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We need Plan B if Scots vote for devo-max option

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Scotland's First Minister Alex Salmond's plan for independence could have implications for Northern Ireland

Scotland's First Minister Alex Salmond's plan for independence could have implications for Northern Ireland

Jeff J Mitchell

Scotland's First Minister Alex Salmond's plan for independence could have implications for Northern Ireland

Northern Ireland needs to take a close interest in the evolution of Government arrangements for Scotland.

The Scots will vote on whether Scotland should become an independent country, separate from the UK. If independence is not agreed, they may vote on a subsidiary question. Would a majority be in favour of an enhanced form of devolution: devo max?

Northern Ireland's administration must consider how these proposals would affect the Barnett formula. There are likely to be very wide implications for the implementation of Executive policies.

There is no reliable forecast of the likely outcome of the referenda. Local politicians and business group representatives are inclined to assume that the Scots will not vote for independence. That assumption could be wrong.

At this stage, logic demands that the possible impact of independence, or devo max, should be assessed. The House of Lords Select Committee on economic affairs is collecting evidence on the implications of Scottish independence.

The proponents of Scottish independence usually assume that Scottish independence can be fiscally painless for Scotland. With what might be sensible, but untested, assumptions about tax revenue from the Scottish sector of North Sea oil, the Scottish budget would balance, possibly with a marginal surplus to finance some capital spending.

The implications of a fiscally painless option for Scotland are, of course, an arrangement that would be somewhat fiscally painful for the rest of the UK, including Northern Ireland.

At this stage, there is a danger that a Scottish referendum will be launched with little (or no) precision about the nature of the final settlement.

Is there enough certainty that a Scottish budget would balance without extra borrowing from the UK? Is there agreement that the Shetland Islands will stay with Scotland or separate either on the lines of the Faroes or by remaining part of the UK? Either way, the Scottish budget may be invalidated because Shetland oil catchment includes 30% of possible future North Sea and Atlantic oil wells.

Critically, preferably before the referendum, some clarity would be needed on the relationship of Scotland with the European Union.

The easy assumption is that Scotland would become a member of the EU, or the EEA, so that trade and commerce is not disrupted. That assumption may call for some clever political negotiation.

France, Spain and Italy may wish to avoid changes that pose a risk of setting challenges to national integrity.

One of the tensions for an independent Scotland lies in the decisions on monetary policy. Will Scotland sign up to eventually adopt the euro, as would be required under the current EU commitments?

More immediately, will there be an agreement to hold Scottish currency at par with sterling, as the Irish did for many years after 1920?

This seems the easiest option but it carries the obligation to manage Scottish public debt in a disciplined manner, mentored by the Bank of England, and a parallel obligation in terms of Scottish notes and coins.

An unpredictable tension may be caused if, by an accident of UK politics, a UK referendum on relations with the EU is called at about the same time as the Scottish referendum. If Scotland were to vote for independence before a UK referendum, how would that affect a UK decision?

Should the Scots be excluded?

Northern Ireland has reason to be concerned.

First, the generosity of the Barnett formula for local revenue will come under scrutiny and may be squeezed.

Second, the Scottish Government is already talking about introducing corporation tax at rates to compete with Ireland and, therefore, with Northern Ireland.

An interesting perversity is that if the Scots do not vote for independence but do vote for devo max, then Scotland will possibly be an even more ambitious competitor in the mixture of UK and EU regional policies. If Northern Ireland is 'standing idly by' the changes may be painful and damaging.