Would Scotland really suffer if RBS moved after independence?

Any relocation would be largely symbolic but the Scottish economy desperately needs to be rebalanced.

Vince Cable became the latest UK government minister to warn (or imply, at any rate) that the financial crisis would have sunk an independent Scotland when he gave evidence to the Business, Innovation and Skills Committee at Westminster yesterday. In response to a question from Labour’s William Bain about the consequences of removing the Bank of England as lender of last resort to the Royal Bank of Scotland, Cable said: "I think if you were managing RBS you would almost certainly want to be in a domicile where your bank is protected against the risk of collapse. I think they already have a substantial amount of their management in London and I would have thought that, inevitably, they would become a London bank, which would be symbolically quite important."

You can see the Business Secretary’s point. RBS, which is headquartered at Gogarburn, just outside Edinburgh, has a balance sheet roughly ten times the size of Scotland’s entire economic output. Had Scotland been independent in 2008, when the bank imploded under the weight of its own reckless lending and acquisition practices, the Scottish Treasury would have gone bust trying to keep it afloat and the Scots, like the Irish, been forced to seek a hefty EU/IMF rescue package.

But the problem with Cable’s argument – an argument which has featured heavily in unionist rhetoric over the last five or six years – is that RBS is a British bank, not an exclusively Scottish one. At the time of the crash, RBS had more customers and employees in the rest of the United Kingdom than it did in Scotland, as well as a majority of its capital assets in the City of London. Today, as it edges back into private ownership, it still has 24 million customers across the UK and, as Cable acknowledges, "substantial" management in the British capital.

On what grounds, then, would the rest of the UK have insisted that Scotland take responsibility for the full cost of the £45bn RBS bail-out?  Moreover, what obligation would an independent Scotland have had – or currently have – to guarantee the deposits of RBS customers south of the border? That was – and would remain were Scotland to leave the UK – the role of the British government.

Cable’s position is further undermined by experiences elsewhere. Not long after the near collapse of Britain’s financial sector, the Netherlands, Belgium and Luxembourg joined forces to salvage Fortis, a major European bank. Bail-out costs were divided according to the proportion of Fortis’s operations in each of those countries. National boundaries, it seems, matter little to financial institutions capable of straddling continents.

Yet Cable has, however unwittingly, raised one interesting question. To what extent would Scotland suffer if RBS did move its headquarters from Edinburgh to London after independence? RBS employs about 12,000 people in Scotland, while the financial sector as a whole employs roughly 85,000 people and accounts for between 7 or 8 per cent of Scottish GDP. Only a small number of these jobs – most likely those at Gogarburn – would be at risk were RBS to relocate down south. It’s difficult to imagine what reasons the bank would have to further reduce its Scottish operations. Indeed, Cable himself concedes any such relocation would be little more than "symbolic".

And what would that symbolism amount to? Finance capitalism, particularly of the sort practiced by RBS in recent years, is predatory, monopolistic and crisis-prone. It’s hardly a coincidence that those countries, such as the UK, Ireland and the US, which allowed their economies to become heavily leveraged on financial services in the run-up to 2008 also suffered the longest and most severe post-crash downturns in the developed world.

The Scottish economy desperately needs to be rebalanced. It currently exports more in financial goods and services than it does in manufacturing (the underlying weakness of its trade balance is disguised by strong oil and whisky exports). Were its banks to run into more trouble, it would lack a robust manufacturing base to fall back on. RBS won’t flee an independent Scotland. But if it did, the long term effects would probably be beneficial. 

A general view of RBS's company headquarters at Gogarburn on December 12, 2011 in Edinburgh. Photograph: Getty Images.

James Maxwell is a Scottish political journalist. He is based between Scotland and London.

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North Yorkshire has approved the UK’s first fracking tests in five years. What does this mean?

Is fracking the answer to the UK's energy future? Or a serious risk to the environment?

Shale gas operation has been approved in North Yorkshire, the first since a ban introduced after two minor earthquakes in 2011 were shown to be caused by fracking in the area. On Tuesday night, after two days of heated debate, North Yorkshire councillors finally granted an application to frack in the North York Moors National Park.

The vote by the Tory-dominated council was passed by seven votes to four, and sets an important precedent for the scores of other applications still awaiting decision across the country. It also gives a much-needed boost to David Cameron’s 2014 promise to “go all out for shale”. But with regional authorities pitted against local communities, and national government in dispute with global NGOs, what is the wider verdict on the industry?

What is fracking?

Fracking, or “hydraulic fracturing”, is the extraction of shale gas from deep underground. A mixture of water, sand and chemicals is pumped into the earth at such high pressure that it literally fractures the rocks and releases the gas trapped inside.

Opponents claim that the side effects include earthquakes, polluted ground water, and noise and traffic pollution. The image the industry would least like you to associate with the process is this clip of a man setting fire to a running tap, from the 2010 US documentary Gasland

Advocates dispute the above criticisms, and instead argue that shale gas extraction will create jobs, help the UK transition to a carbon-neutral world, reduce reliance on imports and boost tax revenues.

So do these claims stands up? Let’s take each in turn...

Will it create jobs? Yes, but mostly in the short-term.

Industry experts imply that job creation in the UK could reflect that seen in the US, while the medium-sized production company Cuadrilla claims that shale gas production would create 1,700 jobs in Lancashire alone.

But claims about employment may be exaggerated. A US study overseen by Penn State University showed that only one in seven of the jobs projected in an industry forecast actually materialised. In the UK, a Friends of the Earth report contends that the majority of jobs to be created by fracking in Lancashire would only be short-term – with under 200 surviving the initial construction burst.

Environmentalists, in contrast, point to evidence that green energy creates more jobs than similar-sized fossil fuel investments.  And it’s not just climate campaigners who don’t buy the employment promise. Trade union members also have their doubts. Ian Gallagher, Secretary of Blackburn and District Trade Unions Council, told Friends of the Earth that: “Investment in the areas identified by the Million Climate Jobs Campaign [...] is a far more certain way of addressing both climate change and economic growth than drilling for shale gas.”

Will it deliver cleaner energy? Not as completely as renewables would.

America’s “shale revolution” has been credited with reversing the country’s reliance on dirty coal and helping them lead the world in carbon-emissions reduction. Thanks to the relatively low carbon dioxide content of natural gas (emitting half the amount of coal to generate the same amount of electricity), fracking helped the US reduce its annual emissions of carbon dioxide by 556 million metric tons between 2007 and 2014. Banning it, advocates argue, would “immediately increase the use of coal”.

Yet a new report from the Royal Society for the Protection of Birds (previously known for its opposition to wind farm applications), has laid out a number of ways that the UK government can meet its target of 80 per cent emissions reduction by 2050 without necessarily introducing fracking and without harming the natural world. Renewable, home-produced, energy, they argue, could in theory cover the UK’s energy needs three times over. They’ve even included some handy maps:


Map of UK land available for renewable technologies. Source: RSPB’s 2050 Energy Vision.

Will it deliver secure energy? Yes, up to a point.

For energy to be “sustainable” it also has to be secure; it has to be available on demand and not threatened by international upheaval. Gas-fired “peaking” plants can be used to even-out input into the electricity grid when the sun doesn’t shine or the wind is not so blowy. The government thus claims that natural gas is an essential part of the UK’s future “energy mix”, which, if produced domestically through fracking, will also free us from reliance on imports tarnished by volatile Russian politics.

But, time is running out. Recent analysis by Carbon Brief suggests that we only have five years left of current CO2 emission levels before we blow the carbon budget and risk breaching the climate’s crucial 1.5°C tipping point. Whichever energy choices we make now need to starting brining down the carbon over-spend immediately.

Will it help stablise the wider economy? Yes, but not forever.

With so many “Yes, buts...” in the above list, you might wonder why the government is still pressing so hard for fracking’s expansion? Part of the answer may lie in their vested interest in supporting the wider industry.

Tax revenues from UK oil and gas generate a large portion of the government’s income. In 2013-14, the revenue from license fees, petroleum revenue tax, corporation tax and the supplementary charge accounted for nearly £5bn of UK exchequer receipts. The Treasury cannot afford to lose these, as evidenced in the last budget when George Osborne further subsidied North Sea oil operations through increased tax breaks.

The more that the Conservatives support the industry, the more they can tax it. In 2012 DECC said it wanted to “guarantee... every last economic drop of oil and gas is produced for the benefit of the UK”. This sentiment was repeated yesterday by energy minister Andrea Leadsom, when she welcomed the North Yorkshire decision and described fracking as a “fantastic opportunity”.

Dependence on finite domestic fuel reserves, however, is not a long-term economic solution. Not least because they will either run out or force us to exceed international emissions treaties: “Pensions already have enough stranded assets as they are,” says Danielle Pafford from 350.org.

Is it worth it? Most European countries have decided it’s not.

There is currently no commercial shale-gas drilling in Europe. Sustained protests against the industry in Romania, combined with poor exploration results, have already caused energy giant Chevron to pull out of the country. Total has also abandonned explorations in Denmark, Poland is being referred to the European Court of Justice for failing to adequately assess fracking’s impact, and, in Germany, brewers have launched special bottle-caps with the slogan “Nein! Zu Fracking” to warn against the threat to their water supply.

Back in the UK, the government's latest survey of public attitudes to fracking found that 44 per cent neither supported nor opposed the practice, but also that opinion is gradually shifting out of favour. If the government doesn't come up with arguments that hold water soon, it seems likely that the UK's fracking future could still be blasted apart.

India Bourke is the New Statesman's editorial assistant.