With the recent news being broken about Nicola Sturgeon asking the UK Supreme Court about wanting to host another independence referendum in October 2023. This has reignited the debate about whether Scotland should reclaim independence from the United Kingdom since joining in 1707. I am going to break down the main economic arguments for and against Scottish Independence in the following article.
For a comparison to Scotland, I have decided to use Finland considering they have a similar GDP and population.
On September 18th, 2014, Scotland decided to remain a part of the United Kingdom with a majority of 55%. This sealed Scotland’s fate for the foreseeable future and with that, a decline in mention of the independence movement. However, since the UK decided to vote to leave with Brexit, Scotland has slowly managed to build up some traction for independence after the country overwhelmingly wanted to stay. Compared to its counterparts in the United Kingdom, Scotland was the only nation to opt to remain with the European Union. As of the 2021 report released by the Scottish Government shows that in 2019, just shy of 47% of Scotland’s exports were with countries within the EU and this was the case since 2016. Since early 2005, Scotland’s main international trade has been with non-EU countries with the main export sectors being the manufacturing of food products and beverages. This sector equates to nearly a quarter of the total non-EU exports. These statistics would show that even after the result of Brexit, trade with the EU has only been slightly damaged but one could argue that the non-EU countries are too very important to Scotland’s economy.
However, fundamentally in economics, the supply side must be counted for equally. Scotland has been in a trade deficit for quite a while, and this is due to the increasing import bill alongside the growing export figures.
Tax Revenue and Government Spending In The UK
An argument many people make is the fact that Scotland receives more funding from the UK than it inputs, so let’s have a look at net Scotland’s fiscal balance.
In the 2020-21 tax year, Scotland generated an estimated £63 billion in tax revenue but too aided by £99 billion in government spending. These statistics would lead you to believe that Scotland is heavily receiving fiscal assistance, but this was skewed due to increased government spending through the global coronavirus pandemic. Looking over the years before the pandemic, Scotland was still incurring a fiscal loss of around 10% of GDP from 2016 up until the pandemic. Compared to Finland, in the lead-up to the pandemic, they were running on average -2% per year over the same period. It’s not uncommon for countries to run up a deficit and it’s possible that Scotland doesn’t need a positive net fiscal balance, but it would be a good starting point.
However, looking from the perspective of the UK, for every £100 per person the UK government spends on English people, the UK must spend £126 to provide the same service to someone in Scotland. This would mean the UK could cut out a less efficient region that absorbs a lot of money to provide the same services in England, this could lead to their tax revenue being more focused on other services to try and improve the current services that need funding.
Weakened Position In The EU If Re-joined
If Scotland were to become an independent country, it may find similar trade problems currently happening between Northern Ireland and the Republic of Ireland somewhat. Considering the rest of the UK is responsible for three times the amount of export revenue compared to the EU may also be a strong reason for not wanting to be on the bad side of the United Kingdom in terms of trade. If Scotland does leave the UK, it may experience trade tariffs imposed on them by the UK unless a trade deal is agreed upon. Based on the UK’s behaviour with trade partners that are not on the same page as them, this would lead to further increased cost of imports for Scotland and possibly a reduction in exports from the UK as tariffs or any taxes imposed on Scottish goods would lead to them appearing more expensive. However, this loss of export revenue could be made up with the return to the European Union if possible.
Considering the political climate in the UK currently, it is possible that another independence referendum could be around the corner and the UK could possibly allow Scotland to have the chance to leave to be able to save the amount of government spending to produce the same services that they do for cheaper in England currently. It may be in both Scotland and UK’s interest for Scotland to leave in some regards but working together as a union has overwhelming benefits. Benefits like free trade and additional funding that Scotland may miss but that could be made up with the arrival back into the EU. In the end, we may not know how Scotland may turn out, but I look forward to seeing what happens.
Edited and reviewed by Tanish Bagga
Sources/ Further Reading
2. https://www.gov.scot/publications/export-statistics-scotland-2019/#:~:text=Scotland's%20Exports%20in%202019&text=Since%202010%2C%20Scotland's%20international%20exports,%C2%A318.7%20billion%20in%202019. (The Publication