With every passing election, Scotland seems to move closer to independence. Investment Monitor explores the obstacles the country would face should it leave the UK.
Any debate on whether or not Scotland should be an independent country will centre around the country’s economy and its ability to pay the bills. So, what can be determined about Scotland’s finances and the future outlook of its economy independent from the rest of the UK?
Scotland’s income per capita is set to decline by at least 2% from the ramifications of Brexit alone. That is before any calculations regarding a potential independence are taken into account. It should be added that the timescale for this impact to be felt is vague; the report states “it is important to note that our model estimates long-run effects, which will likely take a generation to emerge”.
Richard Murphy, a political economist, chartered accountant and professor at City, University of London, does not believe that the GERS figures are all they seem. “I have had a long history of attacking the GERS statement,” he says. “Everything from its name onwards strikes me as a unionist statement. Is it really a coincidence that is happens to be named after a football club in Glasgow. There does appear to be widespread mistrust of the GERS figures in Scotland. A poll conducted by Survation for the think tank These Islands found that 57% of pro-independence voters believed the annual GERS figures were “made up by Westminster to hide Scotland’s true wealth”.
Although exports from Scotland to Europe are increasing, Lloyd cautions Scotland to be realistic as to why. “An independent Scotland would, of course, put an effort into making more of that connection, and it has increased in the past five to ten years, but then, exports have increased to the rest of the UK too,” he says. “The European ones have increased relatively more – as they would because it is a bigger market – but they haven’t increased so much as to make it obvious that it will compensate Scotland in the short or even medium term.”
Murphy argues that there could be ways around this that would allow for Scotland to enter the single market regardless. “If Scotland went for full alignment with the EU on issues so that food and other products were immediately aligned, there would be no border,” he says. “It could effectively apply to be in the single market very quickly, even if it was not in the EU. That would mean lots of border controls could be dropped from the way that they are now.”
“There is no way that any country can be independent without control of its own currency. It is essential that the country must be able to price itself into work. Scotland may need to have a lower value for its currency than the apparent equivalent Sterling rate. That is because it needs to competitively price people into jobs in Scotland. That would be the consequence of having an apparently lower exchange rate.” Murphy believes that if Scotland were to continue using sterling, or indeed any other currency, it would leave the country’s economy vulnerable to the power of the money markets.
More specifically, Murphy cites wind and tidal power as two promising areas for Scotland’s renewable energy sector. Despite this, Murphy agrees with Lloyd that more focused business reforms are needed from the SNP when it comes to energy. In an independent Scotland, robust and focused policies on bolstering the energy sectors could be the answer to truly unlocking Scotland’s potential as an independent energy-based economy, he believes. Outside renewable energy, there are a diverse range of sectors in Scotland that have seen promising growth in the past decade, such as life sciences, advanced manufacturing, construction, financial services and creative industries such as video games. All of these sectors have the advantage of doing business in a domestic market that is 66 million people strong, and stands as the sixth-largest economy in the world. Independence would cut this domestic market to 5.5 million and the economy would dramatically shrink.
Murphy adds: “The reality is, Scotland has competitive advantages that right now the UK is missing, and England is missing. The lack of confidence that there is in England, in government, in the state and everything else compared with the belief that people have in Scotland in their ability to actually deliver something different, is inestimable in value.”
It is this emotional side to the economic argument that has power to harness potentially undecided voters on the topic of independence, whether Scotland can afford it or not. At the time of writing the outcome of the May election is unknown, but the SNP is expected to hold a majority at Holyrood once the votes are counted. The party must then look to answer, as definitively as possible, what the economic plan for an independent Scotland would be.