Hugh Aitken: Scotland has plenty to lose if we leave the EU

From remote distilleries in the highlands and islands to designer retailers in Glasgow, our members '“ small, medium and large businesses across Scotland '“ tell us they are better off remaining in the EU.

Picture: Neil Hanna

From remote distilleries in the highlands and islands to designer retailers in Glasgow, our members – small, medium and large businesses across Scotland – tell us they are better off remaining in the EU.

By building on access to a single market of 500 million customers they can contribute to a more prosperous society by sustainably creating jobs and economic growth.

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While we know from extensive conversations with our members that the EU isn’t perfect, being inside means that we can use our influence to remove the final barriers to a single market in services and digital.

This matters – Scottish exports to the EU are worth more than £11 billion.

Competitiveness is crucial

As I noted in our response to Scottish election results, competitiveness is key to maintaining existing investment and attracting new businesses to Scotland.

The newly installed Scottish Government has signalled its intent to place education at the forefront of its plans for this parliament by placing John Swinney at the department’s helm.

Having previously held the finance brief, Mr Swinney knows better than most that getting the right people and skills is vital for our economy. This is especially important for certain sectors already struggling to recruit, and within the next decade close to half of all jobs will require a form of higher skills.

Fortunately Scotland is home to some of the UK’s most respected and successful higher education institutions, which receive vital research funding of around £90m each year from the EU. All this could be at risk if we choose to leave.

Let us not forget the importance of vocational qualifications. Businesses are seeking urgent clarity from the government about how the new apprenticeship levy will work in Scotland. The CBI stands ready to assist in helping to devise a system for the long term, not just the next set of elections.

The benefits

Hundreds of thousands of jobs across the country are dependent upon industries that thrive on access to global markets that the EU provides.

Scotland’s whisky industry, arguably the country’s finest export, supports more than 40,000 jobs. It is among the biggest beneficiaries of our relationship with the EU, as alcoholic drinks usually face high import duties, and the comprehensive, high-quality free trade agreements that the EU can negotiate on the UK’s behalf are very effective at reducing these. They also allow famous Scottish brands to maintain their protected status in new markets. Losing access to the free trade deals the EU currently has with countries like South Korea would be particularly damaging for the drinks industry in Scotland. A forthcoming EU-Vietnam deal means that a protectionist 45 per cent tariff on Scotch whisky will be reduced.

And as the latest Treasury research highlights, around 85,000 financial services roles are based in Scotland alone. Standard Life, headquartered in Edinburgh, has made clear the single market is in the best interests of its clients, as it creates an environment that gives individuals and businesses the confidence to invest for the long term. The passporting rights give financial services firms the ability to operate freely right across the EU.

According to the Wilson Review, it’s reasonable to estimate that more than 336,000 jobs in Scotland are directly or indirectly dependent on trade with EU countries. That’s more than 12 per cent of the total number of people employed in Scotland.

Membership of the EU gives Scotland privileged access to 53 markets outside of the EU through its trade agreements – proving that trading with the world and with the EU are not mutually exclusive. The EU’s recently agreed deals with Canada and Singapore can attest to that.

Our place within the EU also makes us more attractive to international investors. According to EY, 79 per cent of investors in the UK cite our unrestricted access to the single market as important to their investment decision. Losing full access would add layers of uncertainty for businesses and leave them facing complex considerations about where to locate their operations.

On regulation, while there are some EU rules that are not always popular with business, the harmonisation of standards means it is easier and cheaper to export to the EU’s 27 other countries. Regardless, if the UK left we in Scotland would almost certainly keep these rules anyway, as businesses would be required to keep them in order to export.

Scotland has a booming tourist industry, with the Edinburgh International Festival just one of the many offerings. Free movement helps facilitate European tourism, supporting everything from our hotel industry to our creative industries and comedians. Tourism provides over 10 per cent of total jobs in Scotland. And 1.5 million inbound visitors to Scotland from the EU in 2014 spent around £770m in our country.

The economic consequences of leaving

Although the CBI’s members have been clear about what benefits they see, they want to know what would happen should we leave. There could be a significant shock in the short-term, with volatility in financial markets and the OECD predicting that by 2020 UK GDP could be 3 per cent smaller than if the UK remained in the EU. The Treasury have shown that the average household in the UK could be £4,300 worse off. The International Monetary Fund has made similar predictions.

No economic prediction, of course, is a crystal ball and they all differ in their overall estimates but the weight of economic and academic opinion is that we would suffer if we left. Our large agri-food industry, for example, could be harshly hit if we faced tariffs selling into EU markets. UK Dairy products sold into the EU would face an average 36 per cent tariff.

Ryan James, owner of the Glasgow-based Two Fat Ladies restaurant group, has said Brexit could also have a dramatic impact in terms of recruiting European staff. On the other hand, Scottish firms are already reaping the benefits of deals negotiated for all EU member states on the world stage.

Devro, a Glasgow-based food manufacturer, has now expanded into the Czech Republic owing to the ease of doing business across borders facilitated by EU membership.

Independent economic analysis confirms that Scotland may be worse off, with less investment and fewer jobs if we leave. In short, the country has much to gain from staying, but plenty to lose by leaving.

The alternatives

These negative assessments are partly because no alternative offers Scotland the benefits and trade opportunities that we currently benefit from. Should we leave, we would have two years to reach an agreement on our terms of exit. If no agreement is reached – and the UK can’t participate formally in the discussions themselves – then we fall back to trading under World Trade Organisation rules. Remarkably, some have suggested this would be beneficial. This could mean 90 per cent of UK exports to the EU facing tariffs, making our economy less competitive and putting jobs and prosperity at risk across Scotland.

Countries like Norway and Switzerland have alternative arrangements with the EU. They both have full or partial access to the single market, however they have to adopt the majority of EU regulations and have no formal influence over how they are made. They have to pay into the EU budget (Norway paying 80 per cent of what Britain pays per person) and both accept free movement of people.

Countries like South Africa and Canada have free trade agreements with the EU, but their quality and access to the single market is not as comprehensive and they still have to adopt some EU standards.

Politicians and representatives of both sides have a duty to inform the public and to do so honestly. Some of the argumentsare, quite frankly, a matter of debate and sometimes in politics whoever shouts loudest wins. However, the overwhelming view of the business community is that the Scottish economy is stronger inside the EU, which means higher living standards and a more prosperous society. As a result, our clear view is that we should remain.