Here’s why the SNP can’t just blame Brexit for Scotland’s economic woes – Murdo Fraser

Uncertainty over Brexit may be damaging Scotland's economy, but so is the continuing debate about a second independence referendum, says Murdo Fraser (Picture: Jane Barlow/PA Wire)
Uncertainty over Brexit may be damaging Scotland's economy, but so is the continuing debate about a second independence referendum, says Murdo Fraser (Picture: Jane Barlow/PA Wire)
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The father of modern economics, Kirkcaldy’s Adam Smith, wrote in 1755: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things”.

For Smith’s word “peace” we might well today substitute the words “political stability”. For it is very clear that the uncertainties around both Brexit and the potential for a second independence referendum, are factors acting as a drag on Scotland’s economic performance. But that doesn’t tell the whole story.

Last week the respected Fraser of Allander Institute issued an economic commentary looking at Scottish performance in the context of the United Kingdom as a whole. They pointed to evidence of the negative impact of political uncertainty: business investment in the UK having now been negative in five of the past six quarters, and both consumer confidence and risk-appetite amongst businesses being weak.

A deal with the EU27 will, according to Fraser of Allander, help lift some of the fog of uncertainty that has hung over the Scottish and UK economies in recent times, and deliver a short-term economic boost. The impact of Brexit in the longer term will depend upon the exact terms of the future relationship with the EU.

READ MORE: Fraser of Allander report paints mixed picture for Scottish business

READ MORE: Extra income from Scots tax rises ‘wiped out by slow wage growth’

If we burrow deeper into the economic commentary’s findings, we learn that there are specifically Scottish concerns which cannot be attributed solely to Brexit. Scotland’s annual growth rate is now just 0.7 per cent, compared to that of the UK as a whole at 1.2 per cent.

Since 2016, the Scottish economy has grown at four per cent compared to five per cent in the UK and seven per cent in the EU. And, while some of the recent weakness in the Scottish economy can be pinned on Brexit uncertainty, the actual trend in activity since early 2016 is broadly in line with the period between 2010 and 2016. So even before the EU referendum, the Scottish economy was underperforming the UK average, and that trend is simply continuing.

Tens of thousands without jobs

The employment figures tell a similar story. In the three months to August, Scottish unemployment jumped 0.8 per cent, and employment fell by 1.4 per cent. This means that Scottish unemployment is higher than the UK average, and the employment rate at 74.3 per cent substantially below that of the UK at 75.9 per cent. That represents tens of thousands of adults of working age who could be making an economic contribution and paying taxes, but are not currently doing so.

Whilst it may be very convenient for SNP ministers to blame all of Scotland’s economic woes on Brexit, the facts simply do not fit this narrative. There is something else going on here, above and beyond our departure from the EU.

When we look at business confidence in Scotland, political uncertainty is being caused not just by doubts about the future post-Brexit, but concerns about the prospect of a second independence referendum. With no certainty as to what currency we might use post-independence, how we would fill the fiscal gap of £12.7 billion, or what our trading relationship would be with our largest export market in the rest of the UK, it is no wonder that Nicola Sturgeon’s relentless drive for indyref2 is having a negative impact both on business and on consumer confidence.

Financial executives filled with horror

Despite all this there are key strengths to the Scottish economy. There was a palpable sense of positivity and optimism at the Scottish Financial Enterprise annual dinner last week, with businesses across the sector showcasing dynamism, innovation and investment in skills. This is a sector where Scotland’s reputation has always been strong, and there is no sign of that changing anytime soon.

For many of those I spoke to at that dinner, whilst Brexit uncertainty is a concern, it is issues closer to home that they regard as more of a threat. The prospect of an independent Scotland running a different currency from the UK is one which fills financial industry executives with horror, and would inevitably lead to a substantial exodus of capital, and with it thousands of well-paid jobs.

The SNP’s tax regime, ensuring that anyone earning above £27,000 pays higher taxes than the rest of the UK, is also an ongoing concern. For young ambitious, talented, highly mobile individuals, levels of taxation are a factor in determining where they accept job offers, and if we continue to see a growing divergence between Scottish tax rates and those elsewhere in the UK then the impact on Scottish business is bound to be negative.

Fraser of Allander concludes in its report that there is need for a more open discussion of the underlying growth dynamics of the Scottish economy. That is a debate that the Scottish Conservatives are up for. Our Scottish Future Growth Council has already published a suite of proposals on how to improve productivity in our economy, and will shortly be producing its second report on shifting our economic performance into a higher gear. Bringing in serious measures to tackle our economic underperformance, rather than simply blaming the Brexit bogeyman, is what is going to make a real difference in the future.