New reports published today by the National Institute of Economic and Social Research (NIESR) have re-emphasied Scotland’s key economic strengths and the potential to improve Scotland’s economy with the full powers of independence.
Polls demonstrate that the economy is the key issue for voters in the referendum. The evidence demonstrates that people in Scotland will be better off as a result of independence.
Here are 10 points published in the NIESR reports today.
1) New Gross National Income (GNI) calculation implies that Scotland is even wealthier than previously thought.
The major revelation in the report is that new calculations of Scotland’s finances may upgrade Scotland’s economic position even further. Evidence already shows that Scotland is the wealthiest area of the UK outside of London and the South East. Scotland put in 9.9% of tax and received 9.3% of spending (GERS figures).
The report by John McLaren and Jo Armstrong concludes by suggesting that GNI calculations may place Scotland in an even stronger fiscal position:
“this implies that Scots are richer than had heretofore been recognised. This also means that previous (GERS-based) estimates of the Scottish fiscal balance are underestimating revenues and overestimating the size of any inherited net deficit” (page R12).
2) Previous Government figures (GERS figures) have excluded certain tax figures for the North Sea
The most common reference point on Scotland’s finances have been the GERS reports. While they include offshore revenue, they have excluded the resulting tax take in areas such as corporation tax and dividends. The inclusion of these figures in Scotland’s tax take provides a substantial boost to Scotland’s fiscal position.
As highlighted in the NIESR report: “Furthermore, if such North Sea income is being retained within Scotland, then this should be reflected in taxes paid on related profits and dividends. To date, such implied higher tax revenues have not been reflected in the Scottish Government’s ‘Government Expenditure and Revenue in Scotland’ (GERS) publication” (page R6).
While the report highlights that further economic research is needed in this area, the inclusion of more taxes in Scotland’s fiscal accounts will boost Scotland’s economic position.
3) An independent Scotland will be one of the wealthiest nations in the world
Among the world’s developed economies, Scotland would have the 6th highest GDP per capita. The UK was 15th. In GNI per capita, by the calculations including offshore tax, Scotland is in the world’s top 10. On both rankings Scotland is considerably better off than the European average.
4) Scotland’s economic position is even stronger compared to the UK
McLaren and Armstrong state that the GNI findings suggest “Scotland would have a very large current account surplus, which would in turn mean that its economic prospects would be much brighter than the rest of the UK’s” (page R13).
This is a crucial intervention which identifies that Scotland would be in an even stronger economic position with independence than previously thought.
5) Currency union will maintain strengths post-referendum
Angus Armstrong and Monique Ebell consider the currency options open to an independent Scotland. This follows Mark Carney setting out the technical direction for establishing a currency union in Edinburgh last week.
The report states, “The attractions of sterling for an independent Scotland are familiarity, no risk of disruption to existing contracts and that there would continue to be no transaction costs for exchanges between Scotland and the rest of the UK.”
They also highlight that the effectiveness of the currency union is based upon levels of government debt. As Scotland is set to inherit a lower debt to GDP ratio than the UK currently possesses, this is another strength of a Scotland-rUK currency union. The report also says that “there is a reasonable claim that an independent Scotland would be entitled to a population share of its assets and liabilities”.
6) Pensions will be in a stronger position within an independent Scotland
The NIESR report backs up previous evidence that pensions will be in a stronger position within an independent Scotland.
The author’s write: “Our analysis has shown that the costs of the state pension would be lower in Scotland”.
“Another effect of independence would be the creation of a Scottish bond market in which one might expect Scottish pension funds would invest. If Scotland has to pay a liquidity premium on its debt relative to rUK due to its smaller market size, then Scottish pensions will be less costly to fund” (page R30).
They also highlight the benefits of altering pension qualification to match Scotland’s demographics and life expectancy, so that the system suits the welfare of the elderly in Scotland.
7) Age is no barrier to an independent Scotland
An ageing population is in no way unique to Scotland and powers over migration can increase movement of young workers and families to Scotland.
The NIESR report concludes that: “In the status quo scenario, by 2060, output per person falls in Scotland and rUK by 9 per cent and 10 per cent respectively and total government spending increases by about 4 percentage points of GDP in both regions.”
It continues by stating that “an independent Scotland will have the power to set immigration policy in order to tackle its demographic challenges”.
8) Control of decision making can improve Scotland’s economy
Chapter 6 outlines the fiscal challenges and opportunities for an independent Scotland. The authors describe how key economic and social powers have the potential to improve Scotland’s fiscal position:
“Independence would also bring the opportunity to reform the tax and benefit system in Scotland to address some of the current weaknesses in the UK regime. Furthermore, Scotland would also be able to change taxation and spending to better align with the objectives of the Scottish population – to the extent that these differ from objectives elsewhere in the UK” (Page R51).
9) Medium sized states can adapt successfully to the global market in a number of ways
Michael Keating and Malcolm Harvey in chapter 7 explain the number of ways in which an independent Scotland can succeed. The economy of scale argument, once powerful within a Westphalian system, is no longer as relevant.
They say, “Scholars have shown how a diversity of polities have existed in European history, including city states, principalities, empires and trading leagues, which thrived or waned according to trading conditions, military technology and geo-political conditions”.
“During the late twentieth century, scholars also observed that small states had survived, not as some kind of historical anomaly, but as viable units”.
“The European Union, the European Economic Area and partnership arrangements with non-EU states have secured large domestic markets and provided external economies of scale through cooperation. Technology can be imported, weakening some of the economy of scale arguments, while small countries can contribute to the pool in specialised fields. It is no coincidence that small states have large amounts of external trade and have consistently favoured free trade arrangements”.
In fact the size of a political community like Scotland can bring advantages: “small states may, precisely because of their small size, be better equipped to adapt and find their own niche in the global division of labour.”
The chapter points to the strengths of the ‘Nordic Model’, where economic progress is ensured by investment in research and development, high employment rates, and low barriers of entry to the labour market.
Progress towards such models can be termed as a process of ‘nation building’ via developing state and civic institutions. The chapter says that: “Nation-building is itself a way of building a capacity for collective action through discursive strategies combined with creating institutions that can focus on integration and social and economic progress.”
10) Independence is an opportunity for economic, social and political improvement
The conclusion of the final chapter states the major economic gain of an independent Scotland: the process of controlling economic decision making is an opportunity to improve Scotland’s economy in contrast to the distant and often harmful decisions of Westminster Government. To “shift [the] old practices and attitudes” of Westminster – which have held Scotland back – is exactly what business and Scotland’s economy needs.
Gordon MacIntyre-Kemp, Chief Executive of Business for Scotland, welcomed the findings.
“With such a strong fiscal position, combined with our natural resources and the resurgence of Scotland’s entrepreneurial spirit, independence is the business opportunity of a lifetime.”