Scottish Independence Sparring Turns to Fight as Costs Disputed

The fight over Scotland’s future escalated as the U.K. government and nationalists grappled over the cost of setting up an independent state and traded accusations of myths and bogus statistics.

U.K. Chief Secretary to the Treasury Danny Alexander presented analysis in Edinburgh claiming that start-up costs for Scottish institutions would run to at least 1.5 billion pounds ($2.5 billion). The calculations were questioned by an academic who told the Financial Times newspaper that it was a misrepresentation of his research. Scottish First Minister Alex Salmond told reporters the challenge was a “devastating blow.”

“We’ve stopped sparring and now we’re really into the proper fight,” said Matt Qvortrup, a senior researcher at Cranfield University in England. “What we’re seeing here is Salmond landing blows, whereas the other side is on the ropes. It’s going to go the full rounds.”

Scotland holds a referendum on its constitutional future on Sept. 18, with the coalition government in London trying to keep the 307-year-old union with England and Wales intact. While polls show the independence campaign is behind, there are enough undecided voters to swing it either way.

Alexander’s visit follows trips by Conservative Prime Minister David Cameron and his Liberal Democrat deputy, Nick Clegg, this month as they shifted toward what they called a more positive message for Scots to stay in the U.K. Today’s rival briefings held a block apart in the Scottish capital put forward a nationalist “independence bonus” versus the “U.K. dividend.”

Canny Voters

“It will have a marginal impact upon people’s views,” said Matt Beech, director of the Centre for British Politics at the University of Hull. “The Scots will vote in a canny and deliberate way and weigh up the economic argument.”

According to the Treasury research, every person in Scotland will be 1,400 pounds worse off if the country breaks away from the U.K. because of an aging population, higher borrowing costs, a decline in North Sea oil revenue and the cost of establishing new institutions such as a welfare system, tax office and diplomatic service.

Salmond, leader of the Scottish National Party that runs the semi-autonomous government in Edinburgh, said independence would mean everyone would ultimately be better off by 1,000 pounds a year within the next 15 years as the economy burgeons.

North Sea

North Sea oil tax receipts over the next five years would be between 15.8 billion pounds and 38.7 billion pounds, based on six scenarios depending on the outlook for prices and investment. The Scottish government based its report on 34.3 billion pounds of revenue over that period, which assumes an oil price of $110 a barrel compared with a drop to $99 forecast by the U.K.’s Office for Budget Responsibility.

“The figures are simply not credible,” Alexander said, referring to the North Sea forecasts as “heroic assumptions.” “I understand the passion Salmond has for independence but it leads them to say anything.”

The most acrimonious dispute is over the start-up costs of a new independent state.

Like his argument for keeping the pound and the central bank, Salmond said Scotland was entitled to a share of British assets as the new state agreed a settlement with the rest of the U.K. He put start-up costs at about 250 million pounds after the country inherited some infrastructure.

Today’s Treasury report cited research by the London School of Economics that a new policy department would cost about 15 million pounds. Multiplied by the 180 new organizations Scotland said it needs would put the bill at 2.7 billion pounds. Patrick Dunleavy, politics professor at the LSE, told the Financial Times the study had been manipulated.

Treasury Blow

“It’s a most devastating blow to Treasury assumptions, a blow to the Treasury’s credibility and the credibility of the government from which they’ll find it very difficult to recover,” Salmond said. “These figures encapsulate the difference in the campaigns. We don’t think scaremongering stands up to a moment’s examination.”

Salmond spoke at the Scottish government’s headquarters at St. Andrew’s House in Edinburgh an hour before Alexander addressed reporters 200 meters down the road at a hotel.

The Treasury’s central message of how Scottish residents would be better off staying in the U.K. was under the banner of “1,400 reasons” to vote for the status quo. Alexander said every one of the figures on the start-up costs was independently sourced and supported and people would believe them.

A poll by ICM Research Ltd. published on May 18 showed 34 percent of respondents supporting independence, down five percentage points from a month ago, while 46 percent backed the U.K. remaining intact, an increase of four points. The proportion of people undecided on how they will vote rose by one percentage point to 20 percent.

“God invented the economist to make the astrologist look good,” said Qvortrup at Cranfield, author of “Referendums and Ethnic Conflict.” “It’s guesswork really. This was a good round for Salmond. The question is if it’s too late.”

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