Last night marked the fourth Business for Scotland annual dinner and it broke new ground as the first time two of Scotland’s First Ministers have addressed the same business dinner (a double first?). It also broke new ground as Alex Salmond made a significant intervention in both the Brexit and independence debates by extolling the virtues of European Free Trade Association (EFTA ) membership for an independent Scotland.
On the day that Westminster debated the Great Repeal Bill and the week when the UK Government was under huge pressure from the EU and from political opponents for its omnishambolic approach to the Brexit negotiations, this puts the cat among the pigeons in terms of Scotland’s future relations with the EU.
The Scottish Government’s policy now, as it was under Alex Salmond, is that Scotland as an independent country should be a member of the EU – which made sense when the rest of the UK was still going to be a member. However, Brexit changes everything. It will affect how we trade, who we can trade with, how easily goods can get through customs and the paperwork involved. Business people such as James Dyson seem to think we can just get on with it and, if there are a few delays at customs, so be it. But, as a farmer recently said to me, there is a world of difference between a vacuum cleaner taking a few extra days to clear customs and the same thing happening to a punnet of strawberries.
Clearly, Brexit supporters are not seeing the full picture yet and they probably won’t till full details for the deal emerge and then we can take stock of the damage it will do to Scotland’s economy. And it will be damage, because any Brexit hard or soft will hurt Scotland more than it will England – which largely explains why England voted Scotland out against its will. Scotland’s economy differs greatly in its economic needs from London and the south-east, where the UK’s business policy is generated, and that is why a one-size-fits-all economic policy doesn’t work for Scotland and many other UK regions.
Alex points out that the current four members of EFTA are all, according to the World Bank, in the top 12 wealthiest countries per head in terms of GDP per capita. Prime Minister Theresa May has repeatedly claimed that membership of the single market comes only through EU membership but that is manifestly untrue, as the EFTA member nations can testify. Alex points out that we have a situation of significant economic uncertainty and danger to Scotland’s economy, and that EFTA membership would give an independent Scotland a definitive European relationship which would be much more certain and stable than the economic chaos and confusion of Brexit Britain.
A natural conclusion follows that Brexit will make a second independence referendum inevitable as the economic opportunity of independence within EFTA will compare extremely favourably with the economic chaos once the Brexit deal is announced. Hey, hold on, the pundits will scream, Alex Salmond wanted to stay in the EU – and he probably still wants that, for the UK and an independent Scotland – but you have to play the ball where it lies. Sharing a currency with the rest of the UK following independence also looked like a wise policy back then, but that was when it was a strong and stable currency, overvalued for sure but consistently overvalued. Scotland’s exporters had become accustomed to the high value of sterling and many components/ingredients were imported rather than manufactured/grown here, so a devalued currency is of less use to our exporters than traditional economists might think. Currency union and full EU membership may well be two of the sacred planks of past policy that have to go, given the changing circumstances of Brexit.
If the UK gets a hard Brexit it would cost up to 80,000 Scottish jobs and knock billions from Scotland’s GDP, exports would fall 11 per cent and, on average, Scottish workers would be £2000 a year worse off in real terms, according to the Fraser of Allander Institute. We keep thinking that the UK Government will see sense but with UK Labour also highly eurosceptical there are no signs yet that a common-sense arrangement will be reached.
This means that the people who voted against independence in 2014 because of economic uncertainty will now see that uncertainty is guaranteed, and Alex Salmond is looking to shape future policy in a way that combines maximum stability with the powers of independence to create bespoke economic and social policies for Scotland.
The only real problem is that the more damage the UK does to its own economy with a hard Brexit, the more damage it will do the issues of borders between Ireland and Northern Ireland, and between Scotland and England after independence. The UK with a hard border with the EU and trading within WTO rules would soon be a basket case, and although Scottish trade with the rest of the UK would fall significantly, it would still be important, and EFTA membership might offer us the flexibility on borders and customs controls that full EU membership would not.
Politically, it’s also a good move as many Yes voters are not enamoured with the EU but can be persuaded on the idea of single market membership outside the EU proper. EU Remain voters won’t be happy at leaving the EU against Scotland’s will but can buy into EFTA membership to protect jobs, working conditions, exports and prosperity. Both will surely accept that an independent Scotland inside EFTA will have the right as a sovereign nation (presumably via a referendum) to decide if we stay in EFTA or rejoin.
So why doesn’t the UK join EFTA? Well, it is not welcome and would be too big an economy for countries such as Norway to be comfortable with. If there is any trade deal to be done, it will be a bespoke one for the UK and that would mean no hard borders between an independent EFTA member Scotland and the UK. The UK, however, would have to pay into the EU budget to some extent, follow EU rules and regulations and accept EU freedom of movement – not a problem for Scotland but a big problem for anyone who wants to win an election where English votes count.
This is a significant, welcome, and clever intervention from Alex Salmond, and assuming he doesn’t head off on a world tour with his unleashed show, hopefully we will see a lot more of the same in the near future.