UK economic unionism

By | Business
The headquarters of Standard Life, one of the main buildings within Edinburgh's financial district. Since Scotland has decided to stay within the union, Standard Life has decided to keep its headquarters in Scotland. Image Credit - en.wikipedia.org

An analysis, released by the UK Treasury, has suggested that Scotland’s economic performance is stronger because it is part of the larger integrated UK economy. Scotland voted to stay within the UK on September 21st 2014, 55 percent voted to continue the partnership.

The Scotland analysis series looked at Scotland’s economic performance and found that, as part of the UK, Scotland is outperforming most other parts of the country as a result of the benefits of deep economic integration with the rest of the UK. These benefits include; free access to the larger UK market, a common regulatory framework, integrated supply chains and a highly flexible labour market. As a result, Scottish companies trade more goods and services with the rest of the UK than with the rest of the world, exporting £36 billion of goods and services. Flexible labour movement between Scotland and the rest of the UK allows businesses aiming to recruit the most suitable individuals from across the whole UK; and the benefits of being in the UK have made Scotland an attractive destination for foreign investment.

The paper found that being without a border is key for economic integration. Even where free trade agreements exist and where physical borders are almost nonexistent, neighbouring countries with similar economies are affected by the presence of a border. The analysis found, for example, Canadian provinces trade around 20 times more with one another than with US states of a similar size and proximity; despite a free trade agreement between Canada and the US. Labour migration between Scotland and the rest of the UK is also estimated to be as much as 75 percent higher within an integrated UK, allowing the sharing of skills and knowledge.

Speaking about the continued union, John Cridland, CBI Director-General, said: “This is a momentous day for our United Kingdom and this result will be greeted by a collective sigh of relief across the business community. Business has always believed that the Union is best for creating jobs, raising growth and improving living standards, and welcomes that the people of Scotland want to play an integral role in this internationally successful partnership. Now may be also the time to rebuild relationships outside the UK, to reassure international investors and other partners that we will emerge stronger and more confident in the months and years ahead.”

The research also shows evidence that the UK’s diverse economy protects Scotland from economic issues and changing oil prices. An integrated UK and a broader and more diverse tax base helps to maintain the stability of public spending in Scotland and smooth the impact of some challenging sources of revenue, such as North Sea oil and gas. The paper shows that, since 1999, Scotland’s onshore economy has generated 8.3 percent of the UK’s tax receipts; while at the same time Scotland has received an average of 9.4 per cent of UK public spending. Relative to the UK generating and spending £100, this means that Scotland’s onshore economy has generated £98 for the UK Exchequer, while receiving £112 of public spending.

The Chief Secretary to the Treasury, Danny Alexander, has said: “This research confirms that being part of a strong, integrated and diverse UK economy has helped to drive economic performance in both Scotland and the rest of the UK; delivering real benefits for households and businesses. Remaining part of the borderless UK could boost real incomes in Scotland by as much as 4 percent after 30 years, equivalent to an additional £2,000 per household.

How might the UK capitalise on the continued union?

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