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Scotland's Economy: the case for independence


Section 1: Scotland's Foundations

Scotland's Economy

The Fiscal Commission Working Group (FCWG) analysis in its report on Scotland's macroeconomic framework concluded that:

  • By international standards Scotland is a wealthy and productive country;
  • Even when North Sea oil is excluded, GVA per head in Scotland is 99% of the UK average and the highest in the UK outside London and the South East;
  • However, over the last 30 years Scotland has grown more slowly than the UK as a whole, and;
  • Many countries of a similar size have made use of the full range of fiscal and policy levers to perform more successfully.

At an aggregate level, the Scottish economy performs strongly on key indicators. However in certain areas, in particular in relation to the long-term drivers of growth and business development, Scotland has lagged behind many of its competitors and there is scope for improvement.

In terms of performance within the UK, the most recent data shows that, in terms of GDP per capita[5] in 2011, Scotland was positioned as the third highest nation or region in the UK - behind London and the South East. Adding Scotland's illustrative geographical share of North Sea output increases Scottish GDP per head to around 118% of the UK average.

Scotland also performs well compared to the rest of the UK on other key economic indicators, such as the labour market, with unemployment currently lower in Scotland than in the UK.

However, although we perform well within a UK context, we lag behind many of our international competitors in key areas.

For example, whilst productivity levels in Scotland are now broadly the same as the UK average - and despite it being estimated that with an illustrative geographic share of North Sea output, Scotland would be ranked 8th in terms of GDP per capita in the OECD[6] - a gap remains between economic development in Scotland and the top-performing OECD member countries. In productivity for example, we currently rank 17th in the OECD.

Even with an unprecedented eight years of austerity planned by the UK Government for between 2010-11 and 2017-18, net debt is forecast to reach over 85% of GDP.

The UK economy faces a number of significant challenges. There is an ageing population which will put further pressure on public resources. The economic model put forward by successive UK Governments - and its reliance upon finance and growth in London and the South East - has made the UK economy less resilient to economic shocks. The UK has recorded a current account deficit in its balance of payments in every year since 1984, and since January 2007 the trade-weighted value of Sterling has fallen by 24%.

Independence would provide the tools and opportunity to boost Scotland's economic performance, to compete on a level playing field with other countries and to create greater opportunities for all.

Table 1a. Key Facts: Scotland and the UK

Gross Domestic Product per capita (£) Scotland UK
Onshore Only 23,391 23,673
Including a Geographical of Extra -
region (UK continental shelf)
28,344 24,168
Unemployment Rate (%)
Jan - Mar 2013
7.3% 7.8%
Employment Rate (%)
Jan - Mar 2013
71.8% 71.4%
Net Fiscal Deficit (% age of GDP) 2011/12 5.0% 7.9%

Sources: Scottish National Accounts Project 2012 Q3; UK National Accounts 2012; Labour Force Survey; UK Regional GVA 2012

Scotland is home to a skilled workforce. This is one of the reasons why it has become such an attractive location for inward investment.

Table 1b: % of Population aged 16-64 with SVQ Level 3 or above Qualifications

2004 2008 2012
Scotland 58.7% 59.8% 63.7%
England 48.7% 50.2% 57.7%

Source: ONS Annual Population Survey

Table 1c: % of Population aged 16-64 with SVQ Level 4 or above Qualifications (HNC/HND/Degree Level Qualifications)

2004 2008 2012
Scotland 30.3% 33.4% 38.8%
England 26.0% 28.5% 34.6%

Source: ONS Annual Population Survey

Scotland: A Trading Nation

  • In the Ernst & Young UK Attractiveness Survey, Scotland has been in the top two nations and regions in the UK for inward investment jobs in three of the last five years.
  • Scotland has a competitive export sector. Excluding oil and gas, Scottish exports to destinations outside the UK in 2011 totalled £23.9 billion. In the same year, a further £45.5 billion of goods and services were traded with the rest of the UK. These competitive strengths in high-value added sectors reflect Scotland's developing economy and a highly skilled workforce.
  • Scottish international exports are well diversified across a wide number of sectors. Key strengths include the Food and Drink sector (18%), reflecting high demand oversees for Scottish Whisky.

Table 1d: International Exports by Sector[7], Scotland, 2011[8]

Table 1d: international Exports by Sector, Scotland, 2011

Scotland's Strong Financial Foundations

The Scottish Government has published a document setting out "Scotland's Balance Sheet" (Annex A). The Balance Sheet takes no account of the different policies that an independent Scottish Government might pursue in order to boost growth and increase revenues. However, by looking at Scotland's current fiscal performance, it tells us what the starting point for an independent Scotland would be.

Firstly, it makes clear that Scotland's share of the UK national debt is lower as a percentage of GDP than the UK's. UK public sector net debt at the end of 2011-12 stood at £1.1 trillion (72% of GDP). Scotland's per capita share would have been equivalent to £92 billion (62% of GDP). If Scotland was assigned a share based on its historic fiscal position since 1980-81 it would be worth approximately £56 billion, equivalent to 38% of Scottish GDP.

However, it should be noted that Scotland could not reasonably be expected to take on a share of the UK's liabilities if Westminster insists Scotland is not entitled to a share of the assets.

The Balance Sheet also shows that as a proportion of GDP, both total public spending and spending on social protection, which includes spending on the welfare state and pensions, in Scotland is lower than for the UK -- indeed, it is lower than for most other EU-15 countries.

In terms of taxation, the Balance Sheet demonstrates that in every one of the last 30 years we have generated more tax per head than the UK.

Since 1980-81, total tax revenue per capita in Scotland has been on average £800 a year higher than in the UK as a whole. Adjusted for inflation, the gap has averaged £1,350 over this period.

Over the past five years Scotland and the UK have both run a fiscal deficit, as summarised in Table 2. This is not unusual. Between 1980 and current estimates for 2014, there will have been only one year when the 35 countries in the OECD as a whole have run an overall fiscal surplus. But over the past five years Scotland's deficit has been lower than for the UK as a whole.

Table 2 Net Fiscal Balance

Table 2: Net Fiscal Balance: Scotland and UK (2007-08 to 2011-12)
(% GDP) 2007-08 2008-09 2009-10 2010-11 2011-12
Scotland -2.9% -2.6% -10.7% -8.1% -5.0%
UK -2.6% -6.9% -11.2% -9.5% -7.9%

Source: Government Expenditure and Revenue Scotland 2011/12