Nine months have passed since the UK government triggered article 50 of the Lisbon Treaty which formally started the march towards Brexit. As we are about to embark on phase 2 of the negotiations, including crucially the nature of the future UK-EU relationship, there are many reasons to be concerned.
Inexorably and depressingly, the prospect for a hard Brexit, with a bad trade deal or no deal, continues to be likely, as the UK government grapples with the complexities of negotiating with the remaining EU 27. The UK’s negotiation ‘red lines’ will exclude us from the European single market and the customs union.Over the past several months I and many other commentators have warned that membership of the single market is vital to the economic future of Scotland and the UK
The potential implications for all of us are, and I use this word carefully, catastrophic. Strip away the politics and consider simply this. The UK will lose billions of pounds each and every year in lost GDP growth if we are denied access to our biggest market. A Brexit shock on economic growth will put further strain on public spending – which of course means funding for the health service, schools and so many other services that we have come to value as a society. Never mind the extra £350 million a week for the NHS, a spurious promise that even the most ardent leaver would now shy away from. The hard reality of what any form of Brexit might mean for both Scotland and the UK is become ever clearer.
Fresh analysis of the economic implications for Scotland was published this week by the Scottish Government. Scotland’s Place in Europe: People, Jobs and Investment (SPIE) concludes that if the UK goes through with withdrawal from the European Single Market and Customs Union the most profound consequences will be felt in Scotland.
The document provides analysis of future trading options and confirms that any form of Brexit would be damaging for the UK and for Scotland: slowing economic growth and consequently damaging disposable income and investment. Operating under WTO rules – a potential ‘no deal’ outcome – could see Scotland’s GDP lower by 8.5% than it would be if we did not leave the EU, by 2030. That is the equivalent of £2,300 for every man, woman and child in our country. Even if a UK-EU trade deal is struck along the lines which the EU has with Canada – a so-called Canada plus-plus deal -enabling tariff-free access in goods, the equivalent figures are a drop of 6.1% for GDP, which would equate to £1,600 per person less by 2030. These are sobering statistics.
For those who argue this is Project Fear revisited, SPIE also considers the benefits that Single Market membership has delivered and could deliver in future. Positive arguments that have, in my view, been unhelpfully absent in the debate.
For example, exports to the EU and to countries with trading agreements with the bloc are currently worth £15.9bn to the Scottish economy. Future opportunities particularly in the service sector and in the completion of the digital single market are also there. It is worth reflecting that services account for approximately three quarters of Scotland’s GDP – that compares to less than half when we joined the EU. The longer-term potential gain from completing the Single Market in services could boost our GDP by 2.4% – that is an additional £3.5bn, or £688 per person. Income that would flow through the economy, enhance employment prospects and provide resource for our stretched public services.
One of the arguments most readily advanced for ‘taking back control’ was the need to curb immigration with the suggestion that migrants were stretching our services and damaging our economy.
Studies have shown that at a UK level these arguments were simply not true. In Scotland, as this week’s paper outlines, the contribution that migrants make is both substantial and essential. For many decades Scotland suffered from a declining or at best static population. This demographic challenge, which so troubled policy makers and politicians, has been reversed. EU citizens living and working in Scotland now account for approximately £4.4bn every year to the economy. On average each additional EU citizen working in Scotland contributes an extra £10,400 per person in revenue for the government. Putting back far more than they take out from the system, bringing skills and expertise and filling key roles in our public services, particularly the NHS and in my own area of higher education.
The Standing Council on Europe, the independent advisory board which I chair, agree with this latest report. We not only endorse the Scottish Government’s analysis but also its conclusion that the UK’s continued membership of the Customs Union and the Single Market is essential to our future social and economic prosperity.
The analysis is also consistent with the recent study by Cambridge Econometrics for the Greater London Authority, which particularly highlights the damage which a Canada-style deal will do for the UK’s financial and professional services – one of our critically important export sectors.
The road to Brexit does not have to be the road to nowhere. But to avoid this there needs to be a dose of realism in phase 2 of the negotiations. Brexit can be delivered, but with it membership of the European Single Market and Customs Union can be retained. Not as an end in itself, but as Scotland’s Place in Europe: People, Jobs and Investment makes clear, because that is what will deliver the best outcome.