Open Minds on Independence #5: Was Britain's economy already broken or will Brexit break it?

The unavoidable conclusion is that Scotland is being held back by being part of the larger UK. Small, more agile, independent nations which have the ability to tailor policy solutions more closely to their needs will always perform better than the UK and better than Scotland can as long as it remains part of the UK.

The situation has been made even worse by the unfolding disaster that is Brexit. Scotland voted to remain in the EU, because it was manifestly in our best interests to do so. But our votes were ignored, along with our opinions, our economic drivers and our arguments for a softer Brexit which would have allowed us to stay in the single market.

And just look at the consequences. Scottish fish left rotting in lorries unable to deal with Brexit red tape and get the produce to European markets, costing the fishing industry £1million a day in lost exports. Other Scottish industries and smaller firms giving up on European exports altogether because of the terrible trade deal desperately cobbled together by Boris Johnson at the last minute.

What more graphic example could there be of the failure of the UK’s one-size fits all approach? When it comes to Europe one size very definitely does not fit all, just as it does not fit corporate taxation and fiscal, business and policy. Nor does it fit immigration policy, when Scotland is crying out to welcome more incomers to boost our economy and broaden our cultural life while England prefers to close its borders.

Those who argue against independence often use the economic impact of Brexit and the Covid-19 pandemic to scare people into believing an independent Scotland could not weather these storms without the support of the UK. Again, though, the UK actually hinders rather than helps us cope with such crises. Its economy shrank last year by more than any of the G-7 in what the Bank of England says it will be the worst economic slump in more than 300 years.

READ MORE: Open Minds on Independence #4: Smaller is best when it comes to successful nations

Nor does the UK have a strong track record of recovering from financial disasters. It did not recover from the banking crash of 2008 as well as most other countries. It’s essential that we build back better from the pandemic and we really can’t rely on the UK to do so in a fair and successful way.

If being part of the UK really was an economic advantage for Scotland then it would be a mathematical certainty that Scotland would outperform all similar-sized nations with fewer economic assets but it doesn’t – according to the UK’s accounting systems anyway.

So what is it about being in the UK economy that is stopping Scotland? Is the UK economy okay? Or is the UK’s poor performance holding Scotland back?

We measured the UK’s performance across seven indicators: five standard economic performance measures and two key economic well-being measures all pre the Covid-19 lockdown.

We then benchmarked the UK’s results against sixteen variously sized northern and western European nations. The economic performance indicators were: 1. Pensions as a percentage of average final income 2. Income inequality 3. GDP per head 4. GDP growth per year 5. National debt as a percentage of GDP 6. Exports of goods as a percentage of GDP 7. Productivity per person per hour worked.

The results were conclusive. The UK is not OK – far from it. The UK’s economy is performing extremely poorly and being part of it is not an advantage to Scotland.

Shown here are the results of the benchmarking exercise. Below is the overall ranking table, showing all the nations we benchmarked against. For brevity, the following tables show only the top five, along with the UK’s ranking.

As you can see, overall the UK came last, not once making a top ten. Smaller nations significantly outperform the larger ones. Germany and France, the other two big nations, come second and third last respectively. The UK comes last on four out of the eight indicators, including on overall performance.

Even where it recorded its highest rank, on GDP growth rate, it was equal last at 13th (1). The UK only outperformedEstonia, Lithuania and Latvia on productivity and GDP per capita, which were its best results, but that clearly isn’t something to boast about (2) Lithuania actually finished five places ahead of the UK overall as a result of performing extremely well in other metrics. On national debt, the UK did manage to come 15th, beating both France at 16th and Belgium at 17th. However, this result is partly due to the UK’s greater emphasis on reducing its deficit through austerity, which has clearly lost it points in other key measures such as GDP growth (3). We also have to note that the UK Governments poor handling of COVID-19 has cost economic growth and that will lower government revenues and turbocharge the UK’s debt growth. Expect the UK to have the worst debt and the slowest recovery from the heath crises.

It is therefore no surprise that the UK performs even worse on wellbeing indicators. On pensions, the UK was so far behind the others that it’s worth noting that it offered the lowest pension in the developed world as a percentage of final income (4). Meanwhile, the UK has the second worst income inequality, behind only Lithuania, which, as mentioned, performs better than the UK on other metrics.

CONCLUSIONS

The data produces not one shred of evidence to support the idea that the size of the UK’s economy, its performance, or even its long-term economic prospects offer Scotland any form of protection or advantage.

The clear dominance of smaller nations in these league tables and the fact that even the manufacturing powerhouse of Germany could not get out of the bottom three, is highly informative. The top five overall placement of Ireland and Iceland, the former an EU member and the later a member ofthe single market via its EFTA status, also demonstrates that those nations bounced back stronger, faster and with greater equality than the UK did from the Credit Crunch which instead chose an austerity route to deal with the problem and if it repeats this mistake again post Covid-19 it will break the British economy.

The UK’s terrible scores on both pension levels and income inequality prove that the wealth in the economy is not reaching those who need it most. You gain a glimpse of the soul of a nation by looking at how it treats its most economically deprived and its aged. The UK is still the world’s fifth-largest economy but Westminster just doesn’t care as much as other nations about inequality and pensioners.

It is the case that:

1. Scotland possesses greater natural wealth than most European nations and many other significant economic advantages over them.
2. Smaller nations are more agile and so the limited powers of devolution will have provided some economic benefit to Scotland … although not anything like as much as independence would.
3. The UK is performing badly and holding Scotland back.
   
   It naturally follows that an independent Scotland’s economy would outperform the UK on the economic indicators shown here.

It is absolutely NOT the case that the UK subsidises Scotland.

Our previous article demonstrates how the accounts of Scotland have been manipulated to make it look that way but any suggestion that Scotland would do anything other than prosper and thrive if it left the UK is not supported by the evidence. Indeed it would flourish with bespoke social and economic policies tailored for its distinct needs rather than London’s. Just like all the other smaller successful independent nations in Northern Europe.

Sources

1. The World Bank (2018), ‘GDP growth’: data.worldbank.org/indicator/ny.gdp.mktp.kd.zg
2. Eurostat (2018), ‘Productivity per person and per hour worked’; IMF (2018), ‘GDP per capita’
3. IMF (2018), ‘Gross Government Debt’
4. OECD (2019), ‘Net pension replacement rates’