The National:

Coronavirus has ‘killed the economic argument for Scottish Independence’ – headline over an article by leading Unionist academic Dr Jim Gallagher, August 23


THE pandemic has exposed the weakness of the British economy, which has plunged into a recession twice as bad as other countries. Scotland needs its freedom to deal with the medical and economic aftermath of Covid-19, rather than rely on this hopeless Tory Government.


THOUGH frequently described as an academic, Gallagher has a long partisan history as an opponent of Scottish independence. He served as director general for implementing devolution during the Blair years. Later he was an important advisor to PM Gordon Brown in the Number 10 Policy Unit. Gallagher was also appointed secretary (minder) to the 2008 Commission on Scottish Devolution – the Calman Commission – which transferred extra tax-raising powers to Holyrood, in a bid to deflect a referendum being called by the new SNP Government. Gallagher joined the Better Together campaign in January 2014 as “strategy advisor”.

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Today, Gallagher is normally described as a part-time academic at Nuffield College, Oxford. However, he has extensive business interests and is an important board member of several significant major UK financial services companies. These include the ReAssure group, which buys existing pension, life and health insurance contracts from primary providers. In July, ReAssure was sold for £1.2 billion to the Phoenix Group, the biggest UK insurance group. Phoenix owns Standard Life Insurance in Edinburgh.

Gallagher is thus a key non-executive adviser to a group of companies known for their opposition to independence. Gallagher can hardly claim “academic neutrality” when discussing GERS.


IN advance of the release of the 2020 Government Expenditure and Revenue Scotland (GERS) data on the Scottish budget, Dr Gallagher published his own calculations in The Sunday Times. Perhaps he was seeking to spin the numbers, as part of an increasingly shrill Unionist campaign against a second referendum.

Dr Gallagher claims that, as a result of Covid-19, an independent Scotland would have a “staggering” annual budget deficit “probably well over 25% of gross domestic product”. He goes on: “That’s like borrowing the whole budget of the Scottish Parliament in one year. No small country on its own could sustain that.”

Gallagher’s “calculation” of the budget deficit after independence is based on taking the existing Scottish Government spending (which we know) and adding an estimated proportion of UK Tory Government spending that is appropriate to Scotland. This sum is then compared with the taxes raised in Scotland (which also requires guesswork). If spending is greater than the tax take, we have a deficit that must be covered through borrowing.

In the first place it is important to remember that the Scottish Government does not run a deficit. The SNP Government has run an annual budget surplus since 2007 – ie, it spends less than it receives in taxes or Treasury grants. The existing budget deficit is run by Westminster. So any notional deficit after independence could only be the result of a future Scottish Government deciding to continue taxing and spending in the same manner as the Tories, on those matters currently reserved to Westminster.

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But no-one seriously believes an independent Scotland would have the same tax and spending priorities as Boris Johnson – eg, spending billions on a Trident replacement. So the logic of adding a Tory deficit to a Scottish surplus to get Dr Gallagher’s “staggering” deficit is merely his guesswork made with a very dubious set of assumptions.

Dr Gallagher has suggested the primary weakness in the Scottish budget is our limited tax base, and in particular the low yield on income tax. Scotland does have a low tax base as a result of notional income streams being converted into untaxed assets such as land. One might expect an independent Scotland to tax such assets – land in particular. That would instantly reduce any actual deficit.


THAT said, the coronavirus crisis has created a situation where government deficits have risen exponentially everywhere in order to subsidise furloughed workers and locked-down industry. In the US, for instance, the deficit is forecast at 13%. It is reasonable to suppose that in the present circumstances an independent Scotland would have a temporary budget deficit. But it would be significantly less than the 25% imagined by Dr Gallagher.

How would this money be found? Most governments, including that of the UK, have used the expedient of simply creating the money through their central banking system. The resulting debts are thus notional, as they are owed to the governments themselves. An independent Scotland with its own currency and central bank could do likewise.


IN his Sunday Times article, Dr Gallagher argues that “independence would carry a painful price in jobs and public services”. But he also argued this before Covid-19. Gallagher seems convinced that independence has negative consequences regardless of the circumstances. However, there is ample evidence that being part of the Union has always held Scotland back.

In a report commissioned by the Reform independent think tank in 2018, respected international economist David Skilling estimated that Scotland’s GDP per capita was £29,282 in 2017 – below that of 13 other comparator countries. These included Ireland, New Zealand, Norway, Sweden, Finland, Hong Kong and Switzerland – where GDP per capita was more than double the Scottish figure.

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Skilling calculated that Scottish annual economic growth has averaged 1.4% since 2000, putting the country “near the bottom of the small advanced economies group”. Skilling concluded: “Scotland’s relatively deep exposure to the rest of the UK, which has under-performed the rest of Europe by a significant margin over the past few years, is also a drag on performance.”

The pandemic crisis has only made this economic “drag” factor worse. The UK economy contracted by 20.4% in the three months between April and June 2020. This is twice as bad as Germany and the US and more severe than any other G7 nation. The Scottish economy contracted by 19.7% in the second quarter, marginally less than for the UK but (because of our ties to the rUK economy) much worse than elsewhere. Only independence can allow the Scottish economy the freedom to grow.


Very exaggerated