Why Brexit Would Be Good For Scotland, by Anthony Rush

In declaring that Article 50 will be invoked before the end of March 2017 the Prime Minister has given the Eurocrats a need to negotiate a deal with the UK by early 2019.  There should be no doubt, however angered Eurocrats may feel about the outcome of our referendum, some European members would invite the wrath of their people if they permitted the UK to exit at the expense of their trade with the UK and our Commonwealth partners.

The SNP have a more pressing dilemma. Should they press the button for another referendum?  If they did would this Prime Minister allow it?  If so would the Yes vote win it?  If the Prime Minister refuses, or a referendum is lost, or the First Minister doesn't call for one, is the credibility of the SNP diminished?  If it is would either of the other two major parties offer a challenge in 2012?

So much uncertainty.  But two things are certain.  The UK will leave the EU (two years or later than the date Article 50 is invoked), and Scotland has been granted substantial and unique devolved powers over the control of its economy. The simple question for voters in another referendum would be, ”do you want Scotland to be in a union with the rUK or with Europe?”

If Scottish voters are asked that question they will be treated to a double dose of Project Fear. Or even a quadruple dose because right now all sides of the debate are engaged in portraying the future in the darkest terms, if their preference does not prevail. To illustrate the point, over the past week we have been treated to three scenarios which have almost brought people onto the streets.

Firstly, the Home Secretary floating the idea that companies will be required to keep a register of foreign workers. Adding fuel to the speculation that all EU nationals will be shipped back to where they came from. Now, I think Ms Rudd, like most politicians, is lacking in any modicum of finesse, but I can see what she is about.

I will refer to my own experience as a base case. I have been married to a (still) Norwegian citizen - now pensioner - who was given “leave to enter the UK indefinitely” some 40 years ago. Who in their right mind would think that she will be deported back to Norway after Brexit? From that base, what would be a reasonable set of parameters to throw out citizens from the EU? Citizens who have made their homes here on the understanding that they have “leave to enter the UK indefinitely”.

It seems clear to me that Ms Rudd is addressing the Leave elites concern that before Brexit there will be flood of non-economically active migrants from the EU. So,”make them think they will be sent back and frighten employers from creating vacancies and later filling them with cheaper EU workers”.

Secondly, the Fraser of Allander published their report “Long term economic implications of Brexit”. The idea that between 30 and 80,000 jobs could be lost over the next decade was met with howls of anguish from the convener of Holyrood's Europe Committee. To put that conclusion into context, of the 2,629,000 people currently in employment, 51,000 found employment in the three months April to June.

I for one don't doubt that if after Brexit we all give up on creating new jobs - taking advantage of new opportunities - there would be a significant loss of jobs. But reality isn't like that. All things wont be equal, as the report assumes they will be. Rather than howling “foul”, we should see the Fraser of Allander’s conclusions as being good news and that our politicians should “pull their fingers out” to get a better deal than the one Norway has with the EU.

However do any of us trust our politicians to negotiate the best deal? I don’t. Moreover I don’t think business in general does. The Financial Times reported on seeing a letter from the CBI to the Prime Minister, which was assumed to be motivated by the “flash crash” of the pound. The CBI appear to be concerned that this Prime Minister is ignoring them in developing her Brexit strategy.

If the Prime Minister follows the example firmly set by the First Minister, I think the CBI will have to get used to being ignored. Over thirty years before I retired I was a council member on three large trade bodies, including CBI’s Scottish Council. I am therefore qualified to arrive at the opinion that the Scottish Government, since 2007, have neither sought nor appreciated the opinion of business.

With this in mind I have put together a two part paper. Part one explains the background to why voters in Scotland may not have been given a clear picture since the 1950s. In particular the explanations as to why Brexit would be bad for Scotland are questionable and require correction.Part two offers all political leaders in Scotland a way out of the holes they have dug for themselves. The latest tranche of devolved powers gives them an opportunity to embrace a shared vision of a new nation which treats all citizens in Scotland equally. Equal in rights but also in recognition that none are more or less Scottish than another.

I have written this paper with Scotland in Union in mind. It is the brainchild of the generation which will, if allowed and encouraged, drive Scotland to greater things. It will require its population to have faith that it can be done and that it's worth the investment. That faith has to be earned by the political parties agreeing on which of the simple questions they would recommend.

Part One

The fear of losing Scotland to the SNP and Independence have dominated the political landscape in Scotland since the late 1950’s.  The internal machinations and divisions in the Labour Party’s elite resulted in Donald Dewar - with a burning desire to translate acceptance that Scotland is a true sovereign nation - to drive through “devolution” in 1999. This much is confirmed by Tom Dalyell in his recent book “The Question of Scotland”.  Although he was clearly no friend of Dewar, it is without rancour that he expresses distaste at Dewar’s triumphalist announcement “There shall be a Scottish Parliament” and his portrayal of its opponents as being “anti-Scottish”. 

Dewar must have realised that devolution was just a stage in the inextricable drive by the SNP to tear up the Act of Union.  The SNP have adopted the mantle of talking for all Scots claiming that opponents are anti-Scottish and therefore of no consequence.  They build on this by persuading followers that English, Westminster, Tory, Thatcher, Cameron, Gideon and many other terms are pejorative and collective descriptions of anti-Scottish, sometimes deliberately malevolent, actions against Scotland. 

After 9 years of SNP government business organisations should have learnt that the SNP don’t reciprocate goodwill or genuinely offer it. Many businessmen who have dealt with the First Minister and her Cabinet are only willing to admit to this in private, fearing retribution. Manifestly the SNP does not like to be held to account, especially over their management of Scotland’s finances and economy.  This may explain why the new Cabinet team for these briefs appears unsuitable. The Cabinet changes and the more partisan representation in Westminster are detrimental to cooperation between Westminster and Holyrood.  Before they worked well together over Grangemouth and indeed have for shipbuilding on the Clyde.  The Motherwell and Ferguson rescues are examples of the good work the previous financial and economic team achieved alone.

One team which can be said to have been qualified for its brief, but whose work may not be beyond question, is the European and External Relations Committee.  They published their findings “EU reform and the EU referendum: implications for Scotland”.on 19 March 2016.  Their belief there was more support for the EU in Scotland than in the rest of the UK was somewhat prescient. The Committee's Convenor is candid in her Foreword, admitting that the timing of the report was in part to influence debate in the EU referendum. 

The report emphasises a belief that the benefits of access to the EU single market are “crucial” to Scotland.  A belief that has been the essence of the SNP’s protestations over Brexit and an insistence that Scotland requires access to the single market with compliance of the “four Freedoms” which are keystones to the EU’s increasing integration.

The Committee’s conclusions reflects the fact that all political parties in Scotland supported Remain. But their claim that the Single Market is “crucial” is questionable.  They imply that the benefits far outway the disbenefits and that the Scottish Economy would materially suffer without access to the Single Market. The evidence they rely on does not convincingly support this conclusion.  Moreover they could be criticised for not robustly challenging evidence or indeed seeking out evidence which may disillusion its supporters.

Although the Committee didn’t explicitly refer to them, it is right to have in mind the four Freedoms when considering the implications of Brexit on Scotland: 

  • The free movement of goods

  • The free movement of services and freedom of establishment

  • The free movement of persons (and citizenship including free movement of workers)

  • The free movement of capital. 

The Committee are selective in their reference to the top ten international export destinations shown in “Scottish Export Statistics for 2014”.  They could also have referred to the top 20 export destinations.  They accounted for 71% of non-UK exports.  Less than half - 45% - of which were to EU countries.  None of the non-EU countries had a trade agreement with the EU at the time.  They may also have considered the implication of both the UK and the EU being World Trade Organisation members and thereby subject to WTO rules. The Committee made no estimation of the scale of potential loss in volume nor did they question whether those giving evidence of potential loss were referring to sales volume or just profit.

The Committee put great emphasis on their belief that “negotiating bilateral agreements to replace the treaties that the UK is party to as member of the EU would be significant”.  There is widely much lauding of the fact that the EU has some 50 bilateral agreements and that they are in the process of negotiating more.  One major outstanding agreement being with the US (TTIP) - one of Scotland’s major exporting destinations without an EU bilateral agreement - which in any case appears to be “on the rocks”. 

However the Committee haven’t made any assessment of how significant trade with the “50” is.  A good number of them cannot be termed as being potentially significant trading partners in size  For example, Akrotiri, Isle of Man, Guernsey, Jersey, Iceland, Andorra, Liechtenstein, Monaco, PLA, and San Marino.  Others would not appear to be significant in terms of the size of their economy and their need to export to the EU is possibly the most significant factor in them reaching agreement with the EU.

It may prove impossible to reach a bilateral preferential trade agreement with the EU after Brexit, at least for some time.  But with the UK having a c£60bn trade deficit with the EU (almost half with Germany) and being members of WTO it is not unreasonable to assume that a starting point will be at worst a “most favoured nation” MFN position.   At current rates the average tariff would be less than 2.5%.  Although on motor vehicles it could be 10%, which would not only affect the UK’s car industry - Scotland doesn’t have a car industry - it would also affect Germany.  Tariffs on agricultural products are high - average 18% - although the Scotch Whisky Association are confident that after Brexit the tariff would remain at nil, under WTO rules.

The Committee could also have been expected to test their conclusions against the sensitivity of exchange rates. The Euro/Sterling rate has ranged from 1.1 to 1.4 over the last five years and is currently at an all time low.  As can be seen since the referendum, UK exporters have gained from a weaker pound. In fact there are exporters and investors who have gained substantially from the weakness of Sterling against the Dollar as well as against the Euro and other important currencies.  Currently, as a result of a weaker pound, substantial gains in tourism and increased manufacturing production are being reported.

An important issue the Committee didn’t give attention to is the potential loss of “passporting” rights for financial services. Although no commentators are suggesting they are “crucial” it is a common belief that there would be a negative impact on UK’s - thereby Scotland’s - financial services industry if the UK and the EU do not reach a bilateral agreement to replace the current EEA provision.

The Committee refers to the importance of FDI from the EU under what may be seen as a misleading introduction, “membership of the single market also means EU businesses can invest across borders thereby creating opportunities for FDI”.  Nobody is suggesting that the UK will take measures to stop EU countries investing in Scotland.  Indeed it is doubtful to what extent being a member of the EU has on an investment decision.