Editorial: Shrewd Scots will vote to stay with UK

As a united kingdom with England for 300 years Scots have played a leading part in the history that made Britain great. Photo / Thinkstock

Scotland's blood flows strongly in New Zealand's veins. A high proportion of this country's colonial settlers were Scots. By now that blood has been so well mingled with English, Irish, Maori and other strains in the population that it is hard to fathom from this distance why Scots are contemplating independence today.

As a united kingdom with England for 300 years Scots have played a leading part in the history that made Britain great. In the 18th century, Scottish thinkers, inventors and engineers inspired one of the world's first capitalist, industrial economies. In the 19th century, Scots helped establish and run the greatest maritime empire the world has seen. In the 20th century they stood with England through two world wars. Could it all end in a referendum tonight?

Polls suggest it could. Scotland has just 5.3 million people in a United Kingdom of 63 million and its voters' political leanings have been diverging from England's for several decades. Reports suggest Scots could overturn 300 years of history tonight for no better reason than they do not like Tory governments.

It may not be that simple. Separatist sentiment was growing before English politics took a right turn with the election of Margaret Thatcher in 1979. A referendum on "devolution" had been demanded from the previous Labour Government. A limited devolution of powers from Westminster to Edinburgh followed that referendum and another in 1997, which resulted in a Scottish Parliament.

Scotland already has a high degree of self-government. Besides its own justice and education systems, which it previously preserved, Scotland's Parliament has acquired power to levy business and council taxes, borrow money in its own right and set certain welfare benefits. But most of its revenue still comes in a block grant from Westminster which gives Scots more public spending per person than the English receive.

Scots stand to lose that benefit if they vote for independence tonight, while they would gain full power of taxation that nationalists believe would make Scots better off in the long run. It is argued that block funding encourages irresponsible spending, whereas the right to tax incomes would be an incentive for Scottish governments to make decisions that generate economic growth.

The "yes" campaign has been cheerfully speculative on issues of economic costs and benefits, while the "no" side has spread fear. Opponents of independence believe banks and leading Scottish industries would move south, while independence supporters envisage a revival of Scotland's entrepreneurial tradition. The "yes" campaign's big mistake has been its desire to retain the pound.

Scottish nationalists have not realised that a country cannot be completely independent if it uses the currency of a much larger economy. The debate has been confused on this point. Reports suggested the Bank of England would refuse to let Scotland use the pound. Every country is free to use any currency it wants. But if it uses another country's money, or pegs its own currency's exchange rate to another, its economy will be affected by monetary policy set to suit the other country's economic condition. The Bank of England cannot stop Scotland but it has refused to give it representation on the board that sets base interest rates for the pound.

Consequently, Scots who vote for independence tonight will be voting for less independence than they realise. In retaining the pound they would avoid the costs of currency exchange for the 70 per cent of Scotland's exports that go to the rest of the UK. But exchange differentials are likely to be less than the higher living costs, falling real wages and the social stress it could face when the pound is out of kilter with its economy. If they cannot foresee this, Scots will vote yes. If they are far-sighted they will vote no.