Trade between Scotland and the rest of the UK

The chart below shows trade between Scotland and the rest of the UK (onshore) from 1998 to 2015.

Source: QNAS 2016 Q3 Publication Tables (Table G)

Scotland has had a trade surplus with rUK in every year during this period, exporting more than it imports in absolute terms1. However, in relative terms Scotland exported 63.6%2 of goods and services to rUK in 2015, whereas rUK exported 10.5% to Scotland3. Overall, Scotland had a trade deficit of £10bn in 2015.

Scotland is an outlier in Europe in exporting so much to one trading partner. However, in terms of goods, Canada and Mexico exported 77% and 81% respectively to the USA in 20154. Perhaps this isn’t surprising given that Scotland, Canada, and Mexico all share a border with a relatively huge market.

Despite this, for a small country like Scotland there is a strong case to be made for trade partner diversification. More on that in a forthcoming post.

It’s worth noting that North Sea oil and gas is excluded from the trade statistics on which the above chart is based due to the difficulty in calculating the figures5. However, the Scottish Government did produce experimental statistics related to oil and gas in September 2016 and February of this year. There is a note in the tables cautioning against simply combining the experimental stats with the onshore ones, so we’ve not attempted to do so here. In any case, oil revenues were pretty much non-existent in 2015.

From Great Britain to Little England?

Michael O’Sullivan and David Skilling, writing today in Project Syndicate:

The upcoming Brexit negotiations will pose a generational challenge for the UK. But, beyond handling those talks well, the UK also needs to develop policies that will enable it to navigate an ever more challenging international environment. This will require it to do things very differently than it has in past decades.

In fact, the UK’s survival could depend on it. Brexit, and UK policymakers’ failure to develop a coherent, robust economic strategy has breathed new life into the Scottish independence movement. Many are confident that the small-economy model would work well for an independent Scotland. To be sure, Scotland has significant economic exposures that it needs to address, and it might need the security of a larger economic unit. But it is not obvious that the UK provides such security, especially now that it is on a path to leave the EU’s single market and customs union.

Independence would allow Scotland to develop policies that are more in line with other successful small economies—not least by retaining EU membership. As Scotland confronts the strategic challenges of Brexit, it will also have an opportunity to develop policies that are better suited to it.

We recommend Dr Skilling’s 2013 paper Centrifugal world: Why the future is small, which describes how “[s]maller countries are likely to be better able to navigate an increasingly complex, turbulent global environment.”

Roundup, Tuesday 28 March 2017

Fraser of Allander Institute director publishes blog post on the GERS drama

There has been a bit of a stooshie in the press and blogosphere over the past couple of weeks regarding GERS (Government Expenditure and Revenue Scotland)1. The drama followed a blog post on 14 March by Richard Murphy—a professor at City, University of London—who suggested that data on which various measures of the state of the Scottish economy are based are limited and open to manipulation.

Graeme Roy, Director of the Fraser of Allander Institute, addresses the subject in a blog post today:

GERS is not perfect—it doesn’t claim to be.

But even significant differences in estimation—and well outside that which could be considered statistically reasonable—don’t change the overall headline figures.

Professor Roy goes on to give figures for what Scotland’s nominal deficit would be if you removed defence spending and debt interest repayments:

If Scotland was to be allocated no such spending, the deficit would stand at -6.2% of GDP (exc. North Sea revenue) and -5.7% of GDP (inc. a geographic share of North Sea revenue).

His conclusion:

There are important debates to be had about what GERS tells us—both about the current health of Scotland’s economy and options for constitutional reform.

Do the GERS numbers demonstrate the benefits of pooling and sharing or do they highlight Scotland not fulfilling its potential?

What different fiscal choices might a more autonomous Scottish Government take?

What might be the costs and benefits of making these changes and/or implementing a new constitutional framework?

How might faster/slower growth impact on the results in the future?

What does GERS not tell us: What about Scotland’s balance sheeti.e. the assets and liabilities of the nation? What about Scotland’s private sector accounts—how much national income do we receive each year? Who owns this wealth and how is it distributed?

These are the sorts of questions we should be debating. Questioning the integrity and robustness of National Statistics is not one of them.

This blog believes that independence is the best route to a fairer and more prosperous Scotland. GERS doesn’t model what an independent Scotland might look like, and indeed doesn’t set out to. But we’re happy to use the data and analysis in GERS to inform the debate about the potential problems and opportunities which independence would bring.

Update, 29 March: Richard Murphy has posted a response.

OECD countries: 2015 GDP per capita ($PPP)

Below is a chart comparing Scotland’s GDP per capita in 2015 (post-oil price crash) with the OECD countries. The Scottish figures come from the Fraser of Allander Institute’s Economic Commentary, Vol 41 No 1, which we reported on last week. In 2015, Scotland was the 15th richest country in the OECD measured by GDP per capita.

OECD data citation: OECD (2017), Gross domestic product (GDP) (indicator). doi: 10.1787/dc2f7aec-en (Accessed on 27 March 2017)

Roundup, Sunday 26 March 2017

Saving the Union from Scottish independence put at the heart of Brexit negotiations

Telegraph, 25 March:

A Whitehall shake-up is underway to make sure that saving the Union from Scottish independence is at the heart of Brexit negotiations.

The country’s most senior civil servant tasked with defending the UK will move into the Brexit Department, it can be revealed.

Philip Rycroft, who heads up the “UK Governance Group”, will scrutinise every Brexit decision to make sure it does not undermine the Union.

He is also understood to be looking at which powers coming back from the EU should be handed on to the Scottish Parliament. 

Meanwhile ministers are planning to spend more time in Scotland for meetings with business, academic and UK Government figures. 

And Government figures are reading up on how the SNP was defeated in the 2014 independence referendum in anticipation of another vote.

Report—Scottish Social Attitudes 2016: Attitudes to government and political engagement

The Scottish Government yesterday published the report Scottish Social Attitudes 2016: Attitudes to government and political engagement. It draws from the Scottish Social Attitudes survey, conducted annually by independent social research organisation ScotCen.

Highlights from the summary1:

Attitudes to government and the Scottish Parliament

  • In 2016, 65% trusted the Scottish Government to work in Scotland’s best interests and 40% to make fair decisions, down from 73% and 49% respectively in 2015.
    Consistent with previous years, trust in the UK Government remained lower, at 25% and 18% respectively.
  • For the first year in the time series, more people thought that the Scottish Government had most influence over the way Scotland is run (42%) than thought the UK Government had most influence (41%).
  • Three quarters (75%) of people said that the Scottish Government should have most influence over the way Scotland is run. 14% said the UK Government should have the most influence.
  • In 2016, the highest proportion over the time series said that the Scottish Parliament gave Scotland a stronger voice in the UK (71%). Similar to 2015, 59% said it gave ordinary people more say in how Scotland is governed.

Views on the economy and the standard of living in Scotland

  • Helping the economy to grow faster was the most commonly chosen priority for Scottish Government action (28%).
  • More than half of respondents (54%) said the economy had weakened over the past year, compared with 34% in 2015.
    35% of those respondents attributed this to UK Government policy, 18% to Scottish Government policy and 37% to “some other reason”.
  • In 2016 36% said that the general standard of living in Scotland had fallen over the past year, compared with 42% saying this in 2015. 19% said the standard had increased.
  • Of those who had perceived a fall in living standards, 50% attributed the fallen standard to UK Government policy; 15% attributed this to Scottish Government policy, and 19% attributed this to “some other reason”.

Below are all responses to the question “What should be the Scottish Government‟s highest priority?”2

Priority %
Help the economy grow faster 28%
Improve standards of education 21%
Improve housing 16%
Improve people’s heath 15%
Reduce inequality 10%
Cut crime 4%
Improve the environment 2%
Improve public transport 1%

The SSA survey is “based on interviews of between 1,200 to 1,700 people in Scotland drawn using probability sampling.”3 Interviews for 2016 took place between 11 July and 23 December. In addition to attitudes about government and the economy, the survey also questioned respondents on political engagement and the National Health Service. You can read the full report in PDF format here.

New Fraser of Allander Institute Economic Commentary published today

From the Fraser of Allander Institute Economic Commentary, Vol 41 No 1, published on 22 March:

  • The UK economy continues to outperform expectations with growth in 2016 of 1.8% and a consensus forecast of near 2.0% growth in 2017.
  • Scottish growth in 2016 is likely to come in around our post-EU referendum forecast of just 1.0%. Recent business surveys have started to show a pick-up in activity although overall conditions are still fragile.
  • There remains a high degree of uncertainty around all economic forecasts at this time. In particular, the range of possible outcomes is much wider than normal given the number of ‘big’ political events – not least the Brexit negotiations and the prospects for a 2nd independence referendum – that cast a shadow over the outlook.
  • The long-term implications of Scottish independence and the UK’s departure from the EU will be debated at length over the next 18+ months. Irrespective of the final outcome, the negotiation and referendum processes themselves will add an additional layer of uncertainty for business and act as a possible headwind to short-term growth prospects.
  • In such uncertain times, we continue to recommend that just as much attention is given to the range of estimates that underpin this outlook as well as our central estimates. Our central forecast is for growth of 1.2% in 2017, 1.3% in 2018 and 1.4% in 2019.

Regarding the deficit1:

Assuming similar levels of growth and current patterns of public spending, our own projections suggest that the deficit will remain in the 6% to 7% range by 2020.

That’s less eye-watering than the 9.5% deficit in 2015-16, but even 6%-7% would not be sustainable if Scotland were to become independent. The EU’s Treaty on the Functioning of the European Union, for example, sets a criterion of a deficit of no more that 3% of GDP2. Of course, countries do run high deficits at timesincluding EU member states—but the aim is always to reduce them.

GDP per capita

Scotland’s GDP Per Capita (from Fraser of Allander report, 22 March 2017)

The FAI report also calculates Scotland’s GDP per capita for 2015 and puts it alongside other OECD countries3. The UK comes in 16th with $41,779. Scotland, with a geographical share of North Sea oil and gas (NSOG), is estimated to have a GDP per capita of $42,372 for 2015; with a population share of NSOG, this figure is $40,001.

We put the FAI’s estimates alongside a fresh pull of data from the OECD database4, and—based on the FAI’s calculated figures—with a geographical share of NSOG (to consider the situation under independence), Scotland would be ranked 15th out of the 35 OECD countries in 20155. Please note that—as per the above screenshot from its report—the FAI has not given a number for Scotland in the ‘Rank’ column. We, however, couldn’t resist doing so.

Finally, with a geographical share of NSOG—and based on the FAI’s calculations—Scotland’s 2015 GDP per capita would be 104% of the OECD average of $40,807; 111% of the Europe average of $38,303; 110% of the EU28 average of $38,676; and 101% of the UK average of $41,779. Taking a population share of NSOG, these percentages are (respectively): 98%, 104%, 103%, and 96%. All figures have been rounded to the nearest whole number.

Behind Sturgeon’s watered-down EU plan

David Torrance, in a post on Politico.eu today:

When the first minister declared Sunday at her party’s spring conference that the Scottish National Party is “a European, internationalist party, leading a European, internationalist country,” delegates roared with approval.

But slogans notwithstanding, behind the scenes, the party is preparing to abandon full-fledged membership of the EU and instead advocate joining either the European Free Trade Association (EFTA) or European Economic Area (EEA) in the first instance.

A “watering down” of the SNP’s EU policy was first discussed at a strategy meeting in mid-January, according to a report in the Sunday Times.

The reason for this softer approach is that with a sizeable minority of Sturgeon’s supporters wanting out of the EU as well as the UK, she is in a difficult position.

Aside from the Euroscepticism among pro-independence supporters—over a third of those who said Yes to independence also voted to leave the EU—being in the EEA would allow Scotland to negotiate its own trade deals. This could be of particular importance given that Scotland is thought to export over 60% of its goods and services to the rest of the UK, and the shape of an eventual UK-EU trade deal may not be optimal.

Steve Peers, Professor of EU, Human Rights and World Trade Law at Essex University, summed up EEA membership in a blog post on 14 March:

…the EEA option includes things that Scotland seeks (single market participation) while steering clear of things it may wish to avoid (the single currency and deficit criteria, Schengen, EU trade policy with non-EU countries, and EU fisheries policy). It also has the advantage of being potentially far speedier than joining the EU: the EU can decide to apply treaties with non-EU countries provisionally, pending national ratification.

Would there be a backlash against the SNP for abandoning full EU membership? We put this question to David Torrance, author of the Politico piece, and he said he doubted there would be. All circumstances considered, to us the idea of Scotland being in the EEA, at least initially, seems eminently sensible.


Postscript

A couple of relevant articles by Commonspace’s Nathanael Williams on EFTA/EEA membership: