Scotland & the EU

Brexit damage to Scotland’s economy will drive up Yes vote

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The FM at event hosted by IPPR Scotland gives her Scotland and Europe speech from earlier this week

The latest poll by YouGov shows increased support for independence, up from 46% pre Brexit to 47% but that is a little disappointing, (even they excluded 16 & 17 years olds who are majority previous Yes voters). However, that poll doesn’t surprise me, as the SNP have emphasised the wrong message on Brexit. It is not simply the fact that Scotland is being dragged out of the EU that will change the polls, it is the economic damage that Brexit will do to Scotland that will increase support for independence.  That damage will take time to materialise but it must be highlighted by the SNP, something they are so far failing to do.

Wealthy No voters who will only change their minds if they think independence represents less financial risk than remaining with UK and OAP’s will vote for the solution they think will better protect their pensions. Neither of those key target groups give a dam about workers rights and freedom of movement, or the niceties of European co-operation – for them its economy, economy, economy. 

The post-Brexit UK economy is taking on water and looks likely to sink into recession and we need to make it clear that Scotland needs to man the independence lifeboat. I agree with Nicola Sturgeon’s key interests to be protected, but if doesn’t emphasise the vast economic dangers of leaving the EU the polls won’t move to the level required to trigger a second referendum.

Many voted No in 2014 because they believed it offered economic stability and the Scottish Government needs to make them aware that Brexit makes their nightmares more likely and that independence is now the economic opportunity of a lifetime. Without that change in message, independence won’t happen. Yes and No can now both take 40 per cent support to the bank, it’s the 20 per cent that are willing to change tier minds  – based on how they perceive the impact on their own finances  – which will decide if Scotland sinks or swims.

Figures published this week include historical pre-Brexit GDP data showing the UK economy was recovering and manufacturing was making a comeback, as well as PMI data collected post-Brexit which projects the future state of the economy based on current purchasing managers decisions. The GDP data has been presented in the anti-EU/right-wing press as proof the UK is weathering a Brexit well, when in fact data only shows how the economy was performing before the Brexit vote. The PMI data predicts the UK economy will fall sharply in the quarter immediately following the Brexit vote, and if this continues the following quarter the UK economy will have entered recession.

Whisky producers have called for the Scottish and UK Governments to protect Scotch whisky from Brexit

Whisky producers have called for the Scottish and UK Governments to protect Scotch whisky from Brexit

Most worrying is that the PMI score of 47.4 (below 50 shows economic decline) for the UK services sector is down from 52.3 in June, itself an 88-month low. The manufacturing sector which had a record month in June (pre-Brexit) has now hit 49.1, a 44-month low. France, which recently overtook the UK as the world’s fifth largest economy, has a PMI of 50.3 and Germany has an overall PMI of 55.3. The EU as a whole has a PMI of 52.9, which is an indication of remarkable resilience in the EU economy to the prospect of the UK leaving while the UK’s economy is teetering on the edge.

So in other words, the economic indicators show the Brexit vote has had the effect of slamming the brakes on the UK’s economic recovery and putting it into reverse, while the EU is doing rather well.

It is hard to see any EU trade deal having an impact on the UK’s economy that doesn’t fall within the bracket of slightly damaging at best to disastrous at worse. For Scotland’s economy however the picture is even darker, partly as the EU compensated Scotland for the lack of Westminster investment by giving Scotland 17.4 per cent of all the EU grants to the UK when our population share and membership fee was only 8.4 per cent and partly because our exports to the EU of about £11.56bn (up 36 per cent to £3,070m per year since 2005) are far more important to Scotland’s economic prospects than to the rUK overall. Also having had several record years of inward investment recently, many companies are located in Scotland as it currently gives them access to the EU single market and if that changes there could well be an exodus.

Let’s be clear: there is no deal the UK Government can make with the EU as non-members which would improve on the benefits of membership for Scotland. Indeed to get the best deal for England, Westminster may sacrifice Scotland’s economic interests such as fisheries access.

Against this backdrop, we can see that Scotland being ripped out of the EU against it’s wishes amounts to a deliberate act of economic vandalism and a case study in the damage and disadvantage that flows from Scotland’s lack of self-governance. Nicola Sturgeon’s lists of key interests that must be protected underplays the economic dangers that Brexit exposes Scotland to.

Demand Scotland represented in EU talks by UK Government - but will this really bring about the best deal for Scotland?

Scot Gov demand Scotland represented in EU talks by UK Government – but will this really bring about the best deal for Scotland?

The Scottish Government must demand that UK Government officially informs the EU that Scotland can be represented by Sturgeon in direct negotiations on all options (including independence) that would maintain Scotland’s EU membership. They should also demand assurances that the UK Government will not simply use access to Scottish fisheries as a bargaining chip for better conditions for London’s finance sector, given the promises made to the fishing sector in the referendum by the Vote Leave campaign. The UK Government must also commit to replacing all EU grant funding to Scotland and creating an enhanced capital investment fund large enough to compensate Scotland for any economic losses due to the Brexit. Trident already having been voted through will place additional stress on Scotland’s budget but given that several billion of Scotland’s nominal fiscal deficit is related to shared services and costs of being part of the UK, Scotland’s contribution to expensive infrastructural projects that don’t benefit Scotland must be re-examined. 22 is a hugely expensive project with no economic benefit (indeed it would be detrimental) to Scotland and cannot be allowed to impact on Scotland’s finances – if English votes for English laws is appropriate so is English money for English projects.

For the most part the people of Scotland are blissfully unaware of the significant risks from Brexit to Scotland’s economy. Scottish jobs will go and our ability to afford social protections will lessen significantly if we do not maintain our EU membership and it looks more certain by the day that independence will be the only option. Nicola Sturgeon and her SNP Government need to communicate in no uncertain terms the potential economic damage to Scotland leaving the EU whilst remaining part of the UK.

She also needs to point out that the powers of independence, coupled with the economic advantages of unfettered access to the single European single market can radically improve Scotland’s fiscal position and grow it’s economy significantly faster than the rest of the UK. The choice facing the people of Scotland now is simple: to become a wealthier, healthier, fairer, greener, more secure and internationally focused independent nation or to be a poorer, unhealthier, unequal, and unsustainable region of the self destructing and increasingly insular and insecure UK.

Update: Victory – Since the UK government has now been forced to admit that HS2 will never reach Scotland.  The civil servants who compile the GERS report have confirmed to Business for Scotland that they will now refuse to accept any contributions to the cost of HS2 on Scotland’s behalf.

 

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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.

13 Comments

  • The usual narrow perspective in which nothing good can ever come of or from the UK.

    It’s not true.

    Where’s the unmitigated disaster you speak of.

    The PMI index and the Markit survey show contarction, but these are one month after the most fundamental decision the country ahd taken in 40 years.

    With respect, that’s no shock at all.

    One month later, the FTSE 100 and 250 are ahead of where they were, business goes on – Siemens have announced major investmets in the UK plants, most of it going to Montrose becuase ” the UK is still a great place to do business”.

    The diplomats are talking and there will be a deal.

    None of this suits SNP posturing, of course, but I’m still unable to see why Brexit is a disaster for Scotland.

    Why is Brexit as disaster for Scotland, but leaving the UK in 2014 was for a land of milk and honey?

    Particularly as we now know we wouldn’t have been ‘automatically’ enjoined into the EU.

    Can you just answer this, Gordon?

    • I didn’t use the term unmitigated disaster I said “The post-Brexit UK economy is taking on water and looks likely to sink into recession” and the economic indicators show the Brexit vote has had the effect of slamming the brakes on the UK’s economic recovery and putting it into reverse, while the EU is doing rather well. i don’t actually see any credible commentator disagreeing with me. If there is no economic crisis then why has the bank of England announced:

      • A cut in official interest rates to 0.25%. The Bank last cut interest rates in March 2009 in a bid to cushion the UK economy from the global financial crisis

      • Plans to pump an additional £60bn in electronic cash into the economy to buy government bonds, extending the existing quantitative easing (QE) programme to £435bn in total

      • Another £10bn in electronic cash will be created to buy corporate bonds from firms “making a material contribution to the UK economy”

      • A new scheme to provide as much as £100bn of new funding to banks to help them pass on the base rate cut to the real economy. Under this new “term funding scheme” (TFS) the Bank will create new money to provide loans to banks at interest rates close to the base rate of 0.25%

      To clarify this is a crises response and not a natural stimulus. See also – Bank of England predicts nightmare for savers after interest rates cut http://www.heraldscotland.com/politics/political_news/14663162.Bank_of_England_predicts_nightmare_for_savers_after_interest_rates_cut/?ref=twtrec AND Bank of England cuts interest rates to ward off Brexit recession – as it happened https://www.theguardian.com/business/live/2016/aug/04/bank-of-england-interest-rates-stimulus-inflation-report-business-live?CMP=share_btn_tw

      The FTSE 100 and 250 will indeed rise as again due to this announcement the BOE stimulus actions will increase asset prices whilst failing to protect the real economy. I predicted such on 5th July Business for Scotland responds to Mark Carney’s move to stabilise the economy https://www.businessforscotland.com/business-scotland-responds-mark-carneys-move-stabilise-economy/ However you may be blinded to my opinions due to political dogma so here is an open letter to the Chancellor from 35 leading economists written a month after mine that says pretty much the same thing Open letter to Chancellor: time to support alternatives to quantitative easing http://positivemoney.org/press-releases/open-letter-to-chancellor-time-to-support-alternatives-to-quantitative-easing/ I hope that answers your question.

      Neither BfS nor the SNP claimed independence would create a land of milk and honey thats just a stupid political sneer, it would however give us the tools to create a better more successful and prosperous Scotland but your comments simply demonstrate the usual British nationalist narrow perspective in which nothing good can ever come of or from Scottish independence.

      As for EU membership you say “we now know we wouldn’t have been ‘automatically’ enjoined into the EU”. We do not know that at all – we do not know the answer to that question. I believe we would have been a member ongoing but it is a ‘believe’ and you cannot state the opposite as fact either, you can say there was uncertainty but not that it was a fact – however should there be another referendum on independence I would expect the Scottish Government would be told officially or unofficially beforehand by the EU that we would remain members and not have to rejoin.

      All other questions you ask are answered in the article that I would suggest you read again without a red mist before your eyes.

  • Good analysis. However to stage Indyref2 is a political decision
    and the SNP have to be aware of the political reality.
    i.e. Scotland had the initiative in 2014 now the initiative lies with London. They have the ability to maintain or break the Union depending upon their actions vis a vis Bruxelles.
    If Sterling crumbles in the face of uncomprimising negotiation
    with the EU then London will be prepared concede anything to reach an agreement within the 2 year limit.

  • What a load of rubbish. The Scottish Government needs to concentrate on our failing schools, health service and universities and keeping the costs of fuel down for the poorest households.
    The SNP spent five years trying to persuade us that oil revenues would make Scotland the new Norway – what a disaster that “Yes” vote would have been. Now Sturgeon is levering the SNP on the single issue of Brexit.
    It is time the SNP concentrated on what they are paid for, that is looking after the people in Scotland NOT on vanity schemes for Sturgeon in Europe where our population amounts to a little over one per cent. How much influence will Scots have in Europe compared with ten per cent in the UK.

    • If the drop in oil and gas prices would have been a disaster to Scotland why did westminster not hand over taxation, on same, to the Scottish Government along with the other taxes they were allowed to collect.

    • The incorporating Union of 1707 gives Scotland no veto, no seat at the top table as a separate nation in the UK.
      The EU is a federation of nation states where all are represented by ministers. Luxemburg has more direct representation in the EU in the Council of ministers Tha Scotland has in the UK.
      INDEPENDENT in the EU means we get governments at the highest level to represent us, governments we voted for directly.
      You do not see the English elephant in the room.
      You come up with the usual cringe nonsense we hear from those who would restrict Scotland to second rate status having no direct representation in the world except through Westminster and Downing Street. With EVEL überall, that is no future for Scotland.
      You see a Scottish FM as a vanity scheme in Europe. Sad, you have such a low opinion of Scottish political roles and institutions.
      You are an example of the worst excesses of Scottish cringe!

    • “How much influence will Scots have in Europe compared with ten per cent in the UK”.

      in the EU decisions often have to be unanimous – so an independent Scotland’s voice would be heard – and in some instances there are weightings for small countries – so an independent Scotland’s voice would be heard. At present Scotland does not have a voice in the EU – it is subordinated to the interests of England. And it does not have a voice in Westminster because whatever it says is drowned in a sea of English votes from English MPs

    • There’s no words to express how one sided you thoughts are about Scotland and the EU, maybe you would change your mind if you were to pay for bedroom tax-School meals-prescriptions costs and university fees. Well who cares as long as we have the Torys and brexit , what a waist of a good person you could have been. Sad so sad , just hope that reality doesn’t hit you in the face too hard.

  • The disastrous consequences of brexit are only the tail end of disastrous economic mismanagement of the UK that has been evident for decades – IMF loan’s in the 1960’s & 1970’s, the utter squandering of North Sea oil, privatising housing & companies, creating a massive debt bubble. The main notable factor from all this is a complete absence of any effective and sustainable plan to adjust the UK economy to match it’s capabilities and desires with the outside world. The end result has been to barely keep the UK’s head above water. Look at the UK balance of trade (goods & services). Yes brexit will be disastrous for Scotland and the UK and it does need to be highlighted as much as possible. But brexit is not as unique event as it sometimes is made out, just the latest and most rapid and visible example of incompetence within the UK that has and will continue to exist within the UK until something almost terminal becomes self evident. It is that decades long relentless decline that is the issue, with brexit as the red flag to take control of Scotland’s future, because within the UK the failings will continue and they will be terminal. Normally this would happen slowly over a long period of time, making it less distinct than it should be, and that is what has happened from the 1960’s. Slow relentless decline. Brexit is that rare event that compresses failing into a time frame that is all too evident. Muddling along or thinking that things will always work out somehow is both foolish and childish. It hasn’t so far and won’t unless enough people realise that Scotland can only get out of the mess that has existed as an accepted slow stunting of development for decades, and a now highly probable catastrophic decline as a result of brexit, by growing up and taking responsibility for it’s own affairs. The Yes/No waverers need to be made aware of the massive danger of Scotland not taking control of all of it’s own affairs. The UK’s history of economic failure provides a long term proven track record of economic decline and failure. And since the UK has proven to be averse to any real change, why should the future be any different. The No 40% will never accept this, but the 30% who are rational would if the case were made crystal clear. This is issue #1. All else is supplementary.

  • Its no comfort to see that I’m not the only one that thinks the SNP are pussyfooting around Brexit and need a good kick up the backside to jolt them into action.

    Make no mistake Brexit is going to be an unmitigated economic disaster for Scotland and it beggars belief that the SNP are not shouting to the electorate from the rooftops of Scotland about what is going to happen to the Scottish economy post-Brexit because Westminster sure as hell won’t do anything to stop that catastrophe happening.

  • Excellent article Gordon. You’ve hit the nail on the head.

    To win the referendum we have to be able to answer the basis question-what’s in it for me?

  • Excellent Article

    I am of the same opinion about the assets of scotland being sacrificed to gain london centric deals

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