Europe Scottish independence supporters in Glasgow .

Published on March 16th, 2017 | by Lidija Bojčić

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The Scottish second referendum on independence

Scotland’s first minister and leader of the Scottish National Party, Nicola Sturgeon, hopes to hold another referendum on Scottish independence. Budgetary pressure on an independent Scotland, however, could make it hard to get a majority vote in favour of independence.

The announcement puts an end to months of speculation that Ms Sturgeon will seek a second referendum on independence, after the first referendum on the issue, in September 2014, delivered a “No” to independence, by 55.3% to 44.7%. Since then, however, the SNP has become the dominant political force in Scotland and the UK has voted to leave the EU. Ms Sturgeon has said that any UK-EU trade deal will be inferior to membership of the EU and that she wants Scotland to join the bloc as an independent member.

Ms Sturgeon can muster a majority in Scotland’s parliament in support of her request, but the UK parliament could deny it. A statement from the UK government said that another referendum would be “divisive” and something that would “cause huge economic uncertainty at the worst possible time”. The first referendum on Scottish independence was billed by the SNP—including by Alex Salmond, the former first minister, and his successor, Ms Sturgeon—as a “once in a generation” chance to vote for independence. Theresa May, the UK prime minister, could point to this to deny a request for a second referendum; she could also point to evidence from opinion polls that the majority of Scottish people do not want a second referendum on the matter any time soon.

However, we think that it would be politically difficult and ill-advised for Mrs May to block a second independence referendum. When Mrs May is putting great emphasis on her government’s commitment to honouring the “will of the people” as expressed in the UK’s vote to leave the EU in the Brexit referendum in June 2016 it would look bad to deny the Scottish people another chance to vote on the matter, even if the logical implication of the 2014 vote to remain within the UK is that Scottish voters agreed to accept the results of UK-wide votes such as the EU referendum.

The bigger question concerns the timing of a potential second referendum. Ms Sturgeon says that she wants a vote to be held between mid to late 2018 and early 2019—in other words, before the two-year negotiating period for the UK’s withdrawal from the EU comes to an end in March 2019 but once the terms of the UK’s withdrawal are known. The UK government would have a strong case to argue that holding a referendum while Brexit talks were continuing would be highly disruptive.

The SNP wants to hold the vote before the UK formally withdraws because it hopes that this will make it easier for Scotland to join, or “rejoin”, as an independent member of the EU. However, it is not clear how easy this would be, for a number of political and economic reasons. One obstacle is that several EU countries such as Spain, Slovakia and Romania, which are sensitive to calls for autonomy or independence for historical reasons or because they face their own separatist movements, would not look sympathetically on such a development. In particular, Spain, which faces strong regional separatist movements in Catalonia and the Basque country, would look askance at a breakaway Scotland being allowed to join the EU.

There is little evidence that support for independence has shifted since the referendum in 2014, despite the Brexit vote in June 2016, in which a majority of Scots (62%) voted to remain in the EU. Opinion polls on Scottish independence are currently closer to 50:50, although they have been more consistently leaning against independence. If it came to a second referendum, we believe that the majority of people in Scotland would choose the UK over the EU, and not just for economic reasons, which overwhelmingly favour a continuation of the union with the rest of the UK. Scotland’s trade relationship with the UK is far more important—four times greater—than that with the EU: it exported just below £50bn (US$76.5bn) of goods and services to the UK in 2015 and £12.3bn to the EU.

Scotland’s economic fortunes have changed since the oil price decline. When the SNP published its 670‑page plan before the first referendum in 2014, it assumed an oil price of US$113/barrel when calculating how much tax revenue oil and gas production could generate between the fiscal years 2012/13 and 2017/18. The price of dated Brent Blend fell to US$44/b in 2016, and it is not expected to pick up significantly over the next five years. Scotland’s public finances have suffered hugely from the decline in oil revenue and the country is running very large budget deficits, making it highly dependent on transfers from the UK government. As a devolved entity within the UK, Scotland has substantial discretion over managing its own affairs; it is unlikely that it would accrue much more as a member of the EU. Finally, Scotland shares a relatively strong currency with the UK, and the Bank of England (BoE, the central bank) would not allow Scotland to keep the pound in the event that it voted to leave the UK. The announcement on this by the BoE governor, Mark Carney, in the run-up to the September 2014 vote had a big impact on the polls. Much will also depend on how Brexit talks go and how the UK economy performs over the next two years. In the event of a disorderly Brexit (not our baseline forecast) and a sharper than expected slowdown in the pace of real GDP growth, this could rally support for Scottish independence.

However, the economy is not the sole or even always the most important factor in shaping Scottish views on the question of independence. Scotland’s union with the rest of the UK is based on 300 years of shared history, culture, language and economy. The SNP is the third-largest party in the House of Commons (the UK’s lower house of parliament) and has significant influence. Arguably it would have far less influence as an independent member of the EU. The union between Scotland and the rest of the UK has allowed for national differences while forging a close and successful political and economic relationship. Serious enmities and violent conflicts were part of that shared history up until the 17th century. However, the Act of Union in 1707, by which the Scottish and English parliaments united to form the parliament of Great Britain, based in London, not only brought an end centuries of war and bloodshed, it paved the way for what Simon Schama, a historian, called an “astonishing transformation”. According to Mr Schama, “what began as a hostile merger would end in a full partnership”. Millions of people on both sides of the border value their shared history and believe that the union has delivered political and economic progress that would be difficult to replicate if Scotland were an independent member of the EU.

We continue to expect a vote in favour of the union if a second independence referendum is held. However, this forecast carries some risk given the inevitable uncertainty about the outcome of the forthcoming Brexit negotiations and the outlook for the UK economy.

The Economist Unit

 

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