When the Springboks play Scotland there is never any doubt where my loyalties lie. But although my blood is green, in ancestry it is 7/8th Scots. So like many others with that background I have been paying attention to calls for Scotland’s independence. As are millions of others around the world. In this excellent piece, Alastair McCaig of IG Markets in London explains the financial consequences to Scots of a break away from the rest of Britain. IG has been running a binary on the outcome – in betting terms those backing a vote for independence would be offered a hefty 6/1. In a two horse race (it’s yes or no) those are very heavy odds against it happening. – AH
By Alastair McCaig*
Yesterday’s white paper has moved the debate a few steps along the road, increasing public awareness about the vote in September 2014 to decide if Scotland should become independent from the United Kingdom.
Political parties united
It is rare to find all the major political powers in Westminster in agreement on a unified policy, but in this case they are united in the opinion that Scotland should vote ‘no’ and stay within the UK. Essentially, during the next ten months the SNP will be painting a picture of grass that is greener on the other side, while the massed ranks of the opposition attempt to demolish the credibility of the plan.
No doubt yesterday’s white paper will create more questions than answers, and a number of thorny issues are likely to cause tension on both sides of the border. For example: should Scotland have sole rights to the North Sea oil fields? Should it keep sterling as its currency, and should the Bank of England really be the lender of last resort? Will Trident be removed from Scottish naval bases, and will the British army still have such a disproportionately large Scottish contingent?
What is the cost?
Personally, I feel everything will boil down to how much it will cost Scots to gain this independence. The most recent survey indicates that 5.3 million people live in Scotland, representing 8.3% of the total UK population. Figures from 2011-2012 show that public expenditure per person was £10,900 in the UK as a whole and £12,100 in Scotland. The fact that Scotland is less densely populated than the rest of the UK partially explains this discrepancy.
In short this means that, to maintain the standard of living the population is used to, the Scottish government will need to find an extra £100 per month or £1,200 per year per person. This could be done in two ways: by trimming spending or by raising taxes. Scots are not called ‘canny’ for nothing, and with the country’s weekly earnings standing at £498, against the average of £506 in the rest of the UK, this prospect will sharply focus people’s attention on exactly how much they are willing to pay for independence.
Our clients’ sentiment
Over the course of the last year IG has been running a binary on Scottish independence. At present, judging by the sentiment demonstrated in our clients’ accounts, there is only a 16% chance that Scotland will vote ‘yes’. It will be interesting to see what impact the release of the SNP’s white paper has on our clients’ thinking.
As a patriotic Scot who has been living in London for the last 15 years, I will not be eligible to vote. And for such an important decision as this I am a little disappointed. However, like almost all of my Scottish friends living down here, I hope that common sense rather than misplaced patriotism prevails, and I hope a resounding ‘no’ will be the outcome from the ballots next year.
* Alastair McCaig is an analyst at IG Markets. He has worked in the City of London for over 16 years, the first seven of which were spent in the investment management arena trading equities, bonds and currencies, before specialising in derivatives. McCaig has regularly appeared on all the major TV channels, such as BBC, Bloomberg, CNBC and Sky News for the last few years, and is a frequent contributor to the written press.
