There seems a strange coalition developing between the forces of Scottish nationalism and elements of unionism in Scotland that no-deal Brexit may break the UK Union, writes Ewen Stewart of pro-Brexit think tank Global Britain.
Some of the claims of the SNP are to be expected. Their raison d’etre is to break the ties with the UK. Any excuse, or supposed point of difference, will be used to this end.
Nicola Sturgeon’s case that a so-called no-deal Brexit would be a disaster for Scotland is not a surprise. She has a record of dire warnings.
What is more unfortunate is when the leader of the largest Unionist party, Ruth Davidson, should appear to add fuel to Sturgeon’s fire.
Davidson has not been shy about her concern over ‘no deal.’ Robust debate over sincerely held different perspectives is to be expected and encouraged but, it might be better if the pro-Union camp did not wash its dirty linen in public – particularly as the negotiations to exit the EU are the responsibility of the British Government and not the Scottish Parliament, where Davidson leads the Conservative MSPs.
Nevertheless, let’s examine the facts about ‘no deal.’ Would no deal really be a disaster for Scotland as some claim?
We think not. On the contrary, we think a clean break with the EU will enhance the UK union, rebuilding a sense of common purpose by emphasising just how mutually beneficial the UK union is to the four component nations.
Economically, membership of the UK is eight times more important to Scotland than membership of the EU. This is because Scotland trades 3.5 times more with the UK than the EU, is in full monetary union with the UK and benefits from a fiscal 'Union dividend'.
The extent to which tax receipts are lower and spending higher than the UK average – the Union dividend – is worth £10.2bn to Scotland. That is a staggering £1,882 a head more than the UK average. Most of this is used to keep spending on key services higher than in England, which can mean higher demand in the Scottish economy and lower taxes than would otherwise be the case.
It is thus irrational to argue that a no-deal Brexit should lead to Scottish separation from the UK – for those believing a no-deal Brexit to be a mistake would be compounding that error eight times over if Scotland left the UK.
On the contrary, Brexit will strengthen the union for, by being a member of the UK, Scotland benefits from three key advantages: unfettered access to the UK’s single market; use of the pound Sterling, and the Union dividend which gives major fiscal advantages to Scotland.
United Kingdom GDP is $2.9 trillion, meaning that it is the 5th largest economy in the world and one of the most attractive in the OECD for foreign investors – with Scotland a fully integrated part of this United Kingdom ‘single market’.
There are virtually no regulatory barriers to doing business across the nations and regions of the United Kingdom, which makes it very easy for Scottish business to establish supply chains and sell products and services throughout this large market – and for Scottish consumers to choose and buy from elsewhere in the United Kingdom.
The benefits of such frictionless free trade are well known: supplies, raw materials and finished products become cheaper, the pool of investment is larger, and competition greater, leading to lower prices and higher productivity.
This frictionless trade across the UK single market is highly beneficial to Scotland as confirmed by the top line figures: Scottish business sells £48.9bn worth of goods and services to the rest of the UK – compared to £17.6bn to the rest of the world and £14.8bn to the rest of the EU.
From a trade perspective, the UK is 3.3 times more important than the entire EU combined. £48.9bn is worth almost one-third of the entire Scottish economy, or £8,890 per head of Scottish population.
It should also be recognised that the share of Scottish exports (by value) to the EU – which is meant to be easier because of the UK being a member of the EU’s single market and customs union – fell by 16 per cent in real terms between 2002-2017 while exports to the rest of the world – mostly under World Trade Organisation rules that are often described as the system that would operate after a no-deal Brexit – have risen by 26 per cent in real terms over the same period.
If no deal was such a dire threat to Scotland, we would expect the exports to the EU to have prospered and exports to the rest of the world to have fallen sharply, yet the reverse is true.
Likewise Scottish exports by value to the rest of the UK have increased by 11 per cent in real terms – making the UK’s single market more important than ever.
Scottish export sales by volume tell a similar story with the share of exports to the EU falling while the share of exports to rUK and rest of the world increasing. Whatever way the figures are read they demonstrate that trade to the rest of the United Kingdom and rest of the world is far more important for Scottish economic growth, prosperity and employment.
Indeed research by the Fraser of Allander Institute estimates that 529,000 Scottish jobs are supported by ‘exports’ to the rest of the United Kingdom (rUK) compared with 125,000 supported by trade to the EU (excluding the United Kingdom).
Its research demonstrates that around one in five jobs in Scotland are therefore supported by United Kingdom trade.
Using Sterling as part of the UK offers significant advantages to Scotland. Monetary policy is closely aligned with Scottish circumstances; the cost of capital is lower; the economy and banking systems are underpinned by the Bank of England, and Scotland’s financial sector is part of the same regulatory regime as its major market in the rest of the UK.
As Scottish trade, spending, pensions, welfare and social relationships are overwhelmingly correlated with the rest of the UK and not the EU, swapping Sterling for the Euro, or a new Scottish currency, would make no rational sense.
Independence would be damaging economically to Scotland. It would lose the benefits of the UK single market and the alternatives to Sterling all have serious disadvantages. Taxes and borrowing would have to increase substantially to replace the Union dividend, with likely cuts to public spending.
Separated from the UK, without the £10.2bn Union dividend, Scotland would run a fiscal deficit of at least 8 per cent GDP, probably more given likely capital flight, which would be by far the weakest in the EU.
That is eight times the EU average deficit and would require immediate significant tax rises and/or spending cuts. To meet the EU’s own budget deficit criteria, of a maximum three per cent fiscal deficit, would require spending cuts or tax rises of over £8bn or £1,600 a head. Such a drastic austerity would dwarf the alleged austerity of the last decade.
The evidence supports the claim that the UK is a great partnership. Scotland plays its full part and all constituent parts benefit from it. Together the UK is able to influence global affairs for the better, consistently being a leading ‘soft power’ through the benefits of a strong cultural, educational, media and artistic mix. It can ensure global security and advantageous trade more effectively than if it split apart.
Nationalists are attempting to portray Brexit as a reason to promote independence and especially a no-deal Brexit. But while Brexit has divided opinion, it in fact makes our membership of the UK all the more essential. It is misleading to claim that Independence can avoid the costs of Brexit because any barriers to trade that arise from Brexit would be applied to the border between an independent Scotland and the rest of the UK, which is well over three times as big a trading partner as the rest of the EU. The Scottish Government’s own figures imply that independence would be at least eight times as costly as Brexit.
Also, thanks to the exemption negotiated by the United Kingdom a couple of decades ago, Scotland is not a member of the single currency (the euro) so leaving the EU involves no monetary dislocation. But, as discussed here, breaking up the United Kingdom poses severe monetary challenges to Scotland.
In addition, major powers over most areas of domestic policy have been devolved to the Scottish Parliament. Devolution gives Scotland the potential for advantageous policymaking that is tailored to suit particular Scottish circumstances.
Devolution is, however, a missed opportunity for Scotland with the potential being consistently squandered through sub-optimal policy choices particularly relating to tax policy, educational policy and health and policing outcomes, which the Scottish Government has direct responsibility for.
The Scottish economy has been underperforming the rest of the UK since 2009. The Scottish Government could help business more by using its powers in areas such as education, transport and infrastructure, tax, economic development and by promoting constitutional stability by ruling out a second independence referendum. Yet despite the Union dividend Scottish Government choices have been very poor.
In addition, there are demonstrable economic opportunities that will follow from a no-deal Brexit that would not be possible if there was a deal with the EU that tied the UK’s hands.
Examples of these opportunities include:
1, Scotland has the largest share of the UK’s fishing waters and stands to benefit considerably from leaving the EU’s Common Fisheries Policy – an outcome that the EU wishes to prevent.
2, Likewise, on leaving the EU’s Customs Union, there will be new opportunities for UK trade deals with countries that currently have high tariffs on Scottish exports. For example, India has a 150 per cent tariff on Scottish whisky that could be reduced significantly through a UK-India free trade agreement.
3, Similarly, establishing Freeports that can provide tens of thousands of jobs and boost economic growth in locations such as Aberdeen, Grangemouth, Rosyth and Prestwick are only possible if the UK (and therefore Scotland) is outside the Customs Union.
4, The UK will no longer have to submit to EU rules on competition and state aid which, for instance, requires it to put some defence contracts to tender rather than require they come from suppliers located in the UK. This could be of benefit to Scottish shipbuilders and other manufacturers.
5, A no-deal Brexit also means that some importers to the UK face their prices rising against UK products – which for instance could make Irish meat and dairy produce uncompetitive against Scottish farmers’ produce, an opportunity for growing domestic business that is never considered or mentioned by the opponents of Brexit.
All of these opportunities, and others, will not be available if there is a Brexit deal that restricts how the UK trades – as the EU’s Withdrawal Agreement proposes. Further, these opportunities would not be open to an independent Scotland that re-joined the EU, as is advocated by the SNP.
So any negative economic consequences of a no-deal Brexit are dwarfed by the costs of Scottish independence while economic opportunities would not be available. It therefore seems odd for proponents of independence to claim, as many do, that the economic consequences of Brexit are a good reason to justify their constitutional preference.
The SNP argues any Brexit is an error, yet independence would compound it many times over. It is irrational to argue that a clean Brexit would be "a disaster for Scotland" then argue that Scotland should leave the UK.
If Brexit is a disaster, why would abandoning a market for Scotland that is 3.5 times greater than the EU, with a £10.2bn Union dividend, against a net contribution to the EU, and with the Sterling currency that works and is intertwined and aids internal prosperity be the alternative?
Brexit has undeniably been a divisive and controversial political event. However, some nationalists, including the SNP leadership, have seized on this issue, hoping it would propel their cause to victory.
It is important to put Brexit into context when it comes to the discussion about Scotland’s place in the United Kingdom.
Scottish unionist politicians should celebrate the opportunity for Scotland and the UK Union as a result of Brexit by talking up the opportunities and potential benefits and not do the nationalists work for them undermining what has been a global force for good.
Ewen Stewart is director of think tank Global Britain, founded in 1997 in the belief that "British prosperity would be best served by withdrawing from the European Union"