Scotland will lose out without tariff-free access to single market, writes Martin Togneri
The Scottish economy continues to depend heavily on foreign direct investment. Significant proportions of our job creation arise from new investment decisions by existing inward investors. So the implications of the Brexit decision for our attractiveness to inward investors are of critical importance to our economic well-being.
Unfortunately, those implications are major and threatening. The most important motivation, by far, that foreign companies have for making investments in Europe is to improve their access to the EU market. Put in as simple and straightforward terms as possible, companies want to sell in the EU single market without incurring the expense of import tariffs, because that cost – a tax on imports – has to be passed on to their customers and makes their products less competitive compared to products that don’t bear the tariff cost – that is, products produced within the Single Market. If they import from outside the single market, they pay tariffs; if they produce within the Single Market, they avoid tariffs. In essence, it’s as simple as that.
Those who wish to argue the case that all will remain sunny in the economic garden post-Brexit suggest that Scotland’s attractiveness to inward investors depends on attributes such as our skills or our innovation or our strong industrial and financial services heritage. These are all “good to have” attributes and in my 21 years of professional involvement in the inward investment business, I sold them as heavily as possible. But they are attributes that help Scotland distinguish itself from its inward investment competitors once Scotland has got itself on to the long list of locations under consideration by the typical inward investor. Without tariff-free access to the EU Single Market, Scotland won’t make it on to the long list in the first place, however skillful, innovative or productive Scots are.
It’s ironic that, just when a global focus on unfair tax competition had emerged that, had we chosen to stay in the EU, would have helped Scotland improve its competitive attractiveness for inward investment against its most important single competitor, Ireland, which competes heavily using the “tax haven” status afforded by its 12.5 per cent corporation tax rate, we have shot ourselves in the foot by eliminating the very factor that gets us on to inward investors’ “shopping lists” in the first place.
If there continues to be a consensus – as I think there should be – that the attraction of inward investment remains an important weapon in Scotland’s economic policy armoury, then it is critical going forward that Scots, and the Scottish business community in particular, supports the Scottish Government’s efforts to preserve Scotland’s access to the EU single market despite the UK decision to leave the EU. The future employment prospects of many, many thousands of Scots across our country – of our school leavers, our graduates and our job seekers more generally – will be greatly diminished if we allow this self-defeating decision to destroy our inward investment competitiveness.”
• Martin Togneri was chief executive of Scottish Development International from 2000 to 2007