First Minister Alex Salmond's Speech on the Union and Independence Source: The Scottish Government Date: 17.02.2014.

1. First Minister Alex Salmond speech
17/02/2014
This morning I want to set out four points of real importance for people as they make up their
minds on whether Scotland should be an independent country.
Firstly, I want to emphasise that contrary to the destructive campaigning style and rhetoric of the
Westminster establishment, the Scottish Government will continue to be constructive and
positive about the future of this country.
I believe that a positive campaign will always win out over a negative campaign and I also
believe that attempts to dictate from on high the terms of the debate underrate the strength of
the democratic process on which we are engaged in Scotland.
They also badly misread the nature of Scotland and the character of the Scottish people.
Secondly I want to address the specific arguments made by the Tory Chancellor to justify his
opposition to our proposal of a currency union between the rest of the UK and an independent
Scotland.
Thirdly I will discuss the politics of why that currency intervention of the Westminster parties
acting in concert has already backfired so badly.
And fourthly I will argue not only that Scotland could be an independent country, but that we
should and indeed must become independent if we are to provide the economic and social
advances the people who live here deserve.
After the SNP’s victory in the 2011 election the Westminster government, initially at least,
demonstrated a welcome spirit of co-operation. Of course there were some exceptions to that
rule.
When visiting the North East of Scotland in November 2011 the Chancellor of the Exchequer
declared that he knew that merely having the referendum was putting-off inward investors.
Since then inward investment has surged to new highs in Scotland and our unemployment rate
is now 6.4 per cent compared to the UK average of 7.1 per cent. Mind you these are small
errors compared to most Treasury forecasts!
However in 2012 the Prime Minister and I signed the Edinburgh Agreement to ensure the
referendum on independence would take place in a legal and consensual manner.
In that agreement both governments vowed to respect the result of the referendum, whatever
the outcome, and to work together constructively in the best interests of the people of Scotland
and the rest of the United Kingdom.
That was the basis of clause 30 of the Edinburgh agreement.
In the event of a yes vote that spirit of constructive cooperation will indeed take place. After all,
it is in everyone’s mutual interest for that to happen.

2. However we are now in a campaign period and the Conservative-Liberal Democrat Westminster
government has abandoned co-operation and that has been echoed by figures in the Labour
Party who should know a great deal better.
For example on Thursday George Osborne peppered his speech with references to Scotland as
a “foreign country”. Let me be clear. For Scots whether independent or not, the rest of the UK
will never be “foreign”. Indeed the Government of Ireland Act of 1948, negotiated after infinitely
more difficult circumstances than we have, specifically states that Ireland is not to be regarded
as a “foreign country”.
And so despite the Chancellor’s campaign rhetoric I don’t believe his “foreigner” language
represents any significant view in Scotland or indeed England, Wales and Northern Ireland.
Then there’s the UK diplomatic offensive against independence. A previous Foreign Office
Permanent Secretary once told me that we should regard the Foreign Office as Scotland’s
Foreign service. Clearly not now!
And in the last few days, panicky briefings suggest that even a Yes vote on September 18 might
not be respected in direct contradiction of not just the spirit but the letter of the Edinburgh
Agreement.
I have asked the Prime Minister to repudiate any such suggestion, promptly and categorically or
better still, let me put it to him directly in a debate - perhaps in this very city of Aberdeen next
week.
With all this accumulated negativity, it’s little wonder the no campaign calls itself Project Fear.
But we should be clear that what is said by Westminster during the heat of a political campaign
will differ from the reality of life after the referendum.
In the event of a yes vote the campaigning will stop and the common-sense agreements will
start.
Clause 30 of the Edinburgh Agreement will kick back in.
The same democratic logic applies to the comments of Mr Barroso yesterday. As Sir David
Edward, formerly of the European Court of Justice has pointed out, from the point of a yes vote,
is it certain “that EU law would require all parties to negotiate in good faith and in a spirit of
cooperation.”
Or as Graeme Avery the Honorary Director General of the European Commission has told the
Scottish Parliament, a European Union which has admitted a so many countries from all points
of the European compass will find a pragmatic way to accommodate the expression of
democratic will from Scotland. He speaks with the experience of someone who wrote the
Commission’s opinions on the membership applications of 14 countries and drafted the general
negotiating framework that the EU has used in 19 separate negotiations on membership.
It was of course the UK Government’s own legal adviser, Professor James Crawford, who
described the 18 month timetable as “realistic”.
The decision is one for member states, but not to recognise the democratic will of Scotland
would run counter to the entire EU European ideal of democratic expression and inclusion. It
would pose a challenge to the integrity of the European Union even greater and more
fundamental than the threat of British withdrawal. That is why no member state has suggested
that it would seek to block Scottish membership.
Of course in all of these matters with currency, and Europe practical discussions could take
place now – not negotiations which prejudge the outcome but sensible technical conversations.

3. The Scottish Government have always been willing to engage in these and let me repeat that
willingness today.
Indeed it would be the same sort of helpful technical discussions which have already taken
place with the politically independent Bank of England.
That brings me to my second point – the case against an agreed sterling zone made by the
Chancellor last week. The Scottish Government’s Fiscal Commission Working Group has
already set out a range of viable currency options for an independent Scotland.
That work is on going, and the chair of the commission, Crawford Beveridge, has set out today
how that work will proceed.
In their report published last year the group, made up of internationally renowned economists
including two Nobel Laureates , concluded that sharing the pound in a sterling zone was the
best option for Scotland and the rest of the United Kingdom.
Let us recall for a second who comprises the membership of that working group: Professor Sir
James Mirrlees, Professor Joseph Stiglitz, Professor Andrew Hughes Hallet, the Irish economist
Frances Ruane and chaired by the former Chief Executive of Scottish Enterprise.
I make the point because the chancellor seemed totally unaware of the amount of work and
analysis that has been devoted to this question and the strength of the commission who carried
it out.
Their report set out in detail why the proposed currency union differed fundamentally from the
Eurozone and set out how and why it would work. They also detailed a robust framework for its
success.
In his intervention Mr Osborne chose not to engage with the points made by the Fiscal
Commission Working Group. He chose instead to present a misleading caricature of the
macroeconomic framework they presented. He said the Scottish Government had not attempted
to offer answers to the questions posed by the Governor of the Bank of England, Mark Carney
in what I thought was an excellent speech in Edinburgh 2 weeks ago.
In fact the Fiscal Commission Working Group had anticipated these questions a year in
advance. Indeed the only economist cited by Governor Carney in his speech - with the
exception of Adam Smith himself - was Sir James Mirrlees!.
Let me offer just three examples.
The Fiscal Commission – on pages 140-149 – sets out how a financial regulation would work.
Mr Osborne cited the size of the Scottish financial services sector as a reason why he could not
recommend such an arrangement. However in a recent statistical publication, HMRC estimated
Scotland’s share of the Bank Levy (effectively a charge on the balance sheets of banks) to be
7.3 per cent of the UK total – smaller than Scotland’s share of UK GDP - not the near 25 per
cent which the Treasury has estimated and on which the Chancellor’s remarks are based.
This Treasury achieved its inflation of the Scottish financial sector by simply allocating London
based assets to Scotland.
For example the greater part of the banking assets allocated to Scotland is the RBS markets
division which is located in the city of London, has always been located in the city of London, is
now 80 per cent owned by Her Majesty’s government and in any case will soon be ring fenced
by the Vickers reforms!

4. I have published an analysis which demonstrates the full extent of - how shall I describe them –
the misunderstandings - in the Treasury analysis.
Until these London based assets are placed beyond country guarantee they would have to be
secured by London government under any constitutional arrangement.
Despite that the Fiscal Commission set out proposals for how we could proceed jointly and cooperatively with shared risk.
In other words, one of the Chancellor’s key arguments rests on a misrepresentation.
The Chancellor also said UK tax-payers would have to transfer money to an independent
Scotland in times of economic stress. They would not.
The Chancellor said such a shock could occur if there was a sharp fall in the oil price. In fact the
Fiscal Commission Working Group recommended a stabilisation fund to address this very point.
The fund would mean money will be built up when the oil price is high to smooth out price
fluctuations if the oil price was low.
The Chancellor cited between 2008 and 2009 when oil prices fell as his example. In fact in both
years with oil prices low and oil prices high Scotland’s finances were healthier than the UK – in
2008/9 by a lot and in 2009/2010 by a little.
The Fiscal Commission did recommend a fiscal sustainability agreement with overall objectives
for ensuring that net debt and government borrowing do not diverge significantly.
But these would be sensible rules that any country, whether in or out of a currency union, would
seek to adhere to. Such an agreement would allow control over fiscal levers, employment
policy, competition policy and a range of other policies which would in turn boost economic
resilience.
Some of those levers are detailed on page 203 of the Fiscal Commission report.
Thirdly the Chancellor down-played the disadvantages to the rest of the UK from a sterling
zone. He said you don’t need to be in a currency union to trade with other countries. No you
don’t. But it can impose a cost – a big cost.
I am publishing today an estimate of the transactions cost he would potentially impose on
businesses in the rest of the UK. They run to many hundreds of millions of pounds.
My submission is that this charge – let us call it the George tax – would be impossible to sell to
English business.
In fact if you remove oil and gas from the equation, Scotland is one of the very few countries in
the world with which England has a balance of trade surplus.
He also downplayed the £30 billion contribution of Scottish oil and gas production to the sterling
area’s exports. He ignored the fact that remaining as a single currency area provides
transparency of pricing and no exchange rate risk strengthening the efficiency of the market to
the benefit of consumers in both Scotland and the rest of the UK.
And he chose to disregard that the UK Government itself has argued that being part of a
currency area with reduced transaction costs “improves specialisation and results in a better
allocation of resources, with a positive impact on productivity and growth.”
In short, what was presented was not an economic assessment but a campaign tactic.

5. A tactic which included a rather curious attack on the Scottish Government on fiscal rectitude
from a UK Treasury which since 2005 - under three Chancellors but only one Permanent
Secretary - has borrowed a mind boggling £780 billion out of a total UK debt of £1.25 trillion.
In contrast since 2007 John Swinney as Scottish Finance Secretary has lived within a balanced
and declining budget!
And this casual Westminster dismissal of the Fiscal Commission’s work was accompanied by a
unique and one-sided Westminster view of assets and liabilities.
This view suggested that Westminster would decide what was an asset and Westminster would
decide what was a liability.
The accompanying Treasury paper on which Mr Osborne presented much of his case asserted
this point: “In the event of Scottish independence, the UK (without Scotland) would be the
continuing state in international law.”
The paper went on to say: “Because the UK pound is so inherently linked to the functions of the
Bank of England which, as has already been established, will remain with the continuing UK,
there is no legal basis for asserting “a share” in the UK pound – or the Bank of England – if
Scotland voted for independence.”
The problem with taking that approach is obvious. If there is no legal basis for Scotland having a
share of the public asset of the Bank of England then there is equally no legal basis for Scotland
accepting a share of the public liability of the national debt.
As Professor Christine Bell of Edinburgh University wrote last week: “Legally under international
law the position is clear: if the remainder UK keeps the name and status of the UK under
international law, it keeps its liabilities for the debt. The UK took out the debt, and legally it owes
the money. Scotland cannot therefore ‘default’.”
And she went on to write: “Were Scotland to do what every country would and should – use its
negotiations to achieve an equitable solution in the round - then the world would see …. a
country sensibly trying to achieve a stable economic future. And, curiously, at this point the UK’s
interests would not be to play hard ball – they would be to end up with a negotiation outcome
that left both countries in a strong and viable economic position.”
And of course the Treasury accepted its legal liability for all UK debt issued to the point of
independence under all circumstances in a statement on 13 January 2014 this year.
However the Scottish Government’s position is based not just in law, however strong, but on
goodwill.
In Scotland’s Future – the White Paper on independence - the Scottish Government outlined
two scenarios for Scotland’s share of UK public sector debt – population share and historic
share.
We are willing, despite the legal position, to accept a share of liabilities on the basis that there is
also a share of the assets – one of which is the Bank of England which holds almost one third of
the UK debt.
What we learned last week is that the Chancellor is pre-negotiating even while he says he isn’t,
and trying to make the best of a hand weakened by debt – weakened not by the attitude of the
Scottish Government but by the logic of his own position of claiming all of the assets of the
United Kingdom.
This brings me on to my third point of this speech – the boomerang politics which it represents.

6. The inherent unfairness in what the Chancellor was suggesting is one reason why his speech
was received so poorly in Scotland. Phone-ins, and newspaper polls taken after the
Chancellor’s statement indicated that his dictat had backfired badly.
Of course people are becoming sick and tired of a succession of day-tripping Conservative
ministers flying up to Scotland to deliver lectures before flying back to Westminster again.
However there is more to it than that.
No-one with a semblance of understanding of Scottish history and indeed the Scottish character
would have made a speech such as that. To be told that we had no rights to assets jointly built
up is as insulting as it is demeaning. To be told that there are things we can’t do will certainly
elicit a Scottish response that is as resolute as it is uncomfortable for the no campaign – it is yes
we can.
It is a sign of just how out of touch and arrogant the Westminster establishment has become.
This isn’t just the Tories – sadly we have come to expect it from the Conservatives. But the sight
of the Labour Shadow Chancellor reading from a script prepared by George Osborne was too
much to bear for many Labour supporters in Scotland. For Alistair Darling’s former election
agent it was the straw which broke the camel’s back and made him declare for a yes vote.
I predict that moment will prove to be one of the Westminster Labour leadership’s biggest
misjudgements.
Siding with the man who is intent on dismantling the post-war welfare state and imposing
permanent austerity will haunt the two Eds.
Mr Osborne’s speech and the reaction of the Labour Party at Westminster will have re-ignited
the independence debate in many people’s eyes.
The two futures on offer in this referendum will come under renewed scrutiny – particularly from
those dismayed at Labour’s actions last week.
Which brings me to my fourth and final point.
During the past year both the yes and no campaigns have been setting out their case. There
are honest differences on both sides. But one thing is agreed.
No-one doubts that Scotland can be a successful, independent country.
Even without the huge bonus of North Sea oil and gas Scotland’s economy, per head, is almost
the same size as the UK’s.
With oil and gas revenues it is substantially larger.
We are among the wealthiest nations in the OECD.
For every one of the last 30 years we have generated more tax revenues per head than the UK.
And taking tax and spending together then over the last five years our public finances have
been stronger than the UK’s to the tune of £12.6 billion.
We are rich in human talent and natural resources.
We have more top universities per head than any other nation.

7. We are a hotbed of life sciences. We have a world-class food and drink industry.
We have extraordinary potential in renewable energy and we have real strengths in
manufacturing, financial services, tourism and a range of other growth industries.
So it is agreed Scotland is one of the world’s wealthiest nations.
The issue in the independence referendum is not whether Scotland could be independent, it is
whether we should be independent.
It is a question about what is best for Scotland’s future.
One future is to leave Westminster in charge.
By looking at the evidence we can see the future that the Westminster establishment has in
mind.
It is a Scotland as an economic region of a country with one of the biggest gaps between rich
and poor in the developed world.
As part of an economic system which is increasingly concentrating jobs and opportunities in
London and the South-East of England.
An economy which consistently runs up huge trade deficits and which has seen a bigger decline
in manufacturing than its competitors.
It is a future presided over by politicians who tell people in Scotland we can’t be independent
because we will face in the future a declining working population – and at the same time impose
policies to reduce the working population.
And it is a future where we know that leading politicians from all the main Westminster parties
are itching to impose £4 billion of spending cuts on Scotland – over and above the extra £25
billion of continuing UK-wide cuts planned by George Osborne.
The alternative is to take Scotland’s future into Scotland’s hands. To have faith in ourselves and
our abilities.
To be in charge of our own destiny with the security that being in control of our lives brings.
The no campaign has no plan for Scotland apart from leave it to Westminster and hope for the
best.
In Scotland’s Future we set out a plan to create opportunities and build economic security.
By boosting the working population; transforming childcare to open up many more opportunities
for women in particular.
By giving business in Scotland a competitive tax edge to counter the huge gravitational pull of
London.
By creating a new partnership model between employers, employees and government to boost
productivity.
An independent Scotland will have the range of policy levers we need to rebalance the
economy, boost research and development and expand trade.

8. Decisions about Scotland will be taken by the people who care most about Scotland – the
people who live and work here.
We will do all this while co-operating - in a partnership of equals - with our closest friends in the
rest of the United Kingdom.
That is why we can we should and indeed we must become an independent country.