Mr Shepherd cc Mr Caff
DEVOLUTION: ECONOMIC ADVANTAGES TO SCOTLAND OF THE UNION
As you know, the paper the Chancellor is likely to put in a paper for discussion at the meeting of the Ministerial Devolution Strategy Committee fixed for 3 June. It will suggest, among other things, that a determined effort should be made to persuade Scotland that it is in her own economic interest to remain part of an integrated UK economy. I have been asked to produce some material which the Chancellor could use in support of this proposal, initially (presumably) in persuading his colleagues at DS that the thing could be done, and thereafter, in whatever form were judged suitable, in public debate.
2. We have already had several exchanges on the subject; and I think we are fairly well agreed on the following.
a. The prospective revenue from oil beneath Scotland's "share" of the UK Continental Shelf in the 1980's is very large by comparison with her likely GDP. The crude comparison of, say, £3 thousand million revenue with £6 thousand million GDP is no doubt misleading, partly because an independent Scottish Government would adopt a slower depletion policy, partly because Scotland would (apart from oil) have a balance of payments deficit needing to be covered and would lose substantial transfers from the UK (though there is some overlap here). Nevertheless, the orders of magnitude are sufficient to show that Scotland would have more cash on independence than under continued union.
b. Scotland might lose free access to the UK market after independence; and this could have serious effects on many of her industries. However, if she stayed in the EEC, this argument would lose much of its force. Either England would also stay in (and free trade would continue) or, at the worst, if England withdrew, Scotland would have access to Europe. No doubt there would be transitional difficulties, but oil would smooth them over.
c. Scotland would still face some serious structural problems, and might not solve them if she adopted the wrong policies. But clearly one cannot stake much in public on an argument based on the assumption that she would adopt them; and the ability, for example, to run an independent currency would in fact give her some new and helpful policy options.
d. One can legitimately point out that a Scottish economy would be heavily dependent on oil and oil prices, with their attendant risks, and that her longer-term prospects might be less obviously attractive than her shorter-term ones. But it is hard to be more specific or convincing than that.
3. Apart from generalities, the most promising line seems to me to be the argument that Scotland has done reasonably well out of the Union in her times of troubles and ought not to break it now that she has better prospects. This argument, if it can be established with convincing detail, will be a forceful one: it is in my view partly because of it that the SNP are so anxious to argue at every turn that Scotland is exploited by "English" institutions of Government and they are so very reluctant to admit that Scotland ever had a favourable balance in her financial dealings with Westminster.
4. I should like to discuss this and see what sort of case could be constructed, so that we can advise the Chancellor in good time before the meeting on 3 June. I will try to arrange a meeting early next week. It will be helpful then to have views on the general arguments and an indication of what factual material is available to Divisions.
M S Buckley
19 May 1975