Brian Monteith: The single market that matters to Scotland is the UK
One of the irritating aspects of Scottish political debate is how it is often so very superficial, so empty of an evidence base. Political leaders talk regularly in meaningless clichés and platitudes as if they have never given any serious thought to what they are saying or looked for facts to back up their claims.
Nicola Sturgeon’s decision to make the trigger for a second independence referendum Scotland’s likely departure from inside the EU single market to having access from outside (like the rest of the world) is just the latest such example that deserves to be challenged. It is a false pretext for putting the country through a great deal of economic disruption, public cost and social pain that needs to be called out.
Scotland is currently a member of two single markets, the United Kingdom and the European Union. The EU and the single market are one and the same thing. You cannot be inside the EU and outside the single market, but you can be outside the EU and have access to the single market. That is why David Cameron and George Osborne repeatedly said that if we voted to leave the EU we would leave the single market and is also why Michael Gove and Boris Johnson agreed with them. It was never disputed by either the remain or leave campaigns that this is what Brexit would mean.
Any suggestion that the electorate was duped is to either ignore the interviews, statements and reports of the campaign or to treat the voters as stupid. I tend to believe that the British electorate is rational in its voting behaviour and I think people knew what they were doing. They simply wanted control again of their laws, taxes, borders, fisheries and so many other facets of life.
Some countries, such as Norway, have been willing to pay a special price (including open migration) to gain privileged access to the single market. That’s unusual, for the rest of the world simply trades with the EU and accepts the tariffs of its customs union that average just over 1 per cent. That is why you can buy Mazda sports cars from Japan or Jeep Wranglers from the US. It is why we buy wine from Australia or coffee from Bolivia.
We need to ask the question which single market matters most to Scotland? Just how important is the EU’s single market to Scotland and what difference could it make if the UK does not negotiate any special deal?
Scottish Government statistics show that in 2002 £28.7bn or 60 per cent of Scottish exports went to the rest of the UK, £10.9bn or 23 per cent went to the EU and £8.4bn or 17 per cent went to the rest of the world. The UK was two and a half times as important to Scotland as the EU for revenues, taxes and jobs.
By 2014 the figures had changed significantly, with £48.5bn or 64.4 per cent of Scottish exports going to the rest of the UK – a staggering increase of 69 per cent. Exports to the rest of the world grew an amazing 80 per cent to £15.2bn or 20.2 per cent of total exports, while exports to the EU’s single market rose by a lamentable 6 per cent to £11.6bn or 15.4 per cent. Now, the UK single market is more than four times as important as the EU and that trend is continuing, while the EU has fallen into third place.
Surely if access to the single market is so important it would have excelled compared to countries outside it operating under World Trade Organisation rules? But there’s the rub, WTO tariffs have fallen considerably and now average less than 2 per cent. The world has changed since the EU single market was conceived, only Sturgeon and many of her persuasion have not noticed.
Worse still, the figures are flattering to the EU. Our largest EU export market is, strangely, the Netherlands; many goods being shipped to the rest of the world first go to Rotterdam and are recorded as an export to the EU, not their final destination. It is generally held that this “Rotterdam effect” accounts for about 4 per cent of all UK exports but given the scale of exports from Scotland to the Netherlands it may well be higher.
In other words over that 12-year period the relative importance of the EU single market deteriorated badly while the importance of trade to the UK single market grew significantly – as did our trade with the rest of the world.
It is often said that the EU single market is important to Scotland’s finance industry but there is no EU single market in services. There is no banking union, no single stock market, just a patchwork of pension regulations and hugely differing cultural attitudes to investment and banking. This EU failure is reflected in the fact that while financial services represents 70 per cent of the EU economy only 22 per cent of it is internal trade.
On the contrary, the EU single market has posed a threat to our financial services industry through control of banking capital ratios, insurance solvency, a proposed transaction tax and wage caps. All of these things can affect financial services in Scotland as well as the City. Likewise, suggestions that the loss of EU passporting for capital markets will be significant is exaggerated, given we have more financial trade with the US without passports than EU trade with them.
If there is a single market that matters to Scotland then the UK is the real thing, it is how a single market is meant to work. There is freedom of movement of people and capital – with one language, one currency, one central bank and a sovereign national parliament that is ultimately responsible for the common public finances including all assets and debts. It also happens to have a common history and shared culture of over 300 years that to many, maybe still most people, matters.
That is the single market that our businesses and financial services depend on, where the vast majority of their customers are.
It is absurd to suggest the answer to the alleged distress of leaving one single market is to leave the other more important one of the two. But this is not about economic growth, jobs or prosperity – it is blind ideology willing to incur any amount of pain to achieve a minority goal.
• Brian Monteith is a director of Global Britain