The combination of independence and Brexit is set to reduce Scotland’s income per capita by between 6.3% and 8.7% in the long run, according to a study from the London School of Economics (LSE)
The economic hit from the two events is equivalent to an income loss of between £2,000 and £2,800 per person every year.
The research analyses the impact on Scotland’s economy of potential changes in trade barriers resulting from Brexit and Scottish independence.
It finds that the economic costs of independence are two to three times greater than the impact of Brexit. The report concludes that the loses from independence are similar regardless of whether an independent Scotland rejoins the EU or maintains a common economic market with the UK.
The report suggests independence would hit the Scottish economy harder than Brexit because Scotland’s trade with the rest of the UK is about four times larger than its trade with the EU. This large difference means that creating a border within the UK would be more costly than the increase in UK-EU trade costs due to Brexit.
The report also shows that there is around six times more trade between Scotland and the rest of the UK than predicted by the standard gravity model of international trade, highlighting the trade benefits from being part of a United Kingdom.
Hanwei Huang, assistant professor at the City University of Hong Kong and one of the authors, said: ‘This analysis shows that, at least from a trade perspective, independence would leave Scotland considerably poorer than staying in the United Kingdom.
‘While many considerations will play a role in shaping the outcome of a second referendum, voters need to know what the likely costs and benefits of each course will be. This briefing contributes to that knowledge.’
Thomas Sampson, associate professor of economics at LSE, said: ‘We find that the costs of independence to the Scottish economy are likely to be two to three times greater than the costs of Brexit. Moreover, rejoining the EU following independence would do little to mitigate these costs, and in the short run would probably lead to greater economic losses than maintaining a common economic market with the rest of the UK.’
The estimates reflect the long-run effects of Brexit and independence, and it could take a generation or more for the full effects to materialise. The report focuses on trade costs and does not study other economic consequences of independence, such as changes in fiscal arrangements or Scotland’s currency.
The Scottish Parliament has been warned that, in the first month post-Brexit, Scottish companies are already experiencing severe problems with trading with the EU.
In a statement, Europe and external affairs secretary Michael Russell, said: ‘It is an incontrovertible fact that four weeks into the new trading arrangements, the problems for businesses are not diminishing, but multiplying and spreading across different sectors of the economy.
‘The disruption to the seafood sector has resulted in the damaging delays, huge costs and devastating losses which we feared would be the outcome of becoming an EU third country and dealing with new and untested processes.
“Unfortunately it is not just the fishing part of the food industry that is being impacted. A whole new category of prohibited and restricted goods has been created meaning Scottish exporters can no longer trade their produce freely with the EU.’
The Scottish Government has announced a £7.75m funding package of support for fishermen, seafood businesses and ports and harbours threatened by the ongoing effects of coronavirus and EU exit.
Estimates suggest as much as £1m a day is being lost by the seafood industry because of delays with IT systems and the paperwork needed for export, meaning perishable produce is being wasted. There is an estimated £11m of losses to Scottish seed potato farmers who will no longer be able to export to Europe.
Russell also pointed to significantly reduced freight flows across the Channel with evidence hauliers are avoiding the UK altogether to avoid delays and complicated paperwork, and the UK Government’s own reasonable worst case scenario which predicts 142,000 tons of perishable goods including food, feed and drink could be wasted over the next six months because of Brexit border disruption.
Russell said: ‘Even the UK government has now admitted that these are not “teething issues” – they are a permanent exclusion from the single market that leaves many businesses in Scotland toothless in a competitive modern economy.
‘The Scottish Government will of course continue to do everything in our power to mitigate the impacts of Brexit on this country, its businesses and its communities. Far from being over, the problems created by Brexit are getting worse and we face more difficult times ahead.’