Five questions on the economics of independence

First Minister Nicola Sturgeon launched the first in a series of papers on independence in June

The Scottish government sets out its latest prospectus in the Building a New Scotland series on Monday ahead of the independence referendum it hopes to hold next year. BBC Scotland's Business and Economy editor Douglas Fraser picks out five key areas to watch.

There have already been two papers from Nicola Sturgeon's administration setting out the perceived democratic deficit and how an independent Scotland could be "wealthier, happier and fairer".

The latest seeks to outline the economic case, which the Better Together campaign focused on in 2014 to sow seeds of doubt.

A lack of confidence in the answers from the Yes campaign is one of the explanations why 55% of voters chose not to back independence eight years ago.

So which of the questions from 2014 would remain an issue in the referendum the Scottish government wishes to hold? And which new questions have arisen?

Which currency?

Eight years ago, the SNP and Scottish government prospectus for independence would have seen joint control of the Bank of England and of the pound sterling. The Treasury, under George Osborne, said "no chance", but the then First Minister Alex Salmond claimed that position would change after a Yes vote.

After the No vote, it was the SNP position that changed. The plan now is for Scots and Scottish businesses to continue using the British pound, without seeking joint control of it.

The creation of a new Scottish currency would begin, including the setting up of a central bank. That could take several years. It would then either float or it could be pegged to the UK pound, or to the euro.

In time, the European Commission could require Scotland, if it becomes a member state, to adopt the Euro, though the conditions and timetable likely to be placed on that are disputed.

How that transition to a Scottish currency happens, and how long it takes, is a difficult area for the Scottish government to provide reassurance. This is largely uncharted territory for a complex and highly integrated economy such as the UK's.

Voters will want to know how secure their earnings, savings, loans and pensions will be with a new currency, and businesses will have a similar set of questions.

What access would an independent Scotland have to markets?

Following Brexit, trading relations with the European Union became more burdensome for importing and exporting firms, and that brought added cost. They remain uncertain for Northern Ireland, with the special circumstances of the Good Friday peace agreement.

Scotland continues to have unfettered access to markets for goods and services in the rest of the UK. If it becomes independent, new trading relations would have to be negotiated with Whitehall.

If Scotland is to join the European Union, those relations may have to conform to the requirements of that trading bloc. The Brexit process and the example of Ireland brings a warning that Brussels could require a hard frontier where its customs union ends and the rest of the UK, now a "third country", begins.

Creating that friction at the Tweed and Gretna could slow the movement of goods and make digital trade more complex and expensive. It could also mean a change to Scots' right to work in England, Wales and Northern Ireland, while re-opening work and travel freedoms in the EU.

An independent Scotland could seek a position inside the European single market while retaining easy trading relations with the rest of the UK. That would require goodwill from both these larger trading blocs.

How would Scotland pay the UK government's bills?

The pandemic has had a massive impact on public finances

Annual figures published by the Scottish government - GERS, or Government Expenditure and Revenue Scotland - indicate the starting point for tax revenue and spending levels in an independent Scotland.

We could assume it would have freedom to reform tax and adjust tax rates, while choosing different priorities on spending.

As things have stood in recent years, the total cost of public services, welfare benefits, and state-funded pensions in Scotland has been significantly higher than estimated tax revenue.

Running such a government deficit is not unusual. But the deficit estimated for Scotland has appeared to be unsustainably large as a proportion of total economic output.

Recent events for the UK's public finances have shown how markets for the bonds which governments issue to fund such deficits can push up costs and constrain government policy.

Learning that lesson, the selling of future Scottish government bonds would require a clear plan and signals of discipline about managing taxation, spending and borrowing.

Debt is what builds up from years of deficits. The UK government has amassed a high level of debt since the financial crunch of 2008 and through the costs of responding to Covid. Whether or how Scotland takes on a share of that debt is open to debate and dispute.

One factor that is unlikely to play the same role in 2014 and in a future referendum campaign is revenue from the oil and gas industry.

It is no longer the way in which the SNP wishes to fund public services. Any future taxes would be put into an investment fund, under the plans the party adopted in 2018.

Indeed, it is an industry the SNP no longer wishes to see expanding, preferring a "just transition" to renewable power.

How to grow the economy faster?

For the new occupants of Downing Street, they see faster growth as not only an important priority for the UK economy, but the means of escaping the deficits and debts that have mounted up.

The case for independence has a similar strand of thinking. The argument has been made that low business tax, similar to Ireland's, could accelerate economic growth. That is not heard as often now, as the room for manoeuvre on business tax has been narrowed.

SNP policy will be under pressure to make clear whether it would seek to boost growth rates through public investment - in infrastructure, for instance, funded by more government borrowing - or through cutting some taxes.

There are other measures that could help increase the growth rate: "supply side" measures ranging from improved education and skills to support for exporters and lower levels of business regulation.

In her party conference speech last week, Nicola Sturgeon pointed to the reforms she wishes to emphasise in the economic case to be set out this week.

These include a repeal of trade union law and social partnership across employers, unions and government; EU membership; higher minimum wages for those aged up to 23; and "fairer migration".

Others in the pro-independence campaign and outside the SNP take a different approach, and some of them have become more vocal since the 2014 referendum.

How long will the transition take and at what cost?

The case for independence often starts from an assertion that Scotland already has a strong economy and can be a successful independent nation state.

That is rarely disputed. The next question for the independence campaign is how that can be achieved.

A further question is how long it might take to achieve its goals of economic success and stable public finances. And at what cost?

The cost is not only to be measured in British or future Scottish pounds: there is also an "opportunity cost" of what could be achieved without the disruption that independence would inevitably require. On the contrary, there may be a higher cost of delaying independence further and paying a price for remaining within the UK union.

It is sometimes said that if you're asking what independence would cost, you're missing the point. It may not be transactional that way. It may be more a question of identity or democracy.

The answer to that question can only be answered by the electorate.

Non-economic, non-financial considerations could win an independence vote.

But the economic and financial questions will still, surely, be asked, and the answers will form an important part of another referendum campaign.