By Dara Doyle, Ben Sills and Svenja O’Donnell
Bloomberg
Sep 17, 2014

Here are some of the fault lines in tomorrow’s referendum on Scottish independence.

The Currency

“Yes” side: Scottish National Party leader Alex Salmond says the pound is just as much as Scotland’s currency as the rest of the U.K. Retaining the pound as part of a formal currency union is the best option for the nation after independence, a panel of advisers has told him.

The “yes” side argues that Scotland is the second-biggest market for the rest of the U.K., which would be damaged if the pound was taken away from the Scots. The currency would also continue to benefit from being backed by North Sea oil.

Salmond said the Bank of England will continue to decide monetary policy day to day, with Scotland seeking input in the bank’s remit and governance.

“No” side: the Better Together campaign, led by former Chancellor of the Exchequer Alistair Darling and backed by the three biggest U.K. political parties, says that if Scotland leaves the U.K. it loses the pound. It says Salmond can’t guarantee what money Scots would use, and it’s not clear if an independent Scotland would seek to adopt the euro, set up an unproven national currency or use sterling unilaterally without any input into monetary policy making.

They say uncertainty will push up Scottish interest rates, meaning consumers and companies face higher borrowing costs.

The Economy

“Yes:” Salmond says that Scotland is constrained by the economic policies of the U.K. government at Westminster. Had Scotland matched the growth rates of comparable independent nations in the 30 years through 2007, gross domestic product per head would be 3.8 percent higher and Scots would be 900 pounds each ($1,460) better off, he says.

Giving Scotland power over fiscal and economic matters will unlock growth. So, for example, the nationalists plan to cut company tax rates after independence from the current U.K. rate of 21 percent. That will help it compete with Ireland, which has a 12.5 percent corporate tax rate, acting as a magnet for U.S. companies like Google Inc. (GOOG) and Facebook Inc. (FB)

“No:” Opponents lampooned Salmond’s 2008 speech at Harvard University when he has asked why Scotland couldn’t be a “Celtic Lion” and part of a “new arc of prosperity” including Ireland and Iceland. Opponents have turned Salmond’s words against him, describing Ireland as part of the “arc of insolvency” along with Iceland, after both countries needed international bailouts because of banking crises.

Better Together points out that when Scotland’s banks came close to collapse in 2008, taxpayers across the U.K. helped bail them out. In addition, they say that being part of the union gives Scottish companies access to 60 million people across the U.K. without having to worry about border controls.

North Sea Oil

“Yes:”: Since the 1970s, the oil and gas in the North Sea has contributed 300 billion pounds in tax receipts to the U.K. Treasury. The industry will produce jobs and revenue until “well after 2055,” the campaign says, citing a U.K. government assessment, and half of oil and gas reserves by value are still to be extracted.

An independent Scotland means that oil and gas will be brought ashore for the benefit of the Scots. A new regulator would be set up in Aberdeen. There would also be enough money left over to set up a Norwegian-style oil fund.

“No:” Even with oil, Scotland has run a deficit in 20 of the last 21 years, so every penny is already spent on public services like schools, hospitals and pensions, according to Better Together. Nobody knows exactly how much oil is left in the North Sea, but reserves are dropping and relying so much on oil would leave Scottish finances at the mercy of market prices.

The independence campaign has consistently been over-estimating oil revenue, Better Together says.

Better or Worse Off?

“Yes:” The nationalists say independence would mean Scots would ultimately be better off by 1,000 pounds a year after 15 years as the economy strengthens in the wake of independence.

“No:” According to Treasury research published in May, 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.

Taxation

“Yes:” Supporters of independence say that in the tax year ending in 2012, Scots paid 10,700 pounds per person to the Treasury, compared with 9,000 pounds in the whole of the U.K. The nationalists say they will reduce air passenger charges and company taxes to boost the economy, and for the first time ever, a government picked by the Scottish people will set tax rates.

“No:” The Better Together camp says leaving the U.K. would cost Scottish basic-rate taxpayers an extra 1,000 pounds a year. In addition, they say that the U.K. government has already agreed to cede more tax-setting powers to the Scots, regardless of the outcome of the referendum.

Nuclear Weapons and Defense

“Yes:” The U.K. government has based nuclear weapons in Scotland for almost 50 years. Salmond says that following a vote for independence, he would make agreement on the “speediest safe removal of nuclear weapons a priority” as he seeks to get rid of Trident from Scotland within the first term of the Scottish parliament following independence.

He says that independence means the nation won’t have to contribute to the 100 billion-pound cost of replacing Trident, freeing up money for health and education. The existing base in the west of Scotland would be turned into the new headquarters for the Scottish navy, securing jobs.

“No:” U.K. Defence Secretary Philip Hammond reiterated on May 8 that relocation of Trident would cost “billions of pounds, perhaps tens of billions of pounds” and take at least a decade. Better Together says that walking away from the U.K. armed forces makes Scotland less secure and damages the economy through base closures and ending contracts to build warships.

NATO Membership

“Yes:” Scotland will apply to join NATO and its position within the alliance will be similar to the majority of members that don’t possess or host nuclear weapons. The plan changed after the SNP ditched its policy of opposing membership in the alliance in 2012.

“No:” Scotland will be more vulnerable to terrorist attacks in a “very dangerous and insecure world” if it votes for independence, Cameron said last month, citing NATO membership as one of the reasons. An independent Scotland would have to re-apply to join NATO, and it would have to join with the caveat of refusing to have a nuclear deterrent.

Pensions

“Yes:” There will be no change for Scottish pensioners or members of existing retirement funds. The Scottish government will take on its “fair share” of the liabilities of U.K.-wide pension schemes to pay Scottish pensioners. Independence simply means that future decisions about changes to pensions will be taken in Scotland, not Westminster, including the speed at which the pension age is raised.

“No:” Scotland faces a demographic time bomb and there would be cuts to pensions if it became independent. The pensions of 1 million Scots are guaranteed by the U.K. welfare system. Spending on pensions is higher in Scotland — 1,400 pounds per head, compared with 1,300 pounds per head in the rest of the U.K. The U.K. Pensions Protection Fund backstops people whose pensions were put at risk when the company they worked for becomes insolvent. There are no credible plans to replicate this in an independent Scotland, the campaign says.

European Union Membership

“Yes:” Scotland will be able to win recognition as an independent EU member state by March 2016 because it’s already part of the bloc, its people are already EU citizens and it already complies with EU laws.

Besides, with Cameron promising an in-or-out vote on Britain’s place in the EU should his Conservatives win re-election then the only way to guarantee Scotland’s continuing membership is to vote for independence, according to the nationalists.

“No:” Former President of the European Commission Jose Manuel Barroso has said an independent Scotland would not be able to simply remain an EU member. If the country had to reapply, it would lose the U.K. rebate worth 135 pounds a year to every family in Scotland, according to Better Together.

There’s also the question of Spain objecting to Scotland joining given its concerns over Catalonia’s aspirations toward becoming an independent sovereign state. Spanish Industry Minister Jose Manuel Soria said yesterday an independent Scotland would be excluded from EU institutions.

The National Health Service

“Yes:” Salmond says that independence would be the best route for Scotland to preserve the NHS, accusing anti-independence campaign leader Darling in an Aug. 25 televised debate of being “in bed” with the U.K.’s Conservative-led government, which is paving the way for “creeping privatization” of the NHS.

The nationalists also say independence would not stop current cross-border health provision arrangements. Those views found support with Allyson Pollock, a professor of public health research and policy at Queen Mary University in London.

Pollock told Scotland’s independence-supporting Sunday Herald newspaper that NHS reforms in England could result in reduced funding in Scotland and that independence was the “clearest” way of protecting that.

“No:” Better Together says NHS spending is protected anyway, with Cameron saying on Aug. 18 that “health is a devolved issue so the only person who could, if they wanted to, introduce more private provision into the NHS is Scotland is Alex Salmond.” Better Together says that Scotland receives about 200 pounds a year per head more in health spending than the rest of the U.K., and taxpayers across the U.K. finance that cost rather the Scots alone.