Business for Scotland response to CBI release

| 26/03/2014 | 8 Comments

17808792Today’s release from the CBI in London is an entirely one-sided misrepresentation of the business and economic evidence concerning a vote for Scottish independence. Business for Scotland – which has a membership of over 1,600 Scottish businesspeople – considers that Scotland will be better off financially with the full economic powers of independence.

The CBI  has failed to consult its own members in Scotland (the number of which are unknown) on the issue of independence.  In the past it has opposed every  step towards greater economic powers for Scotland. It even opposed the establishment of the Scottish Parliament,  so it comes as no surprise that it is now opposing independence in the same knee-jerk fashion without giving a full consideration to the economic opportunities of an independent Scotland.

The CBI report  highlights the fact that Scotland is a wealthy nation, but somehow fails to recognise that Scotland could be a successful independent country.

Business for Scotland Chief Executive, Gordon MacIntyre-Kemp, challenged the Director of the CBI on Radio Scotland this morning, stating “They’re talking about the costs of independence, but they’re totally ignoring the benefits of independence – and that’s not representative of their membership.”

Before considering the one-sided arguments made by the CBI today – it is worth highlighting the crucial facts that Business for Scotland has previously published.

1) Scotland is a wealthy country which has provided a net contribution to UK finances of £8.3 billion over the past 5 years. 

2) Business groups in Scotland see tremendous opportunities with independence. This is why Business for Scotland is the country’s fastest growing business network. Scotland can grow its economy and create more jobs for people in Scotland.

3) Business for Scotland has set out 10 key economic opportunities to improve Scotland’s economy with independence. Improving Scotland’s economy and proving opportunities for business requires Scotland to take decision making into its own hands.

4) Scotland’s economic future will not be decided by representatives outside of Scotland who are out of touch with business in Scotland, especially the Small and Medium Enterprise community which makes up the vast majority of businesses in Scotland.

Analysing the CBI claims

A) Scotland is a wealthy country

CBI report

CBI report chart confirms Scotland is a wealthy nation

The start of the CBI report presents many of Scotland’s economic strengths. These include Scotland’s strong fiscal position over the past 5 years, Scotland’s higher tax generation, the fact that Scotland is the 3rd richest area of the UK, that Scotland exports almost £100 billion in goods and services and that Scotland has many world leading industries.

This presents a strong case that Scotland could be a wealthy independent nation. Scotland’s success in these areas is a result of high skills, vast natural resources and ingenuity in a range of sectors. The success of Scotch whisky, North Sea oil, Scottish food products, manufacturing, renewables and the university sector is not dependent on David Cameron and Westminster. This economic reality, which the CBI concedes, stands in strange contrast to their subsequent negative message.

B) Scotland has a dire fiscal future

Scotland, like all countries, faces challenges to improve its economy and budgeting. The CBI, however, makes several serious errors in its approach. Firstly,  its report assumes the Office for Budgetary Responsibility’s projections of oil revenue are accurate. They have in fact been challenged by figures from the UK’s own energy ministry and by other economic and energy agencies.

Even if the CBI’s assumptions were correct, their figures omit a crucial factor: the power that an independent Scotland would have to do things differently. An independent Scotland which makes the most of its economic opportunities would strongly increase its fiscal position.

A key example is taxation. The CBI’s claims are that Scotland would need to generate £250 million over its first 5 years to fund its stated commitments.

But that is only looking at one side of the equation. For example, the CBI includes the costs of childcare services and tax reductions in its analysis but does not include any increase in subsequent revenues. Yet, Professor Sir Donald MacKay, former Chair of Scottish Enterprise, has explained how  expanding childcare increases overall tax take. A 6% rise in female labour market activity would boost tax revenue by £700 million.

This is only one example within a whole range of sectors where an independent Scotland can boost revenue and increase efficiency. The CBI do not include a single example of this kind within their analysis. (Other examples of savings in borders, tax and political administration have previously been set out by Business for Scotland)

3) A Sterling currency union is unlikely

Curiously enough, the CBI report considers a Sterling currency union within the UK to be ideal, but seems to think that as soon as Scotland became independent, it would become unworkable and would produce tensions comparable to the Eurozone as the economies diverged.  This approach is flawed. As evidence recently submitted by Professor Anton Muscatelli of the University of Glasgow stated, a Sterling union is different and would provide mutual economic benefits for Scotland and the rest of the UK.

The Governor of the UK’s Central Bank, Mark Carney, similarly set out the technical process by which a Sterling union can be established. This will form an important procedural aspect of negotiations following independence. There could be greater certainty on this process, yet unfortunately the UK Government have refused to carry out any consultative discussions.

4) Borders and barriers to trade

The CBI repeat the claim that independence risks jeopardising an ‘internal market’. Business for Scotland previously published numerous reasons why this concern is overstated.

These include

1) It is in no one’s interest to disrupt trade.

2) The European Common Market is an overlapping trade area which prevents barriers.

3) Westminster already supports open borders and trade with Ireland.

4) The rest of the UK benefit from buying Scottish goods and services (including energy).

5) The rest of the UK benefits from selling goods to Scotland as this guarantees jobs and income.

The CBI report is concerned about different tax systems. But all UK parties support a different tax system for Scotland, the early stages of which are already confirmed in the Scotland Act 2012. Scotland will have a different tax system. Medium and large businesses already trade across numerous tax districts. It is not a great administrative concern.

5) European Union membership

3224006627The CBI repeats the No Campaign’s claims that the UK protects Scotland’s EU membership. Yet all political evidence from Westminster suggests that it is the UK which is considering leaving the EU. Opinion polls find that there is a real risk of Scotland being taken out of the EU if Scotland votes No. The greatest uncertainty in this case comes from Westminster.

Furthermore, independent membership of the European Union will bring significant benefits to Scotland and business in Scotland. This includes an increase in CAP payments to the Scottish agricultural sector, an increase in direct lobbying influence for fisheries and all Scottish companies for export within the EU market.

None of these issues are considered in the CBI report. Instead the report talks up Westminster’s ‘success’ at EU level, despite Britain becoming increasingly isolated due to its attempts to unilaterally renegotiate its previous agreements.

6) Business risks vs opportunity

The CBI reports ends with what it views as risks to the energy market, higher education and the food and drink sectors.

This is an imbalanced overview of the economics of independence. Changing the political system presents challenges and opportunities for businesses. The CBI report does not even consider potential improvements to the tax system, labour relations, migration and industrial policy or global export promotion. Without comparing these factors the report lacks credibility.

Conclusion

Scotland will benefit from economic and business policies that seek out opportunities. Control of domestic policy, spending, taxation and regulation will provide numerous opportunities for business in Scotland to thrive. The CBI report follows previous assumptions that change brings unnecessary risk. Yet this is far from the whole case. Opportunities can outweigh risks. That is the case the CBI does not appear to have considered.

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Category: Business for Scotland, Economics of Independence

About the Author ()

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.

Comments (8)

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  1. Andy Lippok says:

    Astonishing start to the radio interview with Cridland and Gordon! Cridland states there are unanswered questions on the economy, jobs, and living standards. Well, we have that clarity from the current UK Westminster government, do we? Or what about the “clarity” from any prospective future government party or coalition, whether it be Tory, Labour, UKIP, Liberal, in the UK or in Scotland?!?!
    Then he goes on to state that the Yes campaign is unclear on the currency, fiscal deficit, tax revenues, EU membership, differing regulations! In my view much of the lack of clarity and lack of certainty (after all is anything certain in the world now and going forward?) has been created by the No campaign and the politicians in Westminster in their pre-referendum and pre-negiotiation statements.
    I presume BfS have sent the CBI a paper outlining the responses to the list of items that Cridland believes are outstanding?

  2. James S says:

    This is for Gordon and the team.

    Are you guys aware of this impending threat on the pound in 2015?

    http://www.huffingtonpost.co.uk/adrian-ash/the-pounds-littleknown-crisis-of-2015_b_2440371.html

    Original full article here:http://goldnews.bullionvault.com/pound-SDR-010720122

    It certainly adds weight to the claim the Chancellor and his sidekick in the Labour Party are bluffing when it comes to the “security” of the pound and the risks of an independent Scotland using it.

    James.

  3. Craig Macfarlane says:

    Is this a case of CBI trying to negatively influence Scottish referendum voters?

  4. Whilst it is apparently quite plausible we will get a “sterlingzone” if we vote YES, has BfS taken any steps to obtain written comfort from the Banks that service the Scottish market that a YES vote followed by a period of uncertainty won’t lead to a credit crunch in Scotland.
    It appears to me that a bank’s credit department might find some discomfort in the notion of making new loans into a marketplace where the borrower’s future is not known in terms of the currency they’ll use, the currency the secured assets may be valued in within their market and the regulatory environment that will apply.
    My understanding is that as UKGBP will not cease even if we got immediate fast track to the Euro our existing debts remain with UK banks and owed in £.
    I guess this is why everybody thinks a sterlingzone is the right answer – but with the counterparty to such a zone flatly refusing to discuss this before our vote surely we need to take steps to prepare for our own “tartan financial crisis” on the morning of 19th September?
    I can’t imagine the heads of international banks like NAG and Santander being happy to coast along making UK loans on normal terms on Scottish matters if we don’t have clarity on currency.

    Thanks

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