Scotland's place in Europe: people, jobs and investment

This paper presents the latest analysis by the Scottish Government of the implications for Scotland’s economy if the UK exits the European Union.


148. In Scotland’s Place in Europe (published over a year ago) we demonstrated the significant, and lasting, economic and social damage Brexit would bring to Scotland. We argued that while the UK-wide result of the EU referendum provided the Prime Minister with a mandate to take the UK out of the EU, it did not provide the authority to take the UK out of the European Single Market. In the intervening 12 months an increasing body of opinion and evidence shows that the UK Government's pursuit of its present negotiating red lines (of which require it to leave the European Single Market and Customs Union), is set to inflict considerable harm on the economy and on the prosperity of Scotland and the United Kingdom.

149. Although there are confusing messages about the type of future relationship the UK Government will seek to conclude with the EU. It is in essence those red lines which will determine the nature of the outcome unless the Prime Minister softens her stance on issues including migration and the future role of the Court of Justice of the European Union (or another equivalent court) the UK’s future relationship with the EU is unlikely to be significantly better than the EU-Canada deal.

150. The evidence presented here reinforces the conclusions we reported in December 2016: that Scotland and the UK should remain within the European Single Market and Customs Union. We have provided new evidence of the substantial costs resulting from lower economic growth and lower business investment opportunities in Scotland and the UK that will result from leaving a market in excess of 500 million. Scotland’s GDP could be as much as 8.5% (or £12.7 billion) lower by 2030 and business investment in Scotland could fall by up to 10.2% by 2030, compared to continued EU membership. We also explained the range of significant benefits of remaining within the European Single Market and Customs Union that extend well beyond trade, to incorporate wider social, economic and environmental considerations.

151. Despite the UK Government’s optimistic rhetoric regarding our future trading relationship with the EU, the evidence presented in this paper demonstrates there is simply no alternative to continued Single Market membership that will secure the economic benefits we presently enjoy as a member of this huge and highly integrated market. The conclusions from our analysis show the clear difference between the model we propose - being part of the EEA - and a free trade agreement such as that concluded with Canada. [58] There is no other credible outcome able to deliver the guaranteed market access, shared regulation and consumer protection that Scotland and the UK needs, and from which we have increasingly benefitted since joining the EU in 1973.

152. The threats to jobs posed by Brexit are very real. Global investment has come to Scotland and the rest of the UK to take advantage of our membership of the European Single Market and Customs Union to serve integrated EU supply chains. A range of financial services from banking and insurance to legal have flourished with the easy access across that Single Market. Companies from across the globe have set up European headquarters in the UK and are having to
re-think their business models if the UK leaves
the European Single Market and Customs Union.

153. The risks to our research and development capability are significant. The Annual Attractiveness Survey (May 2017) [59] , reported that during 2016 Scotland attracted more research and development (R&D) inward investment projects than any other UK region, including London. Many of these projects were planned pre- EU referendum. Such long term, high value R&D investment from countries like the USA, Australia and across the countries of Scandinavia, have been attracted by the strengths and capabilities of our universities and their ability to collaborate with and attract research talent from across the EU, underpinned by freedom of movement.

154. The imposition of new tariff and crucially non-tariff obstacles to trade with our most important market, will curtail our exports, drive up consumer prices and result in lost opportunities, fewer jobs, lower incomes and weaker growth. We have also shown that these are not one-off costs. As the European Single Market continues to develop, Scotland and the UK will lose out on exciting new opportunities to collaborate as part of a growing European Single Market.

155. Remaining within the Single Market and Customs Union would secure continued involvement in a wide range of common EU policies - including those designed to protect workers’ rights and our environment. These policies would enhance our research and innovation base, promote collective action against climate change, promote wider social justice, and enable much easier EU-wide cooperation under the EU justice and home affairs agenda.

156. We have also shown the benefits of free movement of people to Scotland’s labour market and the buoyant and sustainable growth of our population which is dependent on inward migration. We are seeking to change the narrative around migration and demonstrate the value it has to Scotland and the UK by detailing evidence of the role EU citizens play in the viability of key sectors of our economy, manufacturing, services and, crucially the delivery of vital public services.

157. The evidence also reveals the vital contribution made by these citizens in tackling Scotland’s demographic challenge. Our economy and society, now, and in the future will be much poorer if the UK Government insists on restricting the free movement of people between Scotland and the countries of the EU. This is why the Scottish Government is committed to securing for the Scottish Parliament the ability to design and implement a distinct Scottish immigration policy which meets the needs of our country.

158. The conclusion from our analysis is clear: Membership of the European Single Market and Customs Union have delivered significant benefits to our country for more than 40 years. Remaining within both arrangements is essential if we are to secure Scotland’s future economic prospects and the long term prosperity of our citizens. The UK Government must speedily bring to an end the confusion and uncertainty arising from their lack of any clear strategy for our future relationship with the EU. Time is rapidly running out before we reach the point at which the UK will leave the EU.

159. Membership of the European Single Market must be the foundation of our future relationship with the EU if continued EU membership is not presently possible. That can best be secured through UK membership of the European Economic Area Agreement alongside Norway, Iceland and Liechtenstein.

160. Making our businesses less open to Europe will not make our businesses more successful in global markets. We will lose the same favourable access to the EU’s existing FTAs and will also cut ourselves off from future deals with the likes of Japan, Mercosur (South America’s leading trading bloc) and Switzerland. The size and integration of the European Single Market is a huge attraction for companies wishing to locate in the UK. The time and resource required to negotiate new trading agreements across the globe will be immense. We should not delude ourselves that some of the most prized markets will offer the same or better terms than with the much larger EU. [60] Recent evidence would suggest a greater level of protectionism taking hold globally - some of the biggest nations will drive a hard bargain and these deals could take many years. Moreover, we will be under constant pressure to lower rights and standards in areas such as employment and environment.

161. The Scottish Government has welcomed the Prime Minister’s commitment to negotiate a transitional, or “implementation”, period although we continue to seek greater clarity on what precisely the UK Government will be seeking to agree with our EU partners in terms both of the scope and the duration of such an agreement. We believe a transitional agreement must represent a steady state continuation of the current relationship - that is, an agreement that not only ensures we remain fully compliant with the rules and regulations of the European Single Market - the acquis - but that also permits the UK to remain within the framework of the EU Customs Union.

162. The coming 12 months of negotiations between the UK and the EU will be a decisive period in our history. The Scottish Government will continue to represent Scotland’s vital economic, environmental and social interests. This report clearly outlines threats to these interests and how they can be protected, and it will be on the basis of this evidence we will continue to engage with the UK Government.

163. Our engagement is currently mediated through the Joint Ministerial Council on European Negotiations - JMC( EN) - which has a remit to ensure there is agreement on UK policy ahead of negotiating positions being finalised. We are clear that the JMC( EN) must play an active role ahead of the negotiations on the future framework, that we must be involved in discussions of the options available to the UK in establishing that framework, and we must be part of the negotiation process as it unfolds.

164. We explained in Scotland’s Place in Europe in 2016 that participating in the EEA as a means of securing and enhancing benefits to Scotland was neither the ideal scenario nor straightforward to achieve. This remains the case. But an overwhelming bank of evidence now suggests that there is no credible alternative that comes close to protecting our collective interests in view of the situation we are now in.

165. We will continue to reach out and engage with businesses, with organisations, with other administrations and with individuals throughout Scotland, the UK and in Europe to enhance our evidence and to build alliances to influence opinion. We will also continue to work constructively with the Scottish Parliament and its committees. We hope the propositions set out in this paper will find broad support across the political spectrum. Our goal is straightforward - to give Scotland the best chance of limiting the serious damage to jobs and prosperity that will result from a reckless and hard Brexit and to put Scotland in the best possible position to benefit from the continued evolution of the European Single Market, either through continued UK membership, or by Scottish membership.


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