Economics of Independence

10 economic benefits for a wealthier independent Scotland

Written by Michael Gray

In January Business for Scotland published 10 key economic facts that made it clear that Scotland is a wealthy nation. The facts show that Scotland is already in a stronger economic and fiscal position than the UK as a whole.

This article looks at Scotland’s future and makes it clear how independence will improve Scotland’s economy, providing greater prosperity and opportunity for both businesses and citizens.

By moving economic decision making from Westminster to Scotland, Scotland will have greater control over policy making in crucial areas. Control over issues like taxation, employment, immigration, exports, and industrial policy provides many opportunities to improve Scotland’s finances.

These are the 10 main economic gains of independence.

1) Creating a better tax system for Scotland

final version

An independent Scotland can improve the tax system for the benefit of citizens and business. Scotland currently only has control over 7% of its taxation. Independence will ensure that Scotland has 100% control over raising its own taxes.

With this control Scotland will be able to reform the tax system so that it 1) simpler, 2) supports key growth sectors in Scotland and 3) collects a fair amount of revenue to fund public services.

Overall, a more effective tax system will increase Scotland’s prosperity and support stronger public services, as set out by the Mirrlees Review.

2) Improving the relationship between employees and employers

participation

Opportunities for participation in company structures can increase wealth and productivity

Improving labour relations in an independent Scotland can improve productivity and economic output.

Westminster currently makes decisions on workplace regulation and has persistently failed both employers and employees. An independent Scotland can reform at work regulation to improve conditions.

A National Convention on Employment and Labour Relations will shape a new policy after independence and provide a needed fresh start at forming mutual interests. The option of placing employee representative on boards can allow workers to contribute effectively alongside management. This new structure can support a high-pay economy and improve efficiency.

3) Controlling immigration can boost the Scottish economy

Migration impact

An independent Scotland which controls immigration and attracts skilled workers can improve Scotland’s fiscal position by over £65 billion. Immigration makes a substantial contribution to public finances. Scotland has suffered due to vast emigration over the past century, with the population stagnating from the 50s to 90s.

There is greater support for immigration in Scotland than the rest of the UK. Scotland’s economy benefits by £779 million annually from international students coming to Scotland. Scotland’s economy would benefit enormously from encouraging immigration, especially from the rest of the UK and the Scottish diaspora who already have close links to Scotland.

4) A stronger industrial policy

industry

An independent Scotland can develop new industries to provide skilled, high paid jobs.

By diversifying the manufacturing sector, investing more in apprenticeships and research, Scotland can build on its industrial base. A Scottish Government will provide greater support to this process than Westminster.

Example of industrial development could include building icebreakers at Rosyth, developing the Clyde for renewables activities similar to the activity at Belfast Docks, developing new offshore technologies in the oil sector for international export, and specialising in Scotland’s strengths of chemicals, computing and life sciences. One example of this approach was the redevelopment of the Nigg yards by Highlands and Islands Enterprise and Global Energy Group.

Only with full economic powers Scotland can develop an ambitious industrial policy. This will reverse decades of decline under Westminster mismanagement. The result of this will be more long-term, skilled jobs. This will create much needed stability and wealth for those currently seeking employment.

manufacturing

5) Increasing exports through trade and investment

impact of export increaseWith independence, Scotland will gain the economic powers to promote Scotland’s business globally.

This will provide greater opportunities to export Scotland’s goods and services. A 50% increase in exports would create 100,000 new jobs and generate £5 billion extra for Scotland’s economy.

A Yes vote means business will have the full support of a global trading and investment network. UK networks are failing to promote Scotland in key export markets.

Greater economic control will also provide greater opportunities to support Scottish SMEs who want to enter export markets. An independent Scotland will be focused on promoting the unique strengths of Scottish business in key sectors, which will expand the capacity of Scotland Development International.

6) Investing the £3 billion independence dividend

money saving

An independent Scotland will save money that can be spent on building a better economy. Nuclear weapons, the House of Commons and London’s civil service will no longer be funded with Scottish tax.

The total saving on nuclear weapons and defence will be £500 million in year 1. Scotland will save £60 million a year in paying Westminster’s expenses for the House of Commons and Lords. And the money Scotland currently pays for London civil servants will provide more jobs and opportunities in Scotland. This will save money as building and property costs are higher in London. Dan MacDonald valued this at 10s of millions of pounds a year.

Over a 5 year Parliament, independence would save Scotland at least £3 billion in Parliamentary and nuclear weapons costs alone and that is just some of the savings that are easily identified.

7) Reducing inequality can boost economic output in Scotland

the price of inequality

An independent Scotland which reduces inequality can boost demand to help businesses.

Westminster policy has made the UK one of the most unequal countries in the developed world and this harms business. Business is successful when there is demand from consumers, which requires purchasing power. A society with low wages cannot provide an optimal environment for business.

Tackling inequality requires economic opportunities, good jobs, a social security system that helps people to be economically active and a fair taxation system. This is recognised in the Equality Statement which accompanies each government budget.

Countries with strong social records like Norway, Sweden, Denmark and Germany also have successful business records with high levels of wealth and productivity. The opportunity to implement appropriate policies for Scotland only comes with a Yes vote for independence.

8) Investment in childcare to increase tax returns

childcare

An independent Scotland can invest in childcare to reduce barriers to the labour market and increases overall tax take. With independent control over taxation and spending, Scotland will gain the fiscal flexibility to reform social services to benefit the economy. A 6% rise in female labour market activity would boost tax revenue by £700 million. The expansion of childcare services would also create 35,000 new jobs in the sector.

Professor Sir Donald MacKay, an economic expert and former Chairman of Scottish Enterprise,  recently explained that this expansion will benefit the economy and is only possible with the full powers of independence.

9) Gains from an independent social security system

social benefitSocial security will be more affordable and in tune with Scotland’s social interests with independence. Scotland currently spends less on welfare than the UK (14.4% compared to 15.9% of GDP). However, money that is saved in Scotland returns to Westminster rather than improving Scotland’s financial position.

With independence, Scotland can enhance the welfare system to improve economic opportunities and protect the vulnerable. This includes scrapping Westminster’s bedroom tax and preventing future threats to the social care system.  As these decisions are currently taken at Westminster, only a vote for independence guarantees that Scotland can improves the system for the future.

10) Increasing productivity and innovation for Scottish business

impact of productivity increase

Independence is an opportunity to improve Scotland’s performance in key economic areas such as productivity and innovation. A rise in productivity of just 1% would create 21,000 new jobs, raise economic output by over £2 billion and increase tax take by £700 million.

Productivity can be increased through development of a skills economy, capital and infrastructure investment, competition and innovation. Closing Scotland’s productivity gap with many other EU countries would bring significant benefits to Scotland’s economy.

In terms of innovation, Scotland already has world-leading strengths in research and development through its university system. The economic powers of independence provide the control and choice to create policies to support innovation and create new products, services and businesses at similar rates to other countries.

In an independent Scotland this can be achieved through loans, guarantees, competitive grants, innovation vouchers and tax incentives. A global Scottish network will support universities via closer links with industry and business. An effective immigration system will attract skilled researchers and students to help these institutions thrive.

By supporting Scotland’s key sectors and institutions in this way the economy will improve.

10.5) Further opportunities…

These 10 headline points are part of a broader opportunity to improve Scotland economy.

These include valuing Scotland’s assetsimproving Scotland’s pensions system, supporting the Scottish fishing sector, benefits for the commercial property market, redirecting support for local retailing, a more sensible approach to housing, supporting Scottish food and drink sector, promoting Scottish tourism, a better deal from the EU on agricultural support, developing the renewable energy market, reforming Scotland’s defence structure, focusing on beneficial capital investment as opposed to HS2, restructuring financial services investment and developing competitive advantages in education.

This is based on a growing body of economic research into Scotland’s economy. A varied of sources are posted at the bottom of this article for any readers who are interested in more substantive reports.

Join Business for Scotland – Sign our business declaration

Further reading:

Business for Scotland

10 key economic facts that prove Scotland will be a wealthy independent nation

The Accounting Trick that Hides Scotland’s Wealth.

Where does Scotland’s wealth go?

Government Reports

White Paper on Scotland’s Future
Economic Policy Choices in an Independent Scotland

National Institute of Social and Economic Research

Economics of Scottish Independence

Reid Foundation

About the author

Michael Gray

Michael is Head of Research with Business for Scotland.

A graduate from the University of Glasgow, he has carried out a series of interviews with academics, politicians and the public in Denmark, Iceland and Ireland. Michael's on twitter @GrayInGlasgow.

15 Comments

  • I’m not very well informed on this, but isn’t there something called the Barnet Formula whereby the Westminster government pays a substantial amount of money into Scotland’s coffers. What will happen to this if Independence is voted for?

  • I’m not very well informed about this, but isn’t there something called the Barnet Formula whereby Westminster pays a substantial amount of money in Scotland’s coffers. What will be the effect of losing this/

  • There is one BIG assumption in all that is said of Scotland’s economy. that the playing field we enjoy at present is their in the future. The biggest player n that field is the rUK, my experience, as with the large successful companies is that market will largely disappear when independence strikes, leaving indy Scotland with less that half its trading businesses it currently enjoys!

    • Except that the rUk exports £500 thousand million of goods and services to Scotland every month and that supports maybe unto 700k jobs in England alone – trade barriers work both ways and losing that trade to Scotland would result in a recession 7 maybe 8 times as deep as the last one!

  • Perhaps but I am not sure you can call on the assets of the pension funds in the way you suggest. Is the name of the game not diversification?

    • Investing across the whole economy is itself diversification because the economy is diverse. Investing only in securities trading, regardless of the practice of diversifying via “asset mix” is actually not real diversification – it involves investing in only one form of business and business model. There are many more industries to invest in other than just the “asset management” industry.
      Independence does bring with it some risks but it also brings new opportunities and one of those is the opportunity to create a completely new finance system and a new approach to investing.

  • Lots of good headings here but it does assume that SNP will stay in power post indi. If they do perhaps for the first few years they will have their work cut out bedding in the basics of government before embarking on new ventures.

    • Sorry but it makes no assumptions about any political party, just that all parties will start to make decisions that benefit Scotland once they are elected to do what is best for Scotland and have to powers to implement such policies.

      • I hope that all parties in Holyrood and Westminster are currently trying their best to help Scotland. Of course, like we all do, they will make mistakes.

        Why will things become so much better after Indi? Essentially it will be the same pool of people.

        • More generic statistics. Anyone could produce some numbers saying “Scotland would be £x billion better off if we improve productivity by 1%”. Whats lacking is real substance or new ideas as to how we do this. Fed up reading about how Westminster has mis-managed Scotland and all will be better after independence. A massive simplification of a complex issue. And I do ask myself why the incumbent Scottish govt doesnt exercise its full powers to accomplish some of these ideas now? The case for an economically stronger Scotland has categorically not been made.

  • Scotland has greater financial assets and potential than even this upbeat assessment of Scotland’s future suggests. If a Strategic Investment fund were established, by funding it from a share of North Sea revenues and/or some of the savings in public expenditure identified by Michael, it could leverage those assets by acting as a lead investor in collaboration with key Scottish pension funds. Instead of investing pension fund capital in securities trading (which amounts to nothing more than speculation) the SIF and pension fund co-investors could invest equity directly into Scottish businesses to help grow new innovative industries and grow successful domestic companies (thereby reducing our reliance on footloose multi-nationals). By investing direct equity into the Scottish economy the SIF and pension fund co-investors would benefit from a share of the net revenues produced by the businesses in which investment has been made.
    A potential key co-investing partner for an SIF would be Scotland’s local authority pension funds which currently command assets valued in excess of £20bn (the Strathclyde Pension Scheme alone is worth £13bn).
    This approach to investing will also support a new financial sector in Scotland and we should stop worrying too much about the possible departure of financial institutions such as Standard Life, Lloyds and RBS. Their departure is an opportunity to create a brand new and more productive financial sector which directly supports wealth creation instead of financial speculation.

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