As if Brexit wasn’t complicated enough, the Prime Minister also needs to keep an eye on developments north of the border, in Scotland.
Many nationalists argue that the 2014 referendum was about being in a very different UK (i.e. inside the EU as well), and that, if the referendum was to be repeated now, the vote would be different, with a reversal in the 55-45 per cent result. I have my doubts.
The 2014 referendum debate was shaped around a much higher oil price than at present. Scotland’s net fiscal balance (including a geographic share of oil revenues) in 2014-15 was –9.7 per cent of GDP. The net fiscal balance in 2015-16 (including oil revenues) was –9.5 per cent of GDP. These numbers are on a par with some of the worst years of the Greek crisis.
Over the 2010-15 period, the Greek budget deficit averaged –9 per cent of GDP. The worst year of the Greek budget crisis was in 2009, when the deficit reached –15.2 per cent of GDP. Such an enormous deficit might seem ridiculous in a Scottish context, until one is reminded that, during a recession, the public finances could deteriorate by 5 to 6 per cent of GDP. If Scotland was to vote for independence, and the economy fell into a recession, the fiscal challenge would be enormous. Throw in the problem of the lack of any currency or banking union with the rest of the UK, and Scotland would be in a mess.
The Spanish, mindful of the effect on Catalonian calls for independence, could easily veto any Scottish attempt to stay in the EU with some form of “successor” status. There could be a domestic block also, with MPs in Westminster reluctant to authorise a second referendum.
The idea that Scots didn’t vote for the current situation can be turned on those who want Scottish independence. Yes, the EU position has changed, but so too has the oil price. Moreover, in the wake of Brexit, Scotland would have to introduce border checks at Hadrian’s Wall, if it somehow negotiated to stay in the EU (a very big if). That might be a step too far for many people uncertain which way to vote.
Despite expectations to the contrary, post Brexit polling in Scotland hasn’t really changed. The country remains split 50:50 for and against independence. There would surely need to be a definitive shift in favour of independence for there to be a referendum. To paraphrase Lady Bracknell: to lose one referendum might be seen as a misfortune, to lose two sounds like carelessness. A second No vote would end the debate for a generation, and perhaps forever.
So have we reached the high-water mark of Scottish independence? I think we have.
The challenges for a Scotland outside the UK, but inside the EU would be enormous. The fiscal challenges would be enormous. The currency challenges (inside the euro) would be enormous. Scotland would be a small open economy with a very big deficit, which was not in control of the currency in which it issued its debt. Does that remind you of any Mediterranean country?
The practical challenges would be enormous as well, with the need for customs checks and rules of origin on trade with England. Moreover, any attempt to position Scotland inside the European Economic Area would immediately face the difficulty of potential free movement of people into Scotland, and then from Scotland into England.