it in rUK’s interests to do so?  And, given the differences in interest in securing that outcome, how might an independent Scotland make it happen?

If there is a Yes vote, there will be a complex and messy set of negotiations between referendum day and independence day. Before those negotiations can start, and certainly before the Scottish Government can talk to any entity outside the United Kingdom, a paving bill permitting it to do so would need to be passed by Westminster. At the end, following those negotiations, both UK and Scottish Parliaments will need to approve the resulting deal. Not all the issues that need to be resolved between rUK and an independent Scotland (iScotland) will be resolved by independence day. Indeed, if the Czech-Slovak parallels are anything to go by (and that was a much simpler case), they will not be fully resolved for at least two decades. That does not mean Scotland cannot become ‘independent’, but that independence will indeed be a process not an event, with many issues falling to be resolved only months or years later. However, for an independent Scotland to start functioning as an independent state, some key top-order issues have to be resolved. Prominent among these are:

  • the currency the new state will use, and who bears the risks associated with that
  • the borders of the new state – particularly its maritime borders, which will affect oil and gas reserves unless a distinct arrangement is made for these.
  • the arrangements for movement of persons between rUK and the new state, both at the border and more generally
  • whether, when and on what terms the new state will be or become a member of the European Union
  • the division of the UK’s current National Debt
  • the division of other UK assets and liabilities – ranging from defence infrastructure to museum and gallery collections
  • what happens to the existing UK nuclear bases on the Clyde
  • if rUK is to continue to administer welfare and pensions payments in Scotland for some transitional period, the basis on which it will do so
  • the means by which outstanding issues are resolved, and what happens if the parties cannot reach agreement by negotiation.

A good deal could be said (and has been) about the merits of each individual issue, and many others besides. (For example, how will benefits or pensions be paid to Scottish claimants or recipients the month after independence? If, as is proposed, rUK continues to provide that service to Scottish citizens, why should it do so?) But resolving each of them, and the relationship between them, which will shape the overall nature of an independent Scottish state, will largely depend on the negotiations with rUK. That is key to the ‘velvet divorce’ the Yes side has suggested would be part of independence. However, successful negotiations depend on each side being able to reach agreement, because each has something the other wants. So how likely is an independent Scotland to secure what it wants from those negotiations? What does it have that rUK would be likely to want? And what does an independent Scotland have that rUK wants?

The common response from the Yes side is to talk about a Scottish ‘mandate’ for independence.  But that is largely irrelevant here, at least on the rUK side. So is referring to Article 30 of the 2012 Edinburgh Agreement which has led to the referendum, and commits the two governments ‘to continue to work together constructively in the light of the outcome, whatever it is, in the best interests of the people of Scotland and of the rest of the United Kingdom.’ A mandate authorises the iScottish side to negotiate; Article 30 means holding negotiations about independence in good faith, and ensuring independence happens – not the terms on which it does so.

If the parties get to a negotiating table, the list of what iScotland has that rUK wants is short. One is continued membership of the United Kingdom – but that is lost if there is a Yes vote. The legitimacy of a UK including Scotland is ended, with no way back.  The obligations of the UK Government toward its citizens living in Scotland are not ended immediately, but they are attenuated, and as Scottish voters will no longer elect MPs, there is no political advantage in being helpful to them.  The act of having a mandate to negotiate means one key potential negotiating point is completely exhausted from the outset.  That card cannot be played again.

A second is that rUK would not want iScotland becoming a failed state. A failed state on the northern border would pose an unacceptable level of risk, in security and other terms. But even if an independent Scotland were significantly less prosperous, inclusive or happy than it is within the UK, that is a far cry from being a failed state. Indeed, the threshold of failing in the way that Afghanistan or Somalia failed is so high that it is almost impossible to imagine what would undermine iScotland so gravely as to make it a failed state. That is therefore not a strong negotiating point.

Third, there is Trident, while the UK/rUK remains committed to nuclear weapons. The thinking until now has been that the Clyde bases were crucial to that, and that might be a strong card. But it is a weaker card if there is a realistic prospect of relocating them elsewhere, as Hugh Chalmers and Malcolm Chalmers of RUSI have recently suggested. In any case, the commitment of the SNP and the wider pro-independence coalition to a Scotland free of nuclear weapons means the Scottish Government has little or no scope to make an offer to rUK for nuclear weapons bases – whether by lease, some sort of carve-out to mean they would not strictly speaking be on Scottish soil, or some other means. The pro-independence side has little room for manoeuvre here, given the commitments of its supporters. All that might be for discussion is the length of the ‘withdrawal period’, suggested in the Scottish Government’s independence white paper as four years (by the 2020 Scottish Parliament elections). There have been suggestions that this might be stretched (and Chalmers and Chalmers suggest removal before 2028 would be very difficult technically). However, any lease less than about 50 years is of limited value if rUK wishes to commission a successor to Trident based in Scotland – with a shorter arrangement, the bases would need to be moved mid-term at considerable cost and with operational implications. So that negotiating point is worth little too, even if rUK is determined to remain a top-tier nuclear power (and is worthless if rUK gives up on that aspiration).

As for other issues like a common travel zone, these are much more marginal to rUK – and much more important to iScotland. The desire to have an arrangement that minimises the border and its impact is much stronger for iScotland than rUK.

On the other hand, what does Scotland want or need? Its desire to ‘share the pound’ has been clearly ruled out by the UK Government. What is important for Scottish voters to realise is that a currency union transfers a disproportionate degree of risk to rUK. It is very hard for rUK politicians to justify taking on those risks for what would be another country. There might be a huge advantage to iScotland from a currency union – but what does it offer rUK? The convenience factor of lower transaction costs is of very limited importance for rUK and its citizens and businesses.  The January announcement means there will be no negotiation about this – but even if there were, what does iScotland have to offer to compensate rUK for the potentially huge risks it would incur?

Similarly, free movement across the border, a ‘social union’ or access to the BBC may have strong attractions for iScotland, but what do they offer rUK? An open border needs to be structured in such a way that it does not cause any security threat to rUK – which means at least some control over iScotland’s immigration policy. A key element to making an open border work would also be the nature of citizenship of UK citizens living in Scotland or with Scottish connections – something on which the white paper is strikingly silent. A further issue, given English concerns about immigration, it would also have to include limits on the rights of people immigrating to Scotland to move to rUK – so it would not be as open as the UK-Irish border is, or the UK is to people from other EU member states. Similarly, why should Scotland get access to the services of the BBC?  If it wishes to have the BBC (and the white paper makes a set of detailed criticisms of it), it will need to pay rUK for doing so – and why should rUK offer the full range of BBC services to Scottish listeners and viewers for less than those in rUK?  And Scottish residents would also have to fund the proposed Scottish Broadcasting Service as well.  Deals may be done, but on what terms?  The question in such cases is what does iScotland have to offer rUK for making a concession which matters a great deal to iScotland but just not very much to rUK?

The problem with all these issues is the asymmetry.  They simply matter much more to iScotland, and its citizens, than they do to rUK.  No amount of wishful thinking can change that.  Something has to be put into the balance to switch the way rUK calculates its benefit and disadvantage from making such concessions to iScotland.  This is aggravated by the way almost all ‘default options’ will be to rUK’s benefit and iScotland’s disbenefit.  By seceding from the UK, iScotland has to make a case to change the loss of much of what it presently enjoys through the UK which appeals to more than emotion.

One negotiating point iScotland would not have – or which can only be used at hugely disproportionate cost – is not taking a share of the UK’s current National Debt. There is scope for negotiations about the size of that share, how it is calculated and how it is offset against other UK assets. But threatening to repudiate a share of the UK National Debt – as various pro-independence hot-heads, and more recently John Swinney – have threatened is about as counter-productive as one can imagine. If iScotland acts unilaterally, it will make itself an international pariah. If it is able to borrow on the global markets at all, repudiation of debt will mean it incurs a very hefty premium on its interest rates. An ongoing dispute with rUK will impede or completely block negotiations about membership of the European Union, as well as international organisations like NATO. There will be sour, damaging relations with rUK for bilateral matters as well.

By contrast, rUK could be a valuable ally for iScotland in securing membership of such bodies as the EU and NATO. There would be three options for rUK; actively to assist and persuade, to remain impartial and do nothing, or actively to obstruct iScotland. It can be helpful, unhelpful, or sit on its hands.  Each of those positions would have a material impact – active assistance and a ‘velvet divorce’ would make iScotland’s passage to statehood hugely easier, active opposition would make it much harder (but without triggering the real threat to rUK of a failed state).

About the only card left for Scotland is to string out the negotiating process so that rUK makes concessions out of exhaustion and frustration.  But this would mean abandoning the May 2016 target for independence (problematic though that is in any case), souring relations with rUK, and undermining democracy in both rUK and iScotland.  If Scots want to be in a different state, that wish should be implemented as swiftly as practicable – not postponed to suit the convenience of the Scottish Government.

It may be a bitter truth for advocates of independence, but an independent Scotland would remain heavily dependent on rUK in a large number of ways. These ways are important for iScotland, but not particularly so for its much larger neighbour. To secure an advantageous ongoing arrangement, it has to be able to make convincing proposals to rUK that deliver things rUK wants or needs – and the list of those, once there has been a Yes vote, is small. The upsides of a velvet divorce for Scotland are huge, and the downsides of the opposite – a grinding-wheel divorce? – even larger. But once a divorce is happening, its nature simply does not matter much to rUK. If there are independence negotiations, iScotland will essentially be a supplicant to rUK, so weak that it largely has to accept what rUK offers.  Scottish voters need to bear that in mind when they head to the poll.

UPDATE, 13 September: There is a relationship between what is discussed in this post and the discussion in my Belfast Lecture and post above about the impact of a Yes vote on rUK, and the framework for any negotiations.  The fact of the Yes vote will have a considerable, adverse impact on rUK – disrupting a variety of institutions and other arrangements. So in addition to there being little reason to be accommodating to iScotland at rUK’s expense, there will be positive reasons not to.  This is not simply petulance, but an understandable reaction to the damaging effects of a Yes vote on England, Wales and Northern Ireland.  A rupture of that scale has inevitable consequences.

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40 Comments

Filed under Scotland, Scottish independence, SNP, Whitehall

40 responses to “Negotiations after a Scottish referendum Yes vote

  1. Dru Brooke-Taylor

    Very good post.

    For the first time, today, I read Allan Little in the Radio Times of all places hint at something which nobody has dared mention before, but which is a much more serious issue than I think anyone official has been prepared even to think, yet alone admit. He says,
    “The other striking outcome from the conversation is that I saw, with clarity, how offended people in the rest of the UK are about the prospect of Scotland seeking independence. Many of my friends appear, even now, to feel dismayed, personally diminished even, by the idea. And in some cases angry”

    This feeling is augmented by, day after day, listening to and watching the public debate on the subject, but having no say and no vote in it. After all, as many people have said to me, ‘this is our constitution and our union too’. There is talk in terms of a ‘velvet divorce’ but do those exist in real life, and in this case, if the Scots vote yes, the rest of us will have had no opportunity to consent to it.

    Particularly in England, which has no assembly of its own, and where the impression is quite widespread that its politicians take English compliance for granted while they strut their stuff on the international stage, I do not think the political establishment has recognised yet the level of simmering resentment there is.

    Where this is leading to, is that if Salmond wins his vote, has anyone spotted that in any negotiations it will not be in the interests of those representing rUK who want to retain their electoral credibility with their own electorate, to be over-generous to the Scots? One can even see the possibility of the three parties in the run up to the next general election, competing to appear to their potential electors to be harder, tougher and more inflexible in their dealings with a Scotland moving into independence.

    I agree also with what you have said elsewhere about the impossibility of a situation where in 2015 a Labour government could have a majority in the Westminster parliament which is dependent on Scottish members whose days in that house are numbered and whose loyalties will have become questionable. Come what may, if the Scots vote yes, it would seem self-evident that whatever the timetable for dismemberment, there have to be no Scottish constituencies in the Westminster parliament from May 2015.

    • Steve

      Absolutely agree, if the Scots go, then rUK voters will demand the UK government gets the best deal for rUK that it can. After all there is no need to play nice to Salmond anymore as the threat of independence is gone. I would expect the UK government to get what it can without being vindictive, and I expect a majority of rUK voters would feel the same. In fact I suspect that the may be legally obliged to get the best deal they can on behalf of rUK (though I guess best is open to interpretation).

      Put another way, unless Salmond and his gang of cronies are spluttering and crying foul, then most in rUK won’t be happy the rUK Government has done a good deal.

      There is little prospect Scotland would rejoin the Union if it goes so it matters not a great deal.

  2. Jean du Pays

    I concur with your general assessment of the asymmetry of interests (and of bargaining clout) of an iScotland and rUK in a possible post-Yes negotiating environment, though I would hasten to add a few others (with no expectation of being in any way exhaustive of the myriad of interrelated negotiations in which asymmetric interests may be at play):

    (1) Division of the national debt

    It’s impossible to imagine a situation where iScotland could issue enough of its own debt to fully retire its assumed UK debt in the short term. As such, rUK will have a clear interest in claiming a security interest in Scottish assets (read: North Sea oil) until that happens. Otherwise, Westminster (and its lenders) end up exposed to significant default risk on its much larger gross debt-GDP ratio (once it no longer has access to Scottish revenues to help finance its debt servicing)

    As the current owner of the resources and collector of the revenues in question, the rUK would be well-positioned to withhold the transfer of ownership (or of the flow of associated revenues) to the Scottish government until the latter’s debt assumption obligations to the former were fully met. Moreover, it would also have the support of its lenders (and debt market actors in general) and other sovereign borrowers (i.e. those whose recognition of an independent Scotland must be secured). In short: let no one imagine Scotland will be freely spending any of that lovely money anytime soon.

    (2) The currency issue (again)

    This now-familiar (but still poorly understood) issue is related to the one just noted. Stable currency arrangements need to be able to deal with the impacts of asymmetric shocks: this is well understood now. What is astonishing, however, is that there has been very little said of the reality that secession itself is a significant asymmetric shock.

    Indeed, given the much harder time an iScotland would have accessing debt markets, its inevitable premium over the cost of funds experienced by the rUK (which would itself rise at least until some clarity were arrived at in relation to the debt division and debt security issues) would likely dominate other fiscal shocks that can be expected to arise (especially since Scotland’s eventual gain of North Sea revenues would largely be offset by its loss of relatively generous transfer arrangements and its progressively worsening demographic situation).

    Under these circumstances, it is at the very least arguable that a separate Scottish currency is far more in iScotland’s interest (even — or especially — in the short term) than in that of the rUK. In particular, notwithstanding the claims made in the last few days (in response to Krugman) that balance-of-payments situation make the rUK more of a supplicant than iScotland would be, this clearly assumes that Scotland would actually have free reign over North Sea revenues (on which my previous point casts doubt). The simple fact is that the debt servicing costs borne by iScotland would rise significantly as it began to tap into the debt markets to finance its share of the overall UK budgetary deficit. With North Sea revenues likely to remain hypothecated for quite some time, particularly difficult budgetary decisions would be required at Holyrood. (The claim that independence is needed to safeguard the welfare state looks like some sort of a sick joke in this context: heightened solidarity isn’t really consistent with the rupturing of pan-UK solidarity that secession implies – particularly for the smaller party that will end up bearing disproportionately larger costs due to diseconomies of scale, liquidity and other risk premia in its cost of funds, etc.)

    The need for fiscal restraint in an iScotland would be especially sharp given the clear need for an iScotland to run up large cash surpluses (including in relation to foreign currency holdings) that would be required to provide a credible safety net as lender-of-last resort to backstop whatever would remain of the Scottish financial sector and/or make any currency board arrangements credible (depending on which version of post-independence monetary arrangements may obtain).

    Meeting these challenges would be made much easier (both politically and in economic impact terms) if iScotland were to engineer a quick devaluation of its exchange rate relative to that of the rUK (especially while it may be credible in Scottish voters eyes to blame the English), notwithstanding the immediate “hit” on Scots’ standard of living. In short, there’s a clear political and economic interest in implementing a “bait and switch” manoeuvre whereby “Plan A” (continuing monetary union) quickly becomes “Plan B” (sterlingisation), followed by “Plan C” (conversion to a heavily devalued separate Scottish currency).

    (3) Asset stripping

    There would also be a clear asymmetry of interests in the rUK stripping a pre- (or post-) independence Scotland of whatever high-value human resources and other economic assets it could — especially the Scottish financial sector and other business assets but also those residents of Scotland with less-than-total identification with the cause of Scottish independence.

    Moreover, it’s likely that – over the course of potentially very lengthy negotiations – Scotland can expect any Westminster investments in Scotland (or in structures for delivering any services directly to Scots) to dry up in whole or in part, even if current expenditure obligations on things like pensions continue to be respected.

    It should also be noted in this context that while Scottish currency devaluation could help protect it against the flight of enterprises south of the border (because costs of production in sterling terms would be lower), it would only exacerbate the problem of human resource “poaching” as wages in England will also thereby be significantly increased relative to those in Scotland.

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  4. tim

    A great article and some thoughtful and illuminating comments underneath!
    One thing I would like to mention though.
    When people talk about rUK and people negotiating on our behalf (I’m English btw), it strikes me that everyone is assuming that our representatives will make deals with the remaining UK public in mind.

    Think about that for a second. Do politicians make laws with us in mind, or do they do it to benefit those behind the scenes (you know, bank bailouts, tax loopholes for conglomerates-that sort of thing).

    Whilst the rUK public would see negotiations as fairly simple and want to extract value, I believe that the ruling political class have absolutely no intention in doing so. My evidence? Political decisions of the last 20 years or so…

    Salmond either knows this or just doesn’t care.

    I’ve learned to look at things from a 20-30 year perspective as it filters out petty politics, and also makes you realise that the main parties are all the same and seek to manufacture differences between each other in order to appeal to highly partisan voters. And here’s what I have seen-if you look from the point of view that politicians represent the electorate and have their best interests at heart then there are some rather large logical gaps.

    But if you look form the point of view that politicians are there to give the impression that they are ruling on behalf of the electorate but actually rule in favour of big corporations? All those dots come together quite quickly (just list all the big decisions of the last 20 years if you don’t believe me).

    And that’s the wildcard here. What do the big boys who really control our government want out of this? Figure that out, and you’ll figure out our negotiation position. I should add that I haven’t figured that one out yet myself so any ideas are welcome!

  5. Reblogged this on 1513 fusion and commented:
    Thoughts on a possible future.

  6. June hale

    I think the most interesting scenario (as in ‘may you live in interesting times…’) is if rUK quits the EU, Scotland stays in, and is then used as the easiest route for EU nationals into the UK. For Calais read Canonbie. Interesting eh?

  7. Ender's Shadow

    Thank you for articulating the ideas that have been wandering around in my head over the past few weeks on this issue. I would only add that one of the major benefits of a Scottish ‘yes’ vote is that the rUK government would at last be free to raise the tax on spirits to reflect the damage that their consumption does to the community; I would hope for £5 on a bottle in the autumn statement with another £1 a year for the foreseeable future.

  8. Richard

    Singapore left Malaysia in 1965 to go solo. Some of the leaders then are still alive today. We would celebrate 50 years of statehood next year. Singapore is not Scotland and vice versa. Scotland has oil. Singapore has no natural resources. Are the leaders of Scotland ready to go solo?

  9. Lesley

    And now that The Questions are finally being asked, a host of the Scottish people have already posted their votes.

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  11. RobCH

    You might also include the National Lottery, which as far as can be judged (given the general fog) the SNP assume will somehow continue to fund projects in Scotland after independence. It is unclear whether or how this could actually happen (the Lottery doesn’t fund projects in the EU, after all), but its absence will put yet another sizeable hole in the Yes campaign’s financial assumptions.

  12. Antoine Bisset

    This reads as a serious analysis. However, if Scotland leaves the Union it could leave with nothing other than what the citizens are already entitled to; for example as UK citizens in perpetuity, pensioners will get a pension.
    That would not be so bad. This is about self-determination and a new start.
    Stating that there may be tough negotiations is stating the obvious.
    Consider that the existence of oil subtends the value of sterling, but only if Scotland uses sterling.
    The implied notion that the rUK will try to wreck an independent Scotland is an interesting one: Cameron was greeting at the prospect of a YES vote, but the article suggests a volte face and the production of a big stick.
    So which is it? Any analysis needs to take account of pragmatism as businesses will still want to do business up here. We may only represent 8% of an English company’s business but it is the last ten per cent or so that provides the profit. Suggest to any businessman anywhere that he(she) is about to lose 8% of their business and they will have a breakdown.

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  14. Mark L.

    “It may be a bitter truth for advocates of independence, but an independent Scotland would remain heavily dependent on rUK in a large number of ways.”

    Let me add some loose observations:

    While I concur with that general statement, a lot of what you write only makes sense if one were to take an adversarial approach to the secession, you view the process only through the lense of power. And clearly, since iScotland would be a lot smaller and hence less powerful than rUK, rUK could basically impose any agreement they wish on iScotland.

    Would this be wise though and would the international community regard this as fair? For example, the pensions are paid out not as an act of benevolence but as an act of delayed gratification. Many scottish pensioners even served in the UK government or the UK military. Just like the UK pays pensions to other foreigners who worked for the UK the same must be true for Scots.

    And after all, all these systems of social security and military and government belong to the people of the UK anyway and Scottish independence would give them a right to their share of them just as you feel they would have to take a part of UK’s debt. Basically a lot of what you think the Scots have to ask for I feel they just have a right to it. (Thought experiment: If England were to seceed from Wales, Scotland, North Ireland, would they be allowed to keep everything and make that rUK beg for their share?)

    The default position should be for every single item on the table: UK = rUK + iScotland with rUK/iScotland = population of rUK / population of iScotland.

    NATO would offer Scotland memebership no matter what.
    The EU would be harder to gain entry to but then Scottish independence would make the Brexit far more probably, thus rUKs influence on EU’s decision making would be very limited.

    Let me add a somewhat snarky comment to those commenters who expressed unhappiness about living in England and having no say in scottish independence: How would you feel if the peoples of the European Union would want to have a vote too when the UK decides about leaving the European Union? Yes, that’s what I thought…

    • Richard

      Think you’ve missed the point completely about the rest of the UK votes being fed up with having no say what so ever in something that will effect us all.
      Personally hope Scotland goes its own way. Not one for sentiment and from all I’ve read rUK will come out of it better.

  15. I think you are underestimating the commitments of the UK. There is little question that the rUK would not be the successor state in terms of EU membership, the UN security council, etc. So the default legal position is that many assets and liabilities of the UK will fall to the rUK, until they are explicitly transfered to iScotland by mutual agreement.

    National debt – still rUK. Any attempt to transfer the UK debt in any form to iScotland without the agreement of the gilt holders would be a default event by rUK. Scotland will take on a share on the debt by agreeing to pay rUK a contribution to rUK debt payments, or equivalently by issuing ~140bn of iScotland debt directly to rUK, which would mature as the notionally Scottish share of UK debt matures. So the level of debt that iScotland takes on is going to be directly proportional to the willingness of rUK to compromise over currency union, border controls, interim administration of the bureaucracy of government and the speedy relocation of Trident, etc. There won’t be a market fallout unless iScotland makes some agreement to take on the debt, and then defaults after that agreement. So ~£140bn debt, and £4bn/year interest.

    Pensions – everyone in Scotland who has made the appropriate NI contributions will still be entitled to a rUK pension, just like current UK pensioners living outside the UK. And government funded occupational pensions too. I expect an arrangement will be made that iScotland pays these pensions directly, but anyone who doesn’t receive pension payments would still be able to pursue a claim against the rUK government as well. Not sure what the total state + occupational pension bill is, but billions per year.

    So in addition to the £15bn spending cuts planned for after the next election, rUK would be paying another £15bn/year while both sides are arguing over the details, and the rUK debt/GDP ratio will have jumped through 100%. £15bn/year works out at about 3p on income tax for rUK.

    Trident – rUK needs a few years to build the necessary infrastructure. The RUSI paper really considers building a base for the next generation of submarines, rather than an expedited construction of the facilities to host the Vanguard class boats. If an iScotland government insists on a shorter time frame, rUK has very few options without breaking the NNPT by basing the boats abroad. Boats at Devenport, warhead storage at Aldermaston, and road convoys between would be feasible, but the safety and security arrangements would be far from ideal.

    • Ender's Shadow

      “Pensions – everyone in Scotland who has made the appropriate NI contributions will still be entitled to a rUK pension”
      Certainly not. The NI system is, of course, a Ponzi scheme, creating no rights whatsoever. The entitlement will be on the Scottish treasury when it starts to receive NI contributions from those employed in Scotland.

      Whilst it is, of course, true that the gilts will remain a debt on the rUK, in reality it will be open to the UK to deduct the full cost of debt repayments and interest from the money being sent to the pre-independence Scottish government if they fail to agree to accept their duty. This would not be pretty…

      • Antoine Bisset

        Ender’s
        Your comment is at odds with reality. If you are pensioner living in France you receive your State pension and any annual increases. (NB All Scots will retain their British citizenship, for it cannot be taken away.) So all who have paid NI will receive their State pension from rUK for the period concerned. A pension will be paid by the Scottish Government proportionate to years paid. So if you are a UK pensioner now – no change. If you become a pensioner in the future the pension will be paid proportionately by rUK/Scottish Government.

      • Jean du Pays

        This thread is another good example of where there’s a lot of misunderstanding about how the division of UK “debts” (and assets, for that matter) would need to be negotiated and how messy and potentially conflict-strewn this might be.
        I put “debts” in quotations because the issue here – of national insurance schemes funded on a pay-as-you-go basis (which is NOT the same thing as a “Ponzi scheme”) involving significant unfunded liabilities – is quite separate from (and in addition to) what people usually think of as a State’s net indebtedness (i.e. its outstanding issues of debt obligations minus typically much smaller financial asset holdings). Not just the latter, but the (also very large) unfunded actuarial liabilities of welfare state programs as well as a whole range of particularly-hard-to-value contingent liabilities of the State (loan guarantees to third parties, exposure to adverse court rulings, etc.) would also have to be valued and divided up between an iScotland and rUK.
        Consider just contributory pensions for the moment. Unlike the situation in, say, Quebec/Canada (where there are already separate contributory pension schemes for residents in the two parts of the country), there’s probably no way in the UK to figure out which (historical) contributions giving rise to pension entitlements were made in which part of the country by which (current) residents of Scotland and the rUK. One way of dividing up the liability would be to base it on residence at the time of independence. But this is not a simple matter of counting the grey heads of current pension recipients since much of the accumulated unfunded liability is in respect of current NI contributors who have acquired partial entitlements. Moreover, with Scotland’s relatively adverse demographics going forward, it share of the unfunded liability would be somewhat larger than its current population share. How much larger is a matter for actuarial calculations that are famously assumption-specific and where even reasonable people (as distinct from negotiators on the iScotland and rUK sides) can reasonably disagree.
        Another complication relates to what happens as population movements occur – including at least some population movements that may be triggered by Scottish secession itself. Should an iScotland end up on the short end of net population flows in the post-independence period (e.g. due to a relative exodus of prime-working-age NI contributors, say), there would be a clear asymmetry in the interests of iScotland and rUK in any post-independence revisions in which country was responsible for providing pay-as-you-go benefits to their residents. One option may be to clearly “tag” current residents at the time of independence by, in effect, requiring UK citizens residing in Scotland at the time of independence to elect for either Scottish citizenship or UK citizenship (but not both), making citizenship on Independence Day the basis for dividing up responsibilities for funding pensions and the like. (Note that another comment in this thread has suggested that UK citizenship cannot be taken away. This is not so: the UK’s international obligations are only to ensure that no person is made stateless. So a requirement to elect for one or the other citizenship at the time of independence would be perfectly defensible.)

      • Ender's Shadow

        I think the pensions issue will be one of the less problematic, mainly because there isn’t that much flow of population between Scotland and England in practice. Actually the scale of difficulties will come down to whether the computer system holding people’s contribution records also holds their address for every year that they’ve contributed… if so then the exercise becomes relatively painless, except for the cost to the Scots of paying for the administration of the changes!

    • Antoine Bisset

      “… and road convoys between would be feasible, but the safety and security arrangements would be far from ideal.”
      Convoys of three or four vehicles routinely trundle through the night carrying nuclear warheads through Scotland. One of the vehicles includes heavily armed soldiers.The routes are varied and are seldom main roads. One would not think that Berwickshire was on a main route from the South of England to Faslane. It is not, yet nuclear convoys pass through tiny places like Whitsome.

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  17. I believe you have missed that govt paid pensions outside the UK are not index-linked.

    That would presumably apply in ‘iScotland’.

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  19. David Webster

    Thanks for an excellent article. However, in one important respect the situation is even worse than you argue. You say that ‘A key element to making an open border work would also be the nature of citizenship of UK citizens living in Scotland or with Scottish connections – something on which the white paper is strikingly silent.’ But the White Paper is not silent. It says (pp.271-3) that while the interests of everyone living in Scotland or the rest of the UK on independence day would be safeguarded, anyone from rUK moving to Scotland afterwards will only be able to apply for citizenship (and thus the right to vote in Scottish Parliamentary elections) after living in Scotland for 10 years and if they have an ‘ongoing connection’ with Scotland. The only exceptions will be for people who can claim a Scottish parent or grandparent. This means that over time, most of the rUK people living in Scotland (there are 500,000 at present, one tenth of the population) will become second-class citizens. So much for Alex Salmond’s oft-repeated slogan that decisions on Scotland should be made by the people who live and work there. Moreover, this kind of restrictive ethnically-based policy is likely to cut inward migration from rUK substantially. Since rUK is the biggest source of in-migration to Scotland, and the SNP’s hopes for the Scottish economy depend heavily on increased in-migration, this will also be damaging to the Scottish economy, as well as reducing cultural diversity and promoting ‘little Scotlandism’.

  20. Barry Roberts

    Excellent post.

    It always struck me as strange that Alex Salmond and the Yes campaign simply assumes that everything will carry on as normal after independence; Still keep the pound, keep the BBC, keep the monarchy, still have access to UK research funds, keep the Lottery, keep UK shipbuilding contracts, still receive UK renewable energy grants etc etc.
    That’s a strange idea of “independence” if you ask me.
    The UK government will (or should) act in the best interest of the remaining UK, why then would it simply roll over and accept every demand of an independent Scotland?
    I fear negotiations could get ugly and Alex Salmond should not expect any favours from the UK government.

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  22. David

    I am troubled by the possibility that, in the event of a narrow Yes vote, negotiations produce an outcome so unsatisfactory as to be unpalatable to an overwhelming majority in Scotland. If it is indeed the case that the outcome of negotiations would have to be put to a vote of both Scottish and Westminster Parliaments, is there not a chance that the deal would be rejected (by the Scottish Parliament)? Even with an absolute SNP majority, in extremis, for example in the face of massive public discontent, might there be defections – remember two SNP MSPs lost the whip over their opposition to membership of NATO. Unpalatable terms for independence with massive pressure from constituents would be a much bigger issue. I think it unrealistic to think that, if the vote is narrow, No voters – or Yes voters for that matter – will be content to leave the UK on any terms whatsoever. I am genuinely baffled by this one, especially as this blog makes a persuasive case that the Scots negotiators won’t have a strong hand. David.

  23. Dot O'Grady

    I am wondering who would be eligible to negotiate these terms in any case. Would there not be a conflict of interest in the case of those members of the UK government who would be eligible for a Scottish passport in an Independent Scotland?

  24. Daniel

    It seems absolutely clear that any divorce will be messy and probably leave many in iScotland worse off than staying in the Union in the short and possibly medium term. However, given that this downside risk has been the main thrust of the Better Together campaign, the Scots voting yes must be aware of this possibility and either don’t believe it will come to pass or that independence is worth the cost. The question for me is how long will the dislocation of iScotland last? 30 years? 100 years? If the price of independence is a ‘lost decade’, then perhaps it’s worth it. If it’s a ‘lost century’, then independence seems a far less palatable option.

    • Antoine Bisset

      There is no need to be pessimistic. Europe pulled itself up from complete ruin in twenty years, twice. Firstly after WW1 when large numbers of workers were killed, and secondly after WW2 when the industrial capacity was wiped out.
      Nothing like that will happen here. Whatever happens after a YES vote Scotland will be very prosperous within a few years and will be a much much better place to live.

    • Ender's Shadow

      Interesting question – but it assumes that the Scottish economy would ever catch up with the losses that it will experience as a result of independence. In effect you are absorbing the ‘Yes’ campaign’s belief that they can run the economy better than the UK; whilst that may be the case, equally the issues of rising dependency ratios (older population) and declining oil revenue squeezing the space with which to make changes more rapidly than being part of the UK economy would give, mean this may be an unfounded assumption. The worked example of Venezuela at the moment, which is successfully failing to use the opportunities of its oil wealth, is a reminder that it’s not always possible to run a country well if the idea becomes accepted that oil will bail you out.

      • Antoine Bisset

        Ender’s
        Is it not the case that the US is doing its best to covertly and not so covertly wreck Venezuela’s economy to bend them to the will of the US?
        However, it is also expected that we will find that the money being generated per head in Scotland exceeds what comes back to us from the UK Treasury. So we will have more money to use, even excluding oil.
        Figaro has a neat summary video of the state of play;
        http://video.lefigaro.fr/figaro/video/ecosse-etat-des-lieux-avant-le-vote-sur-l-independance/3787712432001/

      • Ender's Shadow

        Ah – the paranoid’s assumption that if something is going wrong, it must be someone else’ fault. The clearest counter-demonstration to this is, of course, the economic collapse of the USSR, which tried to use state capitalism to build an economy, but ended up needing food aid from the west when the joke ended.
        As far as Venezuela is concerned, the existence of separate exchange rates for different items and the vast amount being spent to subsidise petroleum products are enough to guarantee problems. Add in a propensity to expropriate capitalist, and the ban on sacking ANY employees,
        http://www.globalworkplaceinsider.com/2013/07/wrongful-dismissal-in-venezuela/
        it is hardly a surprise that no rational employer is going to invest in production in the country; when the machine breaks down, you don’t buy a new one etc etc.
        But of course the consequences of this crassitude can’t be blamed on the real causes – so blaming the local ogre is a useful cop-out… Fortunately we aren’t going to see Salmond demonstrate the same mistakes in an independent Scotland, for which the people of Scotland – and the English who would have been stuck with the economic refugees as the economy fell apart – should be very grateful.

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