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New research: EU worth £2bn per year to Scotland

Cameron ignored calls not to overlap with Scottish Parliament elections

Cameron ignored calls not to overlap with Scottish Parliament elections

There is a really interesting and important vote for Scotland coming up, it may spark a constitutional crisis in the UK and it’s not the Scottish parliamentary elections.

The EU referendum’s economic and social impact could be significant and far-reaching, but because Cameron has called it at a time that overlaps with the Scottish elections the level of information available to voters and the level of debate on the topic is woefully inadequate. With the short timescale it is Cameron’s intention that voters may be more open to scaremongering and so his gamble is to basically run a Project Fear mark two and hope people will vote for the devil they know.

The problem is that a lack of good information means the sometimes outrageous claims of the Leave campaign can sound more plausible than they are.
The imaginatively named Business for Britain (Scotland), an anti-EU group, has said that Scotland’s budget will rise by £1.5 billion with a Brexit, but no one can credibly argue that there would be such a saving, or that Westminster would spend it in Scotland if there were.
The most common question I get on Europe is how much does EU membership cost us and what do we get back from it.
Would Westminster match EU funding lost after Brexit?

Would Westminster match EU funding lost after Brexit?

Having researched this I have found firstly that the numbers are hard to source as several official reports use differing numbers and secondly that EU membership benefits Scotland significantly more than it does the the UK as a whole.

First, you have to look at the EU membership fees, which vary from year to year, but the UK’s membership fee is about £17.8bn. Brexit campaigners think if we leave we would have all that money to spend, but we wouldn’t for several reasons. Firstly, the UK never pays the full figure of £17.8bn, as other nations pay a chunk of our membership on our behalf, last year amounting to £4.9bn.

Now you can argue that the residual £12.9bn fee is still a lot of money but it’s not the £20bn often quoted in debates by Brexit supporters. If you want an accurate figure you also have to deduct the £4.5bn of the EU budget that is spent in the UK, often as matched funding for UK and devolved Government projects. So, the UK net membership fee including rebate and EU spend is £8.4bn.

It gets really interesting when you start to look at the EU membership fee and spending in Scotland. Scotland’s population share (8.2 per cent) of the pre-spend UK £12.9bn membership fee is £1.058bn, but EU annual spend in Scotland is £782.6 million. This means that with only 8.2 per cent of the UK population Scotland earns 17.4 per cent of the EU spending for the whole of the UK.

That radically changes the net financial transaction cost to Scotland of EU membership, which comes in at £275.2m. So Business for Britain’s claim that they can turn that situation into a budget rise of £1.5bn for the Scottish Government is as ridiculous as campaign claims get.

The EU plays an important role in redistributing the UK’s membership fees away from London and the South East in particular to the regions and nations that suffer from a lack of investment due to the UK’s London and south-east economic bias. If the UK were to vote for a Brexit then Scotland’s economy (and that of Northern Ireland and Wales) would require Westminster to replace the EU spending while simultaneously doing a trade deal that maintains full access to the Common Market. A deal can be done and that is what undermines the Stay campaign’s scaremongering. However, all deals that give full access to the EU come at a cost and that fact is being ignored by the Leave camp.

It’s almost impossible to see a deal being done in a way that would generate savings on the membership fee, and simultaneously curtail EU immigration and increase sovereignty for the UK in the way that would meet the clarion call of the Brexit bunch.

Norway, for example has to apply most EU trade rules and regulations, pays a levy to trade with the Common Market that amounts to 95 per cent of the UK fee on a per-head basis but gets no EU spending and has immigration deals with the EU. In other words it is a strong possibility that any post-Brexit deal to give the UK full common market access would end up costing more to Scotland than current membership.

But that’s not the worst of it, as we haven’t started to look at the added value economic benefits to Scotland of its EU membership. Having reviewed multiple credible studies on economic benefits of EU membership, the average of estimates of EU membership benefit to GDP is 4.5 per cent of GDP. This means the EU contribution to Scotland’s GDP could be approximately £7bn and therefore it’s fair to estimate that the additional public sector revenue generated through Scotland’s EU membership is approximately £2.24bn per year.

EU membership includes budget elements such as foreign aid

EU membership includes budget elements such as foreign aid

The EU also funds private companies directly for qualifying research projects, and assuming a population share of the UK private sector spend to Scotland this is estimated to be about £112m, which the Scottish Government would have to replace to protect vital downstream R&D.

The membership fee also includes an EU aid element, which Scotland is obliged to spend anyway if we don’t give it to the EU as part of the membership fee. This amounts to approximately £65.6m. So taking the net membership fee to Scotland of £275.2m and subtracting the private sector and the aid money benefit we find the net cost to Scotland of £97.6m and so it seems that for every £1.00 we pay to the EU for membership Scotland gets about £20.00 back – Deal or No Deal? The net overall financial benefit to Scotland from EU membership is, therefore, approximately £2.142bn per annum.

Looking at the latest polls, YouGov for The Times shows Leave and Stay tied on 39 per cent across the UK but a recent large sample Scottish poll from TNS has Stay on 51 per cent and Leave on 19 per cent here in Scotland. So, the prospect of Scotland being dragged into a Brexit against its wishes is becoming more worrying by the day. When I first started writing about the EU referendum I was unenthusiastically pro-EU. Now I’ve looked at the numbers and the additional benefits to Scotland of membership I am far more enthusiastic.

I am also still mindful of the EU’s many faults, but sharing a small amount of sovereignty over trade regulations, human and workers’ rights in order to create an open market that boosts your economy and creates more, higher-quality and better-paid jobs is the relationship I want us to have with the rest of the UK after Scottish independence.

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About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

3 Comments

  • Scotland’s population share (8.2 per cent) of the pre-spend UK £12.9bn membership fee is £1.058bn, but EU annual spend in Scotland is £782.6 million. That radically changes the net financial transaction cost to Scotland of EU membership, which comes in at £275.2m.

    The problem with this bland assertion is that everybody in Scotland is paying for EU membership but very few people in Scotland actually benefit. Of the £782.6 million allegedly spent in Scotland, a great deal, perhaps most of it is spent to subsidize farming and University research.

    The main effect of farming subsidies is to increase land prices. This benefits land owners and older retiring farmers at the expense of the next generation. It doesn’t benefit the average Scot.

    EU subsidized University research has several effects. Large numbers of EU academics replace Scots in Scottish Universities with varied effects on the overall quality of teaching. Very little perhaps 1% of the research has a direct economic benefit to people living, working and investing in Scotland. Much of the remainder is diverting brain power from economically viable research in Scottish industry to fun and games in academia.

    The figures also fail to consider the impact of taxes, higher prices and legal and other expenses imposed on Scotland by EU regulations and import quotas.

    It is quite likely that none of the EU funds spent in Scotland would be spent in the way the EU decides if the Scots had their own say. It is also the case that almost none of the EU import quotas and duties benefit Scotland’s industry and all harm consumers in Scotland.

  • EU has to many faults,Scotland going it alone without the EU would be fantastic,not giving them billion being able to make laws without asking the eu permissions.if we get independence then asking the eu if it’s okay to change the law does not make us an independent country,all the people of Scotland please vote to leave and give us a chance of declaring another independence referendum or just go UDI.

    • I think you have failed to read the article.
      “Giving them Billions” yes we do, but we get Billions back and reap the rewards of membership in more Billions.

      So Scotland and rUK vote to leave, how does that give us another referendum? Or even UDI?

      As members of the EU, we sign up to the EU laws, they are not the notched upon us. Should we also leave the UN or other global bodies so we don’t have to abide by their laws?

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