The Scottish government’s economic plan should Scotland opt for independence in September “does not add up”, according to the CBI.
The Scottish government’s economic plan should Scotland opt for independence in September “does not add up”, according to the Confederation of British Industry (CBI).
Publishing its official response to the SNP’s White Paper, the CBI notes that at 8.3 per cent, or £2,303 per person, Scotland’s net deficit is larger than the remainder of the UK and is “considerably more volatile” as a result of its dependence on oil and gas.
“In the short term” the CBI argues, “an independent Scotland would need to prioritise deficit reduction” which would, at the very least, need to mirror the pace set by the UK government.
The paper also claims:
Scotland’s fiscal performance is expected to deteriorate relative to the rest of the UK, according to the Office for Budgetary Responsibility (OBR), and would be 2.7 per cent higher in 2016/17;
In the event of Scottish independence in 2016, its fiscal deficit would be 4.8 per cent of Scottish GDP, higher than the 3 per cent maximum deficit allowed by the EU’s Growth and Stability Pact before members have to consolidate their finances;
There are at least £670m unfunded commitments in the White Paper, despite the Scottish government’s statement that its immediate policy plans are fiscally neutral. This, the CBI argues, amounts to at least a 0.4 per cent deterioration in an independent Scotland.
Given that most of Scotland’s trade is with the rest of the UK (£18 billion more than with any other part of the UK) this “strong internal market” as the CBI dubs it, can only be guaranteed by Scotland remaining within the UK and keeping the Pound at the same time.
In light of the UK’s main political parties having all made clear their opposition to an independent Scotland keeping the pound, the CBI calls for a “credible plan B on currency” that addresses the concerns of Scottish business about being part of an “unstable currency union”.
On breaking up the internal market
The CBI analysis found that breaking up the internal market would increase costs for businesses and consumers on both sides of the border:
- Creating a new border would increase costs for businesses who currently benefit from a common set of rules.
- Costs would increase under independence for consumers, for example, for food – as retailers who currently spread distribution costs across the UK would be forced to pass the full costs on to Scottish consumers. Children’s clothes and new dwellings are also currently VAT exempt in the UK.
- The higher interest rate that would, the CBI argues, inevitably be payable on Scottish government debt would have a knock-on effect for mortgage repayments, loan and credit card bills.
On future European Union membership
Whilst supporting the idea of an independent Scotland joining the EU, the CBI warns that given this would require renegotiating membership this is “unlikely to be either a smooth or quick process with new terms potentially leaving it worse off”.
Publishing the document, CBI director general John Cridland commented
“The minute you draw a line between Gretna and Berwick, Scotland starts to drift apart from its biggest market and loses a significant amount of economic clout.
“The economic plan outlined in the White Paper does not add up. It ignores the need for deficit reduction, instead promising more unfunded spending.
“On the key issues that are critical to jobs and growth, the White Paper’s lack of clarity runs the risk of jeopardising an independent Scotland’s future success.”
“Scotland’s economy is a real success story as part of the UK – it has the independence and flexibility of devolution alongside the support of the union.
“The fate of Scotland is, of course, a decision for the Scottish people, but business is clear – we are stronger together.”
Unsurprisingly, the Scottish government, faced with difficult truths has sought to rubbish the CBI’s observation. SNP Deputy first minister Nicola Sturgeon has responded:
“Unfortunately, this paper misrepresents the realities of independence in several key respects – an independent Scotland will still enjoy barrier-free trade with the rest of the UK, which is in everyone’s interest – and the only serious threat to our membership of the EU is Westminster’s proposed in-out referendum.”
However the leader of Better Together campaign Alistair Darling warned that the CBI report is just the latest in a series of calls by business to keep Scotland in the UK to maximise it’s economic performance. He explained:
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“Being part of the UK is good for Scotland’s economy.
“It secures thousands of jobs across the country and keeps down costs for families on mortgages, credit card bills, car loans and at the supermarket checkout. Leaving the UK means more costs, fewer jobs and cuts to public services.
“The recent warnings about the risks of separation from Scotland’s largest employers, like Standard Life, RBS, shipbuilders, Shell and BP, make clear that independence would cost jobs for thousands of Scots.”