Magic numbers: What are the prospects for the Scottish economy?

The future, First Minister Nicola Sturgeon told the assembled media at Bute House, is “inherently uncertain”.

The independence question is not a choice “between certainty on one hand and uncertainty on the other hand,” she told the press conference at Bute House as she launched her government’s latest position paper on Building a New Scotland. “The question for Scotland is ‘how do we best navigate that uncertainty?’”

It’s a question many of us are currently wrestling with over not just the country’s constitutional future, but also its economy.

We are in, according to Fraser of Allander Institute director Mairi Spowage, “crazy” times, where spending reviews, mini-Budgets, economic forecasts and administrative U-turns come so thick and fast that even economists have a job keeping up with it.

And we have two governments offering alternative visions of the future, each asking us to trust in their visions. Small wonder, then, that recent days have been dominated by the two interlinked matters of the UK Government’s latest attempt to stabilise the markets and the release of the Scottish Government’s 100-page paper, A Stronger Economy with Independence.

The ability of the figures at the centre of these – Nicola Sturgeon and whoever succeeds Liz Truss – to sway the public on the cogency of the arguments will set the course for Scotland and the rest of the UK for years to come.

And as inflation rises beyond 10 per cent again and household finances are squeezed ever tighter, the public badly needs a credible route out of the economic doldrums. “It has been quite grimly fascinating,” Spowage says of recent days. “As soon as you write something about the economy, it’s out of date the next day.

“What the UK Government has demonstrated throughout the mini-Budget and unfunded tax cuts shows how important market confidence is to the stability even of an economy the size of the UK’s.”

Unveiled on the day that new Chancellor Jeremy Hunt ripped up the financial plan drawn up by the Truss administration, reversing almost all tax measures announced in the growth plan three weeks earlier, the Scottish Government’s paper covers broad territory – borders, currency, trade, the labour market, rejoining the European Union – and amongst the biggest criticisms of the content is that it does so in broad strokes, with detail lacking.

There is no timeline for the proposed transition from sterling to a Scottish pound, critics said, nor for the sought-after re-entry to the European Union. The currency switch would happen as soon as is practicable, it states, and a boost in immigration would tackle skills shortages, while a new oil fund would provide £20bn of investment over the first decade of independence. The Scottish Government is committed to “sound public finances”, it says, and would ensure this using “fiscal rules informed by international best practice”, limiting borrowing for spending and debt. But there’s no detail on what achieving this sustainable fiscal position might mean for public spending or taxes, and many of the key points (debt share, border controls) are subject to future negotiation with a UK Government that may or may not want to play ball.

It “makes all the right noises on how public finances would be managed,” according to David Phillips of the Institute for Fiscal Studies, but “skirts around” the bigger tax rises or spending cuts that would “likely” be required to achieve fiscal stability in the first decade of independence.

“It’s easier to say what’s missing in the paper on these sorts of big issues. I hope there will be more detail published, particularly on public finances,” Spowage tells Holyrood. “There is definitely a gap there.”

 Speaking one year ahead of her preferred indyref2 date, Sturgeon told journalists that the Scottish Government has published “infinitely more detail” than was released before the Brexit referendum, and is “intent on setting out as much detail as we possibly can”, with seven further papers still to come.

Preparations for constitutional change are “so much more advanced than in 2014”, she said, when Scottish tax and social security agencies were yet to be created, and she argued that a “stronger, fairer more sustainable economy is more possible for Scotland with independence than it ever will be” under Westminster control, highlighting “calamitous decisions” taken by a Conservative government that Scotland “didn’t vote for”.

Days later, and on the eve of her resignation, Truss stood at PMQs defending her economic stewardship as the rate of inflation once again climbed above 10 per cent. “I am sorry and I have made mistakes,” she said of her performance, which saw the Bank of England take emergency action to prevent a run on pensions. “Why does she expect everyone else to pay the price for her failure,” SNP Westminster leader Ian Blackford asked. “If the honourable gentleman is concerned about the economy,” Truss responded, “why does he continue to advocate for separatism which would plunge the Scottish economy into chaos?”

Sturgeon is, according to Scotland in Union chief executive Pamela Nash, “making baseless assumptions and is prepared to gamble with other people’s jobs and livelihoods”. “Much of what she outlined is about government policy choice, which doesn’t require the immense cost, division and uncertainty of building a new state,” Nash said. “The entire focus of government should be on the cost-of-living crisis, not independence, which only a tiny fraction of people in Scotland think should be a priority for ministers.”

For its part, the UK Government said “this is simply not the time to be talking about another independence referendum”. “People in Scotland want their governments to be focused on the issues that matter to them,” a spokesperson said, like “growing our economy, ensuring our energy security, tackling the cost of living and supporting our friends in Ukraine against Russian aggression.”

The cost-of-living crisis, Sturgeon has said, makes the case for independence, rather than destroying it, and the difficulties caused by the war in Ukraine prove the need for Scotland to hold all responsibility for its energy and other markets. But she knows there are many out there yet to be convinced of the validity of her argument. “There’s an understandable human instinct to hunker down in the face of a storm and hope for calmer times,” she said of the UK’s economic turmoil. “This is not just a passing storm.”

The UK economy is “in long-term decline,” she stated, saying “it’s not a temporary phenomenon” and “the facts speak for themselves”.

“I know, however, that it’s not enough to show that the UK economic model is failing, even though it demonstrably is,” the SNP leader went on. “We must demonstrate that independence offers a better alternative.”

That alternative includes the establishment of a Scottish Central Bank which the Scottish Government would work with to put in place measures for financial regulation, the acceptance of a share of UK debt in the form of a “solidarity payment” and partnership working with London leaders over the management of the Anglo-Scottish Border, at which two points for goods checks would be established.

The UK Government is currently “without a shred of credibility” on money matters, Sturgeon said, asking why independence would not work for Scotland, when it already works for so many other nations.

But on the pro-independence side, there was scepticism too from some voices like former Common Weal think tank director Robin McAlpine, who said that the “dismal” paper, which includes measures to create a Scottish Central Bank, shows the Scottish Government “has no vision for independence and no realistic grasp of what being an independent country means”.

Professor Stuart MacIntyre, of the University of Strathclyde, cautions that the paper “presents the Scottish Government’s view and will be met by the UK Government presenting its view”, with neither party impartial. The financial markets are “unsentimental in their assessment of the credibility of the fiscal plans that a government announces”, he said, something which will be a “key concern for a newly-independent Scotland”.

The paper is, in his assessment, “a broad reassertion of the economic case proposed in 2014, with a slight refresh to take into account the UK’s exit from the EU and the evolving politics since then” – but the underlying arguments are “essentially the same”.

It’s true that the “major points of debate” are well understood at this point, according to Anthony Salmone of European Merchants, and it’s now the focus on transition that matters. And the prospectus must be taken seriously, he says, because it “could be the basis on which Scotland builds a new state”.

Nothing in that process of achieving statehood should be taken for granted, Spowage says, not least because it’s a process involving work with other governments and agencies. “What if the EU didn’t agree to ‘x’ or the UK didn’t agree to ‘y’? What then?” she asks. “What if they didn’t agree to give the central bank a share of currency reserves as part of a share of assets and liabilities, for example? All of that depends on a lot of things like the future of the UK’s relationship with the EU under a different government at Westminster.”

There may be yet another factor that affects the success of the Scottish Government’s argument – the impact of spending cuts expected to be announced within the coming weeks. Sturgeon recently told MSPs that £1.7bn had been wiped off the value of the Scottish Budget by inflation, and, writing in Holyrood, Deputy First Minister John Swinney said he “may have to do more” on reductions in some public expenditure soon. As public sector pay disputes push up labour force costs, the SNP-Green administration faces difficult decisions, Spowage says. How that will affect voters’ trust in the pro-independence parties, and independence itself, remains to be seen. “The chancellor has indicated that there will be a period of fiscal tightening and there may be more tax rises to come,” Spowage says. “It does seem like we are going to go into a period of significant spending restraint.

“The Scottish Government need to decide where the axe is going to fall within their budget envelope. If they do decide to put up income tax, which is the largest lever, that won’t start until April so won’t help with this year’s financial position. It does get harder and harder, particularly given the things they have committed to on social security and health spending.”

When people ask Spowage and her team about Scotland’s future, they often refer to the situation on the island of Ireland, or to the break-up of Czechoslovakia, she says. “A lot of the comparisons aren’t really that valid,” she says. “What is clear is there is just no precedent for a country like Scotland leaving a country like the UK.”