The hidden costs of independence

I appeared as a witness before the House of Commons Scottish Affairs Committee on 15 January 2014, alongside two other academics: Prof Kenneth Armstrong (whose expertise is in EU Law) and Prof Iain McLean (who is a political scientist). You can read the transcript here. Or you can watch the evidence session online via the parliamentary website but, be warned, we were kept there for three full hours. The first question we were asked was whether we thought that the SNP’s proposed timetable for achieving independence was realistic – they have suggested that it could all be done and dusted within 18 months. We said that it was not, and this caught the attention of the press, appearing as the front page headline in the following day’s Herald. This, however, was far from the most important material we covered.

Much more important was that we brought to the Committee’s attention a number of legal errors which undermine several of the claims made by the Scottish Government in their independence white paper, Scotland’s Future, which was published to much fanfare in November.

The background is that, in terms of public international law, what would happen in the event of a Yes vote in the independence referendum in September is that Scotland would become a new State in international law and that the rest of the United Kingdom would continue as the “continuator” State. This position was authoritatively set out in the UK Government’s first Scotland Analysis Paper and in the legal opinion co-authored by Professors James Crawford and Alan Boyle that was annexed to that paper. This legal analysis has not been seriously questioned by the Scottish Government in the last 12 months.

The consequence of this is that institutions of the United Kingdom would automatically become institutions of the rest of the United Kingdom in the event of Scottish independence. Thus, for example, the UK’s security and secret intelligence services would become the security and secret intelligence services of the rest of the UK (“rUK”). The Bank of England is a UK institution. So is the BBC. As UK institutions they would not fall to be apportioned equitably between the rUK and an independent Scotland.

The UK’s assets and liabilities, on the other hand, would fall to be apportioned equitably between the rUK and an independent Scotland. The apportionment of the UK’s assets and liabilities would constitute a large part of the separation negotiations that would have to follow any Yes vote in the referendum. Whilst the details would be a matter primarily of political negotiation, those negotiations would take place within a broad framework of international law. International law provides a number of presumptions that are likely to shape such negotiations. Among these presumptions are the following:

  • The UK’s fixed property in Scotland (e.g. Government buildings) would become the property of the new Scottish State; conversely Scotland would have no claim on the UK’s fixed property in the rest of the UK or overseas
  • The UK’s movable property in Scotland would become the property of the new Scottish State where it is specifically for local use
  • Other assets and liabilities would fall to be apportioned equitably. This may be calculated by such means as share of population or, possibly with regard to the national debt, for example, by share of GDP. Historical contribution appears to be of no relevance: thus UK fixed property in Scotland would become the property of the new Scottish State even if its construction had been paid for UK taxpayers as a whole, and no compensation would be due to the rUK

Working out how these principles and presumptions would apply in the context of unpicking a 307-year-old Union is inevitably going to be a complex task.

In the Scotland Analysis Paper on Defence, an indication was given of how complex these negotiations would be in the context of HM Armed Forces. In that Paper it was noted that “an independent Scottish State could not simply co-opt existing units that are primarily recruited or based in Scotland, as these are an integral part of the UK armed forces … While many military personnel and capabilities are located in Scotland, these do not operate in isolation; … they depend on close integration with other capabilities, services and infrastructure spread across the UK”. Movable military and defence assets located in Scotland would not therefore become the automatic property of an independent Scotland. If they are integral to the defence and security of the UK as a whole they are not “specifically for local use”.

The Scottish Government’s independence white paper appears to be have been written without regard to the distinction between institutions (on the one hand) and assets and liabilities (on the other). As a result, Scotland’s Future falls into legal error in numerous places. The following are among the key examples.

On the pound, the white paper states that “The pound is Scotland’s currency just as much as it is the rest of the UK’s” (p. 7). This is incorrect. The pound is Scotland’s currency now precisely because Scotland is part of the UK now. If Scots vote to leave the UK they will be voting to leave the UK’s institutions, including the pound. As we all know, Scotland could then seek to negotiate its way back into these institutions but the rUK would agree to this only if it was persuaded that it was in the national interest of the rUK do to so. And, as we further know, the current UK Government have indicated that it is “highly unlikely” that it would be in the interests of the rUK for it to enter a formal currency union with an independent Scotland, at least without a binding fiscal pact. This does not mean that Scotland would be unable to use the pound: any State may use the currency of another State (as Panama uses the US dollar). But for a State to make this choice means that that State has no control over its monetary policy or interest rates: rather, these matters are effectively surrendered to a foreign power.

On the UK’s embassies, the white paper states that “Scotland would … be entitled to a fair share of the UK’s assets” (p. 13) and that “Scotland would be entitled to a fair share of the UK’s extensive overseas properties (or a share in their value) allowing us to use existing premises for some overseas posts” (p. 211). Again, this is mistaken. International law provides that State property would remain the property of the continuator State (the rUK) unless it was located in the territory of the new State (Scotland). In the Scotland Analysis Paper on EU and International Issues, the UK Government correctly state that “An independent Scottish state would not be entitled by right to any UK diplomatic premises, equipment or staff” (para 2.16). As the Government go on to state: “the legal position is clear: the bodies that support the UK now … would continue to operate on behalf of the remainder of the UK on the same basis as before Scottish independence. If an independent Scottish state wanted to continue to receive services from UK institutions or utilise them to carry out functions in relation to Scotland, that would be a matter for negotiation and would have to be agreed with the continuing UK” (ibid).

On defence assets, the white paper states baldly that “we will inherit a share of existing UK defence assets” (p. 234). While the white paper acknowledges that the matter will have to be negotiated, it suggests that Scotland’s share could be calculated based on population, giving it a share of assets worth £7.8 billion (ibid). As we have seen, however, such a crude calculation overlooks the complexity of the fact that that which is integral to the defence and security of the UK as a whole might not fall to be apportioned with an independent Scotland at all. Working out what an independent Scotland’s share of the UK’s defence infrastructure would be is a more complex matter than simply dividing the UK total by Scotland’s population share and, moreover, is likely to result in Scotland’s share being markedly less than is assumed in the white paper.

Finally, on security and secret intelligence, the white paper states that “In the early years we will make a significant level of investment in setting up the [new Scottish security and intelligence] agency. Scotland, of course, already has a substantial existing capital stake, from our investment in UK intelligence infrastructure. We will expect investment to be recognised in the arrangements that are agreed with the UK as part of the independence settlement” (pp 266-7). Again, this is flawed as a matter of legal principle. Past investment and historic share are not material factors in determining how assets and liabilities should be apportioned equitably. Just as rUK taxpayers would not be compensated if UK property in Scotland became the property of an independent Scottish State, neither would Scotland’s historic contribution to UK institutions affect the fact that such institutions would simply remain those of the rUK in the event of independence.

Two conclusions may be drawn from the above analysis. The first is that core elements of the Scottish Government’s approach to independence are based on assumptions which are highly questionable in law.

The second is that the costs of independence may be considerably greater than has generally been understood. If an independent Scotland would have no right to a share of the UK’s embassies and diplomatic services, for example, it follows that it would have to purchase, rent or build its own. The Scotland Analysis Paper on EU and International Issues explained something of the increased costs that would have to be met by Scottish taxpayers in the context of Scotland seeking accession to the EU as a new Member State.

It may be, however, that this is but one example of the hidden costs of independence – a matter which I think we are going to hear much more about between now and September.