Scotland Analysis

Tuesday 3rd September 2013 Written Statements

[The Chief Secretary to the Treasury (Danny Alexander)]

The Government have published the fifth paper in the Scotland analysis programme. This series of publications is designed to inform the debate on Scotland’s future within the United Kingdom ahead of next year’s referendum.

“Scotland analysis: Macroeconomic and fiscal performance” looks at Scotland’s economic performance and finds that, as part of the UK, Scotland is outperforming most other parts of the country and its performance is comparable to many other independent European countries as a result of the benefits of deep economic integration with the rest of the UK.

These benefits include free access to the larger UK market, a common regulatory framework, integrated supply chains and a highly flexible labour market. As a result, Scottish companies trade more goods and services with the rest of the UK than with the rest of the world, exporting £36 billion of goods and services to the rest of the UK. Flexible labour movement between Scotland and the rest of the UK allows businesses to recruit the best people from across the whole UK, and the benefits of being part of the UK have made Scotland an attractive destination for foreign investment.

The paper finds that the absence of a border is key for economic integration. Even where free trade agreements exist and physical borders are weak, neighbouring countries with similar economies are affected by the presence of a border. The analysis finds, for example, that that trade between the US and Canada is thought to be 44% lower than it could be as a result of the border between them. Canadian provinces trade around 20 times more with one another than with US states of a similar size and proximity, despite a free trade agreement between Canada and the US. Labour migration between Scotland and the rest of the UK is also estimated to be as much as 75% higher within an integrated UK, allowing the sharing of skills and knowledge.

The UK’s diverse economy protects Scotland from economic shocks and the volatility of oil prices. An integrated UK and a broader and more diverse tax base helps to maintain the stability of public spending in Scotland and smooth the impact of volatile sources of revenue, such as North Sea oil and gas.

The paper shows that since 1999, Scotland’s onshore economy has generated 8.3% of the UK’s tax receipts, while at the same time Scotland has received an average of 9.4% of UK public spending. Relative to the UK generating and spending £100, this means that Scotland’s onshore economy has generated £98 for the UK Exchequer, while receiving £112 of public spending.

Integration is at the heart of the UK’s current economic and fiscal union. Independence would fundamentally transform and fragment this relationship, ending the pooling of resources and risk-sharing between Scotland and the rest of the UK, and erecting a border where one does not currently exist. Research in the paper concludes that remaining part of the borderless United Kingdom could boost real incomes in Scotland by as much as 4% after 30 years, equivalent to £5 billion in 2012 prices or £2000 per household, compared to the outlook if Scotland were to become independent.

Future papers from the Scotland analysis programme will be published over the course of 2013 and 2014 to ensure that people in Scotland have access to the facts and information ahead of the referendum.