Brexit: We must be honest about effects of ‘disastrous’ no-deal – Derek Mackay

The Scottish Government is trying to prepare for Brexit but not every effect can be mitigated, writes Scotland’s Finance Secretary Derek Mackay.

A pro-Remain protester makes a point outside the Houses of Parliament (Picture: Alastair Grant/AP)

Scotland’s economy has remained resilient despite a backdrop of intensified risk relating to a ‘no-deal’ Brexit. We have seen consistent growth, and demand for Scottish products like machinery, food and drink continue to rise across the globe.

However, the ongoing uncertainty of a looming no-deal Brexit poses a huge threat to jobs, businesses and our economy and I fear these impacts are becoming more pronounced.

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The publication last week of the UK Government’s assessment of the likely impact of and preparedness for a no-deal Brexit sets out the stark and grim reality of the dangers we are facing.

Under no-deal, according to the UK Government, delays to freight would mean delays to goods in and out of the UK, causing issues for importers and exporters as well as manufacturers. Fresh food supply will decrease and financial services – one of Scotland’s largest industries – will be disrupted. There may be fuel disruption and impacts at Scotland’s only refinery at Grangemouth. All of which points to a major dislocation for our economy.

That’s the base or worst-case no-deal situation – and it’s a situation which, at this point in the Brexit negotiations, puts our economy in jeopardy.

It is hardly a surprise that, faced with these prospects, overseas orders are falling as companies in other countries aren’t willing to take the risk to buy products or invest in services that they don’t know they will receive.

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The economic implications of leaving the EU with no-deal will be disastrous for Scotland and could push the country into recession. The Fraser of Allander Institute has said no-deal could equate to GDP in Scotland being £9 billion lower and unemployment rising to nearly double the current rate. That level of contraction would more than wipe out the last two years’ growth in the economy and the gains in employment.

But it’s not just no-deal, even an orderly Brexit will have an impact. The European single market and customs union is particularly vital to the Scottish economy and is eight times bigger than the UK market alone. More than half of all Scottish goods we exported in the last three months were sent to Europe and over the past year, goods exports to Europe have increased by 11.8 per cent to £17.3 billion.

And a Brexit that saw Northern Ireland able to benefit from continued alignment or membership with the single market or customs union while Scotland is dragged further away would put us at a real competitive disadvantage.

We are already seeing the impact Brexit and the threat of no deal is having on business and consumer confidence in Scotland with an increase in stockpiling and reduced investment intentions.

Consumer sentiment in Scotland has been negative since the EU referendum and we’ve seen it deteriorate further in the first half of the year.

Last week our unemployment figures, whilst low, began to rise suggesting a slow-down in the labour market.

Every day brings new warning bells.

The UK Government cannot simply claim this isn’t happening, when every independent study highlights the risk Brexit poses and the damage being done. Temporary boosts in activity as people and businesses stockpile ahead of approaching deadlines are beneficial on the surface, but they speak to the dangerous situation we are in.

Figures showing negative growth in the UK in the last quarter should not simply be discounted as a blip.

Now I am an optimist and a believer that Scotland and Scotland’s business community are incredibly resilient. The recovery from the financial crash shows what can be done and the progress in industries such as renewable energy, food-and-drink and tourism shows that we can tap into new markets, that our expertise is valued, and our exports valuable.

Through our work as a Government, we are taking steps to protect jobs and our economy from Brexit at the same time as we continue to work to make our economy fit for a low-carbon, high-innovation future.

Our Future Skills Action Plan will help ensure Scotland has a skilled and productive workforce which is resilient to future economic challenges.

We are continuing to increase investment in R&D, our export plan seeks to ensure we are not just fighting back against the impact of Brexit but targeting key markets and key industries that have real growth potential.

We will build on that in the next year with an action plan to boost inward investment and the early stage investments of the Scottish National Investment Bank.

We aim to combat the potential fall in population as a result of Brexit, with campaigns to ensure EU citizens know Scotland is their home and they are welcome and efforts to secure an immigration policy that fits Scotland’s needs.

And we are engaging with business organisations across Scotland and seeking to address their concerns to mitigate any drop in economic activity and to remove constraints to trade. This includes providing bespoke information for how businesses can prepare for Brexit and supporting access to finance, for businesses of all sizes.

We will continue to do all of that and more, against the backdrop of this deeply damaging Brexit, but I must be honest that not every impact of Brexit can be mitigated.

Of course, the easiest way to tackle this is to prevent Brexit and we will keep working to do that. The economic damage already being done shows why standing up to this UK Government is so important.

Scotland did not vote to leave the EU and we continue to stand firm against efforts to take us out of the EU against our will.

Derek Mackay is Finance Secretary and SNP MSP for Renfrewshire North and West