Ahead of the second stage of Brexit negotiations, the First Minister has launched new analysis of the economic impact on Scotland leaving the EU.
The paper looks at the three realistic outcomes of Brexit: staying in the Single Market, a ‘Canada type’ deal and leaving with no trade deal. It confirms that no other option is as good as staying in the EU but that the least damaging option is to stay in the Single Market.
The findings are stark: leaving the Single Market would see Scotland’s economy shrink by up to £12.7 billion by 2030, compared to continued EU membership.
Here’s what you need to know.
What are the possible outcomes of Brexit?
A ‘no deal’ Brexit
If the UK were to leave the EU with no deal, it would have to fall back on ‘World Trade Organisation (WTO) rules’. This means that Scottish businesses would be required to pay WTO-level tariffs on goods and services exported to EU countries.
While the UK is already a member of the WTO, it would need all other WTO members to agree on how it will take on the rights and obligations which it has formally taken as part of the EU.
This process would need to be completed before the UK is assured of its rights to access other WTO members’ markets. However, these negotiations cannot begin until the EU “exit” negotiations are concluded.
- A reduction in Scottish GDP of 8.5 per cent by 2030 or £12.7 billion in cash terms, compared to EU membership
- A 3 per cent reduction in employment, around 80,000 jobs, according to the Fraser of Allander Institute
- A reduction in real disposable income of 9.6 per cent by 2030
A ‘Canada type’ deal
The European Commission has already made clear that, if the UK government’s ‘red lines’ remain in place, the only deal that could be achieved is one similar to the EU/Canada free trade deal – outside of the Single Market and Customs Union.
The Canadian deal removes some barriers to trade but took seven years to be agreed and is far from comprehensive. For example, Canadian financial services firms do not benefit from ‘passporting’ that would allow them to trade with countries in the EU.
- A reduction in Scottish GDP of 6.1 per cent by 2030 or £9 billion in cash terms, compared to EU membership.
- A reduction in real disposable income of 7.4 per cent by 2030.
Staying in the Single Market
Being in the Single Market gives Scottish businesses unfettered access to a market of around 500 million consumers. The aim of the Single Market, put simply, is to make it as easy to trade between Edinburgh and Dusseldorf as it is between Edinburgh and Dundee.
Through membership of the EEA, countries like Norway are outside of the EU but retain many of the benefits of EU membership.
- A reduction of Scottish GDP of 2.70 per cent by 2030 or £4 billion in cash terms, compared to EU membership.
- A reduction in real disposable income of 1.40% by 2030.
Why is staying in the Single Market the least damaging outcome?
The analysis confirms that if we are to mitigate the impact of Brexit we must stay in the Single Market and Customs Union. If the UK were to remain in the Single Market, Scotland’s GDP would be £8.7 billion higher than leaving the EU with no deal.
Staying in the Single Market would ensure that Scottish businesses can continue to trade tariff-free across a market of around 500 million consumers. In 2015, Scottish exports to the EU were estimated to make up 43 per cent of Scotland’s international exports. And analysis by the NIESR think-tank has found that staying in the Single Market could avoid a 60 per cent decline in UK exports to the European Economic Area.
Through Single Market membership Scotland will also continue to benefit from freedom of movement. With an aging population and all growth in our working age population over the next 25 years expected to come from migration, the continued contribution of EU citizens to Scotland is vital. In fact, on average, each additional EU citizen contributes £10,400 in tax every year – supporting our NHS and other vital services.
What should happen now?
If is clear from the analysis that, short of EU membership, staying in the Single Market is the best outcome for Scotland’s economy, jobs and living standards.
The UK government should drop it’s hard-line position that prioritises keeping the Tory party together over jobs or the economy, and keep the UK in the Single Market and Customs Union.
It is likely that there is already a majority at Westminster for Single Market membership. It’s now time for Labour to decide which side it is on – they can either vote to protect jobs and our economy or to deliver a hard Brexit on a plate for the Tories.
As Scotland’s government and the real opposition at Westminster, we will continue to work with others to protect jobs in Scotland through continued Single Market membership.