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The Economics of an Independent Scotland

On the 19th of October 2023, Nicola Sturgeon, leader of the SNP’s stated that she wants a second independence referendum. This referendum would be a repeat of the one that occurred in 2014, where the Scottish population voted to remain in the Union by 55% to 45%. Many people believe Scotland voted to remain part of the UK as to remain part of the European Union. This was further proved correct when the majority of Scotland voted to remain part of the European Union when the UK voted to leave in 2016, as shown by the graph below:

However, this proves an important point of the economic debate around Scottish independence, is Scotland likely to be a richer country if it becomes independent and re-joins the European Union or is Scotland to be integrated within the Union to risk going independent?


The Pros of an Independent Scotland:

1. Joining the European Union - One economic benefit Scotland could gain from independence is joining the European Union as an individual member state. The EU is one of the strongest economic areas in the world and accounts for 23% of nominal global GDP. If Scotland joined this economic area, they would have unrestricted and tariff-free trade, reducing both costs and prices for consumers. Goods would also be able to flow more freely between Scotland and the European Union due to fewer customs barriers, again reducing cost, as well as delivery times for consumers (1). The investments gained from the European Union will also replace the investments made by the Union, with the Invest EU programme estimated to deliver €327 billion between the period of 2021-2027.

2. Control over energy – Scotland has large potential to supply itself with its own independent energy, both oil and gas, as well as renewable energy. Scotland has the largest oil reserves in the EU, as well as being the largest oil producer and second-largest gas producer. However, only 15% of Scotland’s revenue, is reliant on oil, meaning it is in a good position to handle the fluctuating prices of oil. Scotland also has the capacity for large investments in renewable energy. It’s estimated that Scotland has 25% of Europe’s tidal power and 10% of its wave power, however, it is estimated that Scotland’s current renewable capacity is only 15% of its potential (2). Greater funding from the European Union could turn Scotland into the renewable energy powerhouse of Europe.


The Cons of an Independent Scotland:

1. Would lose investment from Westminster – As Scotland is part of the Union, they receive a large amount of funding from Westminster, approximately £10,212 in 2013, more than the English receive from the government. Losing this investment may make it difficult for Scotland to maintain their spending without raising taxes, as well as control their new debt levels, as they will no longer share debt with the Union. (3).


2. No free trade with the UK –. Many businesses in Scotland rely heavily on both British firms and consumers to purchase their products. If Scotland decides to leave the UK and join the European Union this will create a hard border between Scotland and England meaning both consumer prices and administrative costs will rise, causing demand for Scottish goods to decrease within the Union. Even though the SNP have promised tariff-free trade with the United Kingdom if they go independent, having both this, as well as access to the single market seems unlikely.


Conclusion:

With recent polls as well as the SNP landslide in the last UK general election, it looks like public opinion for independence within Scotland has shifted to leave in the past couple of years, which many people say is due to the Brexit referendum. However, while this opinion may be mostly focused on national identity the economic reasons cannot be ignored. A large amount of energy reserves as well as the promise of joining and receiving the benefits of investment from the EU sound promising in allowing Scotland to grow more prosperous, however, losing subsidies from Westminster to help with Scottish government spending as well as losing free-trade with the UK may put Scotland in a more precarious position than they would hope if they decide to go independent.

 

Edited and Reviewed by Tanish Bagga.

 

References/ Further Reading:


(1) Tejvan Pettinger, Economics Help, 2016, “Benefits of the European Union”, https://econ.economicshelp.org/2007/03/benefits-of-european-union.html#:~:text=Economic%20benefits%201%20EU%20is%20one%20of%20strongest,by%20€877%20billion%20%5B£588%20billion%5D.%20...%20More%20items


(2) Yes Edinburgh West, “Energy in an independent Scotland” https://yesedinburghwest.info/e-flets/the-economy/energy-in-an-independent-scotland/


Tejvan Pettinger, Economics Help, 2013, “Economics of Scottish independence”, https://www.economicshelp.org/blog/5156/economics/economics-of-scottish-independence/#:~:text=Benefits%20of%20Scottish%20Independence%201%20Oil%20and%20Gas,the%20country%2C%20attracting%20more%20business%20and%20tourism.%20#


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