GROWTH COMMISSION RESPONSE: 3. FAILING TO MAKE A CASE

The Commission’s formal remit was “To assess projections for Scotland’s economy and public finances, consider the implications for our economy and finances under different potential governance scenarios and make recommendations for policy …”^{11.2, p.1}

The Commission’s members appear to have interpreted ‘under different potential governance scenarios’ to exclude any governance scenarios that don’t assume independence. This is perhaps understandable give that the political party sponsoring the Commission and the Commission’s Chair are openly committed to independence as the only acceptable outcome.

Unfortunately, this presumption is just one of the reasons why the report inevitably (to quote John Kay, a member of the First Minister’s standing council on Scotland and Europe) “falls short of presenting an economic case for independence”.^{2Scottish nationalists build their economic muscle to fight again for independence, FT, 1st June 2018} The Commission makes no attempt to compare independence with any alternative scenarios that would involve Scotland remaining part of the UK.

This is particularly frustrating given that the report is unequivocal when it states that “Scotland is without question a rich and successful nation, in the top 25 of global economies in terms of income per head and ranks near the top in the UK on most long-term indicators.”^33.19, celebrates the fact that “Scotland’s economic performance is, like the UK, amongst the best performing decile in the world economy”^4A1.33 and makes the explicit observation that “many of our recommendations could be agreed and implemented [...] with existing or enhanced policy responsibilities for Scotland’s Parliament & Government”.^{52.19 – the words omitted are ‘in advance of independence’ as that is to unnecessarily presuppose independence as the inevitable conclusion}

Insofar as the report attempts to make an economic case (a question we will return to), it falls short primarily because it doesn’t compare independence against the alternative of seeking to implement the commission’s policy ideas using the devolved powers the Scottish Government already has (or may be able to gain).

It is self-evidently the case that, given many of the report’s recommendations could be implemented with existing or enhanced powers, it is wrong to attribute all of the upside the report claims to the act of Scotland becoming independent. This issue is exacerbated by the fact that the downsides considered by the report (e.g. currency, transition costs, need for greater fiscal prudence) as well as those the report ignores (e.g. trade friction with the UK, economic shock of separation) are exclusively associated with independence.

The report also fails to address whether any of the reasons why Scotland is a ‘rich and successful nation’ might be attributable to its 300+ year membership of the United Kingdom.

Large parts of the report, whether dealing with the need for tighter fiscal discipline or trying to resolve the currency issue, are spent addressing problems that only exist if we presuppose independence as the answer.

Frequent reference is made throughout the report to the importance of “Securing frictionless borders with the rest of the UK and EU”.^{63.98, recommendation 6, and several other locations (in slightly different wordings): p22 (3.88), p25 (point 6), p107, p119 (A6.40), p123 (A6.63), p150 (A6.210), p155 (point 6)} Scotland already enjoys frictionless borders with the rest of the UK – indeed they are explicitly provided for in the Act of Union^{7The Act of Union explicitly provides for “full freedom and intercourse of trade and navigation” and “the same customs and duties on import and export”, that “laws concerning regulation of trade, customs and such excises [...] be the same” and “the coin shall be of the same standard and value throughout the United Kingdom”} – and only independence would jeopardise this.

If Brexit does lead to trade friction between the UK and the EU, when facing the question of prospective independence it seems likely that Scots would be faced with a choice between frictionless access to the UK or the EU.^{8The report simply asserts “It is wrong to suggest that Scotland would have to choose between the two markets.” [A6.69], but does not attempt to justify this assertion} Given that Scotland trades 3.6 times more with the rest of the UK than we do with the EU^{9Source: Export Statistics Scotland 2016 (Scottish Government)}, the frictionless borders imperative would clearly favour Scotland remaining in the UK.^{10As the report observes:“The high proportion of Scottish exports going to the rest of the UK (61%, excluding oil and gas) should not be surprising since countries typically trade far more with near neighbours who share the same language, land border, single market and have longstanding economic ties.” [A6.42]}

The report makes the observation that “leaving the EU and Single Market would obviously act as a growth restraint for Scotland”.^113.45 Give the UK single market is so much more important to Scotland than the EU, it follows that leaving the UK and the UK single market would ‘obviously’ act as an even greater growth restraint for Scotland. The Commission cannot have been unaware of this, so their failure to address and quantify this issue is a telling omission: the equivalent in the Sherlock Holmes story of the dog that did not bark in the night.

Unlike Scotland’s trade with the EU, Scotland’s trade with the rest of the UK (rUK) is in part supported by the fact that we share a currency. Given the Growth Commission’s recommendation that Scotland should “move to an independent Scottish currency at such time as this was considered appropriate for the Scottish economy”^123.204 it is clear that there would be additional ‘economic shock’ risks for Scotland/rUK trade which don’t apply in the case of Brexit. We’ll come on to discuss the potential impact for the financial services sector, but this issue is far broader than that. Companies serving the whole UK market from facilities in Scotland would need to consider the risk of future foreign-exchange exposure and currency-related trade friction when making their long-term investment decisions.

The report makes multiple references to the “forthcoming economic shock from Brexit”^{13A1.29 and several other locations (in slightly different wordings)} and cites work from the Fraser of Allander Institute which suggests between 30,000 and 80,000 Scottish jobs may be at risk because of this.^143.35

Fraser of Allander produced a report^{15Employment supported by Scottish Export Demand} in April 2017 which showed that, while 125,000 Scottish jobs were supported by rEU exports, 529,000 Scottish jobs were supported by rUK exports. By considering the risks Brexit poses to the 125,000 without making any reference to the risks Scotland leaving the UK would pose to the 529,000, the report fails to meet the Chair’s stated aspiration to paint a picture of hope that is “grounded in clear-sighted reality and a rigorous plan”.^{162.7 (p.6)}

A plan that simply ignores the downsides of its proposals cannot be considered to be either clear-sighted or rigorous.

An economic case for independence that ignores the fact that many of the benefits it includes do not require independence to achieve them is no economic case at all.

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Executive Summary

Context & Response

1. Smaller isn’t Necessarily Better

2. Stretching the Empirical Data

3. Failing to Make a Case

4. A Reality Check

5. The Truth about Austerity

6. Aiming Too Low

7. The Missing Model

8. Currency – an Unsolved Conundrum

9. Making the Case for Union

Endorsements