Scotland's Economy

Answers for a No-minded businessperson

Written by Michael Gray
SP Committee

Businesspeople supporting independence at the Scottish Parliament today: Dan MacDonald, Gordon MacIntyre-Kemp, Jim McColl and Marie Macklin

Today’s evidence to the Scottish Parliament Economy Committee presented a choice between two futures for Scotland’s economy.

The positive economic evidence given by Business for Scotland focused on the strength of Scotland’s economy and opportunities to develop export markets. The Pro-independence business people giving evidence were: Jim McColl OBE, the chairman and chief executive of Clyde Blowers Capital. Klin Group chief executive Marie Macklin. Dan Macdonald, the chief executive of Macdonald Estates and Gordon MacIntyre-Kemp, the chief executive of Business for Scotland.

Other business representatives remained concerned regarding constitutional change. Rupert Soames was one of those representatives who is currently in support of a ‘No’ vote.

Business for Scotland welcome all business participation in the independence debate.

Here is a response to points raised by Mr Soames in a recent speech and in evidence given today. This may also be useful for anyone who is yet to be convinced of the economic and business case for independence.

Claim 1) It is a ‘contradiction’ to highlight the success of Scotland’s businesses, while criticising the limitations of Westminster.

There is not a contradiction between these two points. Scotland is a wealthy nation, but the lack of economic control has limited opportunities in Scotland. Great oil wealth has not translated to an oil fund. Strong fishing stocks have been under-supported by Westminster. Substantial renewable energy potential has been undermined by Westminster policy. Excellent export performance has taken place despite a lack of promotion by UK embassies. World class universities have been harmed by Westminster scrapping the student visa system.

Scotland is a successful and wealthy nation – but too often investment and infrastructure is focused on London and the South East. As a result, Scotland over the past century fell behind in rates of economic and demographic growth.

With the economic powers of independence Scotland can grow and develop its economy based upon these strengths. Scotland’s success is an argument for independence not an argument for centralising decision making in London.

Claim 2) Borders will damage trade

Business for Scotland has comprehensively responded to concerns on open trade. Separation is not on the ballot paper. Mutual trade is of mutual benefit. There are numerous reasons for this including the importance of the Scottish market for English businesses and vice versa. If anything, providing greater economic flexibility and autonomy to Scotland will benefit the North of England and rebalance the overall UK economy.

The only threat to open trade comes from Westminster and the political pressure of UKIP and some Tory members to exit the European Union.

Further evidence

Claim 3) There is not enough evidence on taxation

Scotland currently has control over 7% of taxation. With independence Scotland will control 100% of its tax base.

Independence is a vote on who is best placed to make decisions on taxation – the Parliament in Westminster or an independent Scotland.

Certain tax proposals are included in the Scottish Governments White Paper ‘Scotland’s Future’. This include reducing Air Passenger Duty to support Scottish airports and reducing Corporation Tax to provide companies in Scotland with a competitive advantage.

The overarching argument, identified by Mr Soames, is that an independent Scotland will act in the best interests of business in Scotland. This means that decisions will reflect the interests of growth sectors and build upon unique strengths.

Claim 4) More regulatory bodies will require extra civil servants and raise costs

Scotland already pays 9.9% of total UK taxation towards total civil service costs and all regulatory bodies.

The UK employs 448,835 civil servants as of March 2013.

74,240 civil servants are based in London and 45,470 civil servants are based in Scotland at the time of the figures. (Source)

Even on a simple calculation, Scotland’s financial contribution is paying for more civil servants per head in London than in Scotland.

Average salaries and costs are far higher in London than in the rest of the UK. Scotland is also paying for this cost.

Further figures on the Scottish Civil Service were published in December 2013.

16,800 civil servants in Scotland work in devolved areas. 27,900 work in reserved areas.

This is comprised of 11,200 in the Department for Work and Pensions. 9,300 in HM Revenue and Customs, 4,000 in the Ministry of Defence, 600 in the Department for International Development, 2,700 in ‘Other Civil Service’ and 70 at the Scotland Office.

Scotland already has a strong civil service network across a variety of services. The current ‘reserved’ networks will transfer to an independent Scotland over the transition period so effective services can continue.

Claim 5) Will this civil service transfer not raise costs?

Scotland will stop paying into the pot for UK civil servants and continue to fund the Scottish system. As Mr Soames points out, Ireland operates with 37,000 civil servants. Scotland currently pays for around 45,000 civil servants in Scotland and contributes extra tax overall to fund the other 400,000 civil servants in the UK.

These costs include the impact of contributing to above average salaries and costs in London and the South East.

Scotland will save money from no longer contributing to the cost of the House of Commons and the House of Lords estate (£200 million last year) as well as MP salaries and expenses. Dan MacDonald, of MacDonald Estates, calculates that average property rate in Scotland would be one-third of current costs in London. As Scotland already contributes to this 99 million square feet of government property in London this will bring significant savings.

As a whole, there is already a strong civil service infrastructure to organise an independent Scotland.

Question 6) How will a Scottish embassy network operate?

On page 13 of ‘Scotland’s Future’ it states that Scotland will have between 70 to 90 overseas embassies at a yearly running cost of £90-120 million a year. This cost is below Scotland’s population share of UK total expenditure on overseas representation. This means that Scotland will be spending less on embassies than it currently pays to Westminster in relative terms.

Scotland will also inherit a share of UK overseas assets from which to base this network and already has an international trading network through Scotland Development International.

comparative embassy networks

Question 7) Will an embassy network provide a better service for Scotland?

Yes. An embassy network is a key strength in promoting Scotland globally. This is of particular importance for Scottish exports and higher education institutions which compete globally.

Business for Scotland contacted UK embassies in key export locations. Not 1 embassy made any attempt to promote Scotland around St Andrew’s Day.

Ireland is current reviewing its international policy. Professor Ben Tonra, University College Dublin, submitted evidence to the Foreign Affairs Committee stating that an embassy network was an invaluable part of promoting Ireland’s interests and that future policy should aim for an expansion in this area.

Question 8) Is there any point in Scottish Civil Aviation? Will that improve the economy?

Some economic powers are more important than others. Some areas will only have a moderate impact on Scotland’s economic performance.

However, control over aviation can improve Scotland’s economy in specific circumstances. Business for Scotland have been contacted by experts in the aviation community who point out that MoD military ‘no fly zones‘ increase flight costs. With independence there is the opportunity to review such policies and consider the future of Scotland’s economy in each sector.

The full details of the Scottish Government position on aviation is also covered in pages 131-32 of the White Paper on Scotland’s Future.

Question 9) If Scotland cannot control its own foreign affairs, airspace and competition regulation, is it really an independent country?

Scotland will control foreign affairs, aviation and competition regulation.

Question 10) Why doesn’t the Scottish Parliament make do with income tax powers?

The Scottish Parliament has the right to vary the base rate of income tax by 3p in the pound. This is part of Scotland’s 7% control of tax.

This does not allow the flexibility to improve Scotland’s fiscal position.

Claim 11) The Scottish economy is very similar to the UK economy, so are we not better with a joint political system?

Scotland and the UK do share some common economic features. However, they also diverge on issues such as energy production, house prices, wages, unemployment rate (6.4% in Scotland, 7.1% UK average), in GDP per capita (GDP is higher in Scotland), in tax take (take take is £1700 higher in Scotland than the UK average), social security spending (Scotland is lower per person for housing benefit) and due to differences between Scottish and English law.

There are areas of both convergence and divergence. This trading relationship will continue to change as it has over centuries. Independence is the opportunity to improve Scotland’s economy to the benefit of all, which will benefit those integral relationships with the rest of the UK.

Other integrated economies include Canada and the United States of America; Norway and Sweden; and Portugal and Spain. In each case, the success of the former would benefit the later. Their integration is not a reason to centralise decision making and fiscal powers in one state.

Claim 12) Even if Scotland is independent, taxation will be controlled by the Bank of England

This isn’t the case. The Luxemburg-Belgium currency union is an example of a successful optimal currency union which covered two national tax systems. The two countries operated different VAT and tax rates.

Claim 13) Different regulations and rules will be complicated

As business owner Rickard Arkless recently explained on Business for Scotland, the opportunities of independence outweigh any ‘complication’.

Scotland and England currently have independent legal systems, education systems, health systems, policing systems etc. All political parties support the establishment of Revenue Scotland to take charge of more tax affairs, so a different tax system is beginning to be constructed.

As Mr Arkless explains, any differences in technical matters – such as tax accounting – will continue to be managed by accountants. This slight difference is no barrier to business which operates across national borders within the common market.

Conclusion

All in all, the negative business case against Scottish independence is largely based upon technicalities which will be worked out follow a ‘Yes’ vote. On the significant economic point, a great wealth of economic evidence supports Scotland’s ability to be a successful independent country; and there are a number of opportunities to improve this with independence.

Prior to the 1997 referendum on establishing a Scottish Parliament Michael Antrim, from the No Campaign, said

“I am asking you to vote No-No because I believe that these proposals are bad for Scotland, bad for the people of Scotland and bad for business in Scotland.”

Similar concerns are being shared prior to the vote in September.

An evidence based approach to the independence debate in 2014 will lead to the same outcome as in 1997: a vote for progress, more powers for Scotland, and the opportunity to improve Scotland’s economy.

Now Join Business for Scotland – Read More

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.

14 Comments

    • Yes we do, but the fact is they are saying that they may have to consider leaving if the Scottish Government doesn’t get its way and have an official currency union. The media headlines don’t match the fact of what they have said. We both support a currency union and believe that one will happen. We will be expanding on this later today in a new blog.

      • Yes I know thats what they said – actually if you really want to be faithful to what they said they also mentioned in the same sentance that they were worried about both regulation and tax implications – so it was not simply currency.

        I have just watched the for and against business MSPs videos. Interesting stuff alhtough im not much clearer. You would be well advised when not in BFS mode to tone down your Mr Angry approach – it doesnt do the cause any favours. I thought McColl was head and shoulders above the others. Interesting that he is really a frustrated devo max man.

  • Further to your response regarding civil service numbers, in terms of overall public sector employment a popular myth is that Scotland is over reliant on government employment.

    Latest figures actually show that Scotland has 373,400 of the 4,657,000 (full time equivalent) public sector workers in the UK.

    That is 8.02%, compared to 8.35% population share.

    An equal population share of public sector workers in Scotland would result in 15,460 (full time equivalent) jobs moving to Scotland.

    Further to this, public sector earnings in Scotland are 3.16% below UK average, meaning we could afford a 3.16% higher staff headcount, equating to a further 11,340 (full time equivalent) jobs.

    Overall this means Scotland is currently short changed by a potential 26,800 additional (full time equivalent) public sector jobs.

    This is based on population share, with our on-shore tax revenues per head on par with rUK. These figures therefore do not include the further potential from our higher share of off-shore revenues.

  • So, after a “YES” referendum, the SNP Government takes a vote in Holyrood confirming and declaring the Sovereignty of the Scottish people, which is legal under international law, the treaty of union and the Edinburgh Agreement, so it’s not UDI. Then, promptly declares Scotland’s Independence WITHOUT NEGOTIATION bringing immediate diplomatic, international and legal recognition by a swarm of UN members, offering support, congratulations and wanting to establish direct trade links to he new “iScotland”. This instantly torpedoes any “Project Fear/Better Together/Ye Cannae Dae That” objections at the international level, allowing us to “discuss or dictate” the acceptable terms of a severance agreement. It’s a “Velvet” divorce, same model as the Czechs and Slovaks used, so it has been proven to work 😉

    I intend to attach this response to every “Better Together/Project Fear/Ye Cannae Dae That” thread that raises its ugly head – please feel free to do the same, or if it annoys you, just ignore it and go on about your day 😉

  • The bbc have screwed up the links to this mornings meetings. The YES side of the argument isn’t there. Perhaps Gordon or someone can alert them more quickly than anyone else can. Only the no side and undecideds are available. Yes side looks as if it is, but shows the no side when the link is clicked.

    • I wouldn’t be in the least surprised if someone at the BBC deliberately screwed up the link to deny the pro-independence business leaders the oxygen of publicity; and no I’m not being paranoid for the BBC has form e.g. the infamous BBC debate when Nicola Sturgeon was inaudible for 30 minutes when the unionist representative could be heard quite clearly.

  • Should also point out that any increase in our income tax take under devolution will be taken off the block grant. Conversely any reduction in our income tax take will not increase our block grant. So nothing to gain. It is window dressing.

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