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.

38 thoughts on “The hidden costs of independence

  1. Pingback: Legal analysis of the SNP’s independence white paper | British Government and the Constitution

  2. I watched your evidence to the committee, and was thankful, that at long last, somebody got off the fence and called the White Paper for what it actually is…utter nonsense.

    The SNP should not be allowed to get away with publishing something like this and presenting it’s contents as fact, when clearly, all it is, is a wish list based on assertions not in their gift to deliver.

    No doubt, you will have scorn poured down upon you by the separatists..they do that a lot if it doesn’t fit the narrative of separation, so full credit to you for putting your head above the parapet.

    There does seem to be an awful lot of ‘It’ll be alright on the night’ assumptions being made by the separatists when it comes to the negotiations with UK in the (highly unlikely) event of a yes vote, their arrogance in proclaiming what is and what will be in the interests of the UK as the basis of any negotiations, is a very dangerous game to be playing with the future well being of 5 million people…it doesn’t seem to have entered into their heads that the UK will actually say ‘no’ to their demands.

    Just about all their assumptions as regards to what deal they’ll get, seems to be based on the other party to those negotiations agreeing that Scotland is a ‘special case’ or ‘exceptional circumstances’ particularity in the matter of EU membership, if that’s their gambit, they’re going to be in for a very rude awakening indeed.

    I look forward to further entries in your blog.

  3. Very interesting post. Do you happen to know what EU constitutional law says about a state seceding from a current member state?

  4. Some valid points about the process, which will doubtless be very dull: nobody seriously expects Scotland to come away with 1/10th of an aircraft carrier, or a single Typhoon aircraft. Nor for that matter will we inherit 10% of Britains nuclear capacity – mainly because we don’t want it. Independence isn’t really about the costs and benefits, the bean counters balance sheet – we can leave the lawyers and accountants to feast on all that ambiguity, no doubt at great expense to the taxpayer. It is about sovereignty, liberty, and good governance. The economic benefits always flow from these. This is a petty piece of legal nitpicking, not a reasoned argument for or against Independence

    • >>>sovereignty, liberty, and good governance

      Yet we indisputably have two, and arguably have the third already (Sovereignity).

      Lets be honest, the “Yes” campaign supporters broadly fall into two areas. Those who are making, and are swayed by the purely emotional argument, and those who are rubbing their hands at glee at the opportunity to gain power they ordinarily couldn’t get.

      • Chad I think you should look at the poverty in Scotland and the effects the Westminster Government has had. You should look at the potential for renewable energy here and wonder why it will be used to profit a small minority in private ownership, You should look at the dwindling skill base and loss of hope for many in Scotland since a service economy has become dominant, serving the banks and big corporations instead of the huge number of children living in poverty or our elderly who cannot afford to heat their homes. ask them why thier oil and gas resources go to Westminster instead of Scotland, You should look at how we feel about having a parliament 500 miles away that we have little or no influence over. Ask the Scots about whether they want Nuclear weapons in their backgarden, ask them why they have a bedroom tax their MP’s voted against, ask them why they were sent on illegal foreign wars they didn’t back or support, ask them why they will be pulled out of the EU against their wishes if the UKIP/Conservatives get their way in the next election, ask them why in the last 70 years, they have not had the Government they have voted for for half that time, ask them why these conditions exist in a country where Independence would make them the 8th Wealthiest in the world per head of population and ask them why they are refused to adopt a tax system that will make Scotland a much greener and equal society with much better opportunities for our young. Then ask yourself if you would be prepared to live in a country without self determination .. it isn’t rocket science!

      • Rob, the solution to bad policy isn’t structural change.

        Its an election.

        >>>>Then ask yourself if you would be prepared to live in a country without self determination .. it isn’t rocket science!

        The SNP vetoed a rail link to the Glasgow Airport, selling the land reserved on the cheap. Do you therefore like me support independence for the Kingdom of Strathclyde?

  5. Interesting article. If I read it correctly the assumption is that the UK would have continuator state status. And the reasoning behind that seems to be, the UK government have already claimed it and nobody has yet challenged it. However I’m fairly certain the Scottish Government don’t need to challenge that claim until the actual negotiations take place. At which point Scotland, having historically been an independent state, can also claim continuator status.

    But then again as a new state. Scotland can walk away from the union with it’s infrastructure intact, use the pound until a more permanent arrangement can be put in place and start it’s new life debt free.

  6. “It is about sovereignty, liberty and good governance” goes to the heart of this referendum. All the legal opinion is welcome at this point as regards the terms of separation, as there will be legal opinion to counter the above. I am not convinced that the arguments above account for the fact that Scotland entered into a partnership with England, rather than became a colony (or region) of the UK as the arguments and use of International Law seem to suggest.

    Regardless of the results of negotiations and interpretations of current Law, there is no doubt on either side of the argument that Scotland would be an economically successful Independent country, with a Government concerned with the people of Scotland, their rights, liberties and expectations for a better future. An amicable separation must be strived for on all sides should the referendum produce an affirmative vote for Independence. This is the preferred course of action for those wishing to see an Independent Scotland, and for anyone with a degree of decency wishing for a Unionist outcome.

  7. This is fascinating. It answers a question I have not previously seen answered or even raised: what would happen to UK national collections located in London, such as the British Museum and the National Gallery, built up in part with Scottish taxpayers’ money? The answer is that rUK would be entitled to the lot.

    • I think you may find that in the period between a successful referendum and Independence, much of those assets will be rehoused back to Scotland and vice versa

    • Not sure about this: to the extent that the art and museum collections are State property (and not, for example, loaned to the national galleries etc by private owners) they would fall to be apportioned equitably between iScot and rUK. We’d soon run into some mighty tricky issues of who owns the Crown’s art collection — some may be the Crown’s private property but some may not be (the law on this is not straightforward). These are the sorts of matters, however, that could well be finalised after independence has taken effect (assuming a Yes vote): they would not have to be sorted beforehand.

      • Unless the state / crown art collections are bigger than I thought they are, they are small things in the bigger financial picture, with shares in the military assets and hardware dwarfing a few pictures (OK maybe quite a few)(Billion pounds per submarine – that is a lot of grand masters paintings)

  8. If all you have said in this article is true, which I very much doubt, then good luck to the rUK. They will need it when Scotland walks away leaving them holding the baby. Debt? Not our problem mate. Oil? No, that’s ours. What do you mean you need it to pay off your debt? You should have thought of that before you grabbed everything else. Oh, and you’d better start thinking about where to put your Trident missiles, and damn quick. You’ve got a year to find a new home for them. Bye!

    • Re locating the trident missiles will take only slightly longer than it takes a submarine to sail from Faslane to Plymouth and I’m afraid it will be impossible to run away from the debt…not if you ever want anyone to trade with you that is.

      • You can’t expect the Scots to accept a share of the debt without a share of the assets. Life doesn’t work that way’ It’s both or nothing.

    • Andy MacNicol,
      As far as I understand it, as much as iScot won’t have debt, it also won’t have any cash reserves, as this will stay with rUK. This will mean that iScot will need to instantly gain debt to pay for all of its bills including those it currently doesn’t need to pay, like NHS. Also I don’t know where the current Scottish govt debt would stand, this probably would be a negotiation point.

      Regarding oil & gas, this is not as clear cut as some people think. The direct tax revenue from O&G is going to the companies that extract the oil or gas, which are generally HQ outside of Scotland and therefore taxed there. As a lot of iScot jobs are dependent on oil and gas, the iScot govt would not be able to over tax O&G exports. I am sure rUK would have exemptions on some of the taxes – as well as a trade off back to Scotland for Electricity generated by rUK. Add to the mix 15-20% production revenue and the legal issue of historical investment! it could be many many years before iScot anywhere close to the revenue that Alex S has conjured up.

      My main point, is that the issues are complex and it will take many years after the vote for Scotland to become independent, and it won’t be as rosy as people making it. I am neither for or against independence, but I think in general the Scottish people will be financially worse off, and unemployment could be higher.

      Just a thought, as I do not know the answer – what will happen to all the Scots who don’t take rUK nationality,
      And work for the rUK govt or work in consulates and embassies around the world?

      • This comment
        Add to the mix 15-20% production revenue and the legal issue of historical investment! it could be many many years before iScot anywhere close to the revenue that Alex S has conjured up.

        Should read

        Add to the mix 15-20% production revenue reduction from the North Sea fields for the last few years, and the legal issue of historical investment, it could be many many years before iScot anywhere close to the revenue that Alex S has conjured up.

      • Professor Tomkins, please do not claim that you are neither for or against Independence.. your performance at the committee would more then suggest where your loyalties are, along with your blog “confessions of a Unionist: (I think the clue is in the title !). To claim otherwise is an insult to peoples intelligence. Throughout your testimony you gave your legal opinion, heavily biased towards a Unionist stance, without any balance other than to say that it is opinion that can be rebutted. A more helpful and balanced approach would be to have given the actual rebuttal arguments that could be made. What seems to have been made clear is that the rUK (i.e the Westminster Government) has absolutely no intention of being open and honest to the people of Scotland in this referendum year, which is more reason to cut this Government loose.

      • Rob, I am Chris – I am not a professor, I am neither for or against. I would suggest you read the comments again.

    • Debt, sure scotland, you can walk away… but how are you paying the civil service and legislators next week?

      Oh, you mean the UK’s money in the UK’s bank account?

    • So Andy, its day 1 of Independence.

      You have a whole lot of parliamentarians and civil servants looking to get paid.

      Wheres the money coming from?

  9. The problem for this argument is that it assumes you can have a UK (or rUK) without Scotland. You can’t. Scotland is the UK as much as any other part. It is a constituent part and without Scotland (or England) there is no UK., so once Scotland votes Yes the union is dissolved.

    Scotland doesn’t ‘leave’ the UK: it ends it. How can you leave yourself?

    The UK was formed because of a political agreement between Scotland & England, nobody else. Wales was politically part of England, and Northern Ireland didn’t exist. If Scotland votes for independence, it ends the Act of Union. No union, no United Kingdom. Of course to admit this indisputable reality will compromise unionist propaganda/strategy. Untenable in the long run though.

    • You are entirely wrong in law, and also in fact. The United Kingdom was formed in 1800, not 1707. The United Kingdom did not come to an end with the creation of the Irish Free State in 1922. On the contrary, it continued. The full reasons why you are wrong in law were authoritatively set out in the Crawford/Boyle legal opinion to which there is a link in the blogpost. Perhaps you might read it.

  10. Pingback: 29 Good Reasons to Stay in the Union – Numbers 1-10 | The North Briton

  11. In summary you told them: “unhappy marriages should not be ended amicably because the details would be too complex and require negotiation”.
    Real life is more pragmatic, thankfully.

    • Jem, I do not think that analogy works. An unhappy marriage is where two parties don’t want to be together. This is one party (Scotland) is undecided if it wants to go through to independence, the other party (rUK) would rather it stays together but would accept a separation if iScot decides.

      I think a better analogy is a de-merger in a company. The management (scot govt) of a subsidy would like to break away from the parent company. Some employees are very happy, some are upset and some are undecided (Scottish citizens). The parent company (UK govt) allows discussions to go ahead based on the fact that it is up to the employees to decide, not the management if the de-merger goes ahead. If the employees accept the de-merger, then it gets complicated, employee contracts need to be moved across, real-estate needs to be broken up, some new jobs are created in the new company, some are lost. The new company needs to get money in quick to pay the employees and it is creditors and may also need to pay the parent company a revenue share over time. A lot of the computer systems are integrated (think tax, dvla etc), so the new company needs to ‘outsource’ (which means pay) back from the parent company. The new company then needs to invest (more jobs – but not necessarily in Scotland if part of EU as it will need to do an EU tender process; also means more debt) to create the new infrastructure and the systems. After a while, the company will become its own company, but will still be dependent on the parent company, after a significant time the company could become independent.
      (Having gone through the above scenario, it took about 1 year and it was a very simple de-merger, no shared infrastructure, limited debt and an investor who paid the bills for 18months).

      So will Scotland become successful if it becomes independent in the next 10-15 years? Probably, hopefully.
      Will independence occur in 18 months – no, the rUK can take their time and there are many areas of negotiation which are co-dependent, such as electrical distribution and generation, mixed with oil and gas supply. If iScot gov wants to tie in EU membership and separation at the same time, then this could delay the process further (having worked with the EU on a number if projects, it is significantly painful).
      Is the Scottish govt being overly optimistic, yes – will it be as bad as some people make out. no But don’t expect that by Sept 2016 Scotland will be independent.

  12. so this report is advising that scotland, as part of the union contributes to uk institutions and assets but will never actually have any claim to them. This alone makes a strong case for Independence. The independence debate has never had a Scotland England dimension for me but I cant help wondering, after reading this report, which by the way is peppered with information which has been provided as factual but at the same time speculation also offered as fact, that If England wanted Independence would they too accept in law or not to relinquish any claim to that or those institutions, or do England already consider themselves as Independent.

    • Scott, your first sentence misrepresents what I’ve said. I go out of my way to distinguish institutions and assets: you’ve merged them together. The point, however, is that it Scots vote Yes in September we will have voted to leave something. A vote for independence is a vote to leave the UK. The UK will not be forcing Scotland out: on the contrary, Scotland will have decided of her volition to leave. If you vote to leave something you can hardly then turn round and say, “oh, by the way, we’re taking your stuff with us”. Scotland will get her share of what she’s entitled to, but that share is in law much less than the SNP”s white paper seeks to make out.

      Your point about England is more interesting, but take care not to confuse (as the English themselves are prone to!) “England” with the “rest of the UK”. The two are distinguishable, in fact and in law. My guess is that if England voted to leave the UK the UK would break up into several parts. I do not imagine that, were this to occur, the rest of the UK (i.e. Scotland, Wales and Northern Ireland) would want to continue together as one single State. So the legal implications of English independence might be quite different from those of Scottish independence. If Scotland votes to leave the UK the rest of the UK will continue as an ongoing State. Much diminished, but ongoing nonetheless.

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  14. Despite all the promises of riches beyond our imaginations and all the legal arguments about the disposition of assets one can’t help notice how much damage is being done in this polarising event. This will not only divide Scotland and England (a nationalist driving divine wish); this is dividing Scots in Scotland.

    The derogatory language within social & normal media is adding fuel to the fire and Scots are having to pick sides. Nationalism (always a disgusting concept) is framing the debate. You don’t agree with them; you’re anti-Scottish (or worse). “Rationality” in defence of the status quo cannot play the game at the same level as it faces Nationalist “Rhetoric”.

    The Nationalist is given far more publicity for his Separatist (there aren’t many “hers” in Nationalist Separatism) cause and he can almost taste it. He believes it against all the evidence to the contrary. I can understand that because they have the passion and are more willing to vote. Defeat, as it will surely come, will not go down well. Indeed they will take it badly. And although I do not advocate violence, I do expect it with their defeat.

    I will be voting for the first time ever in my life and I will be voting NO because I do not trust Salmond or appreciate his divisive approach, I do not trust Nationalism or their Separatist followers.

    • John Reid’s post shows much wisdom. No-voters are afraid to speak out for fear of seeming anti-Scottish. Business, which is entirely against separation, is also afraid to speak out, for fear of reprisals in the event of independence. Separatists are driven by anger and self-righteousness and refuse to engage in logical argument, brushing all objections aside with remarks about “project fear” and “the Tories”. Many of them seriously propose defaulting on debt.

      If Yes win, I predict a massive exodus of English and the better off, particularly once the poverty, weakness and insignificance of the new state become apparent: people will not be used to that, and it will come as a shock. I have already heard people talk about moving to England in the event of independence. But there will also be years of conflict between those who want to remain independent and those who want to rejoin the UK. The second group will increase once the costs and disadvantages of independence become apparent. But of course the rest of the UK will never agree to Scotland’s readmittance to the Union. If No win, I predict violence from the disappointed separatists, whose hopes and dreams will have been dashed. Terrorist attacks in Scotland and England are not inconceivable. I am very depressed. I would guess that other people are depressed too, but dare not say so, again for fear of seeming anti-Scottish.

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