Category Archives: Brexit

The Scottish export conundrum

It’s becoming abundantly clear that the Unionists’ main argument in the next independence referendum will be that if Scotland has to choose between being in the UK’s and the EU’s Internal Markets, the former wins hands down. Here’s for instance David Mundell’s take on it:

Our own domestic market in the UK is far and away the most important market for Scotland’s businesses.

The Scottish Government’s own figures show our trade with the rest of the UK is worth four times our exports to the EU.

Businesses in Scotland sold £37.5bn more in goods and services to their own market in the UK than they did to all 27 EU countries put together.

Today’s figures show the UK is the vital union for Scotland and highlight the importance of maintaining the UK market and preventing any new barriers to doing business across the UK as we leave the EU.

We must therefore find a convincing answer to this question. Wings over Scotland has provided one, but it’s making certain assumptions about the deal Westminster will achieve.

I therefore think it might be useful to examine the various scenarios systematically:

The (r-)UK remains with the EEA and the EU’s Customs Union

This scenario could happen either because Brexit never happens due to a second referendum, or because a new government decides to apply for continued membership of both the EEA and Customs Union (which basically would be membership without voting rights).

Would Scottish independence be good or bad for different types of businesses in this scenario?

  • Exporters to the rUK: Not a huge difference. Some companies might decide to set up a separate Scottish HQ if we are independent, which will increase employment and domestic demand, but that’s about it – the EU will ensure that the rUK doesn’t discriminate against Scottish businesses.
  • Exporters to the EU: Very little difference, but independence will be preferable, because there might still be small bits and pieces that Westminster will not take part in.
  • Exporters to the rest of the World: Very little difference, because participating in the Customs Union means that Westminster can’t make their own trade deals.
  • Other businesses: Very little difference — the main difference will be that independence will lead to a rise in the number of Scottish HQs and government agencies, which is likely to lead to a general rise in economic activity in Scotland.

Verdict: Under this scenario, independence is economically the best option, but the difference isn’t great.

The (r-)UK gets a really good trade with the EU

In this scenario, the (r-)UK does leave the EEA and the Customs Union, but manages to negotiate a really good trade deal. There will be some restrictions on the free movement of people, and there will be customs checks at the borders. The (r-)UK will make separate trade deals with the countries of the world (but because the EU is a much bigger trade block, these deals will typically the worse than the one they replace).

Would Scottish independence be good or bad for different types of businesses in this scenario?

  • Exporters to the rUK: Independence won’t make much of a difference with regard to trade, but the customs checks will make it a bit of a hassle, so some of these companies will relocate to the rUK.
  • Exporters to the EU: Independence is much better because of the lack of customs checks, and because companies can send key personal back and forwards between Scotland and the rest of the EU freely.
  • Exporters to the rest of the World: Independence is preferable, because the EU’s trade deals will be better.
  • Other businesses: My guess is that more companies will move from the rUK to Scotland to remain within the EU than the other way, so it’s likely the overall effect will be positive. It’s really an unknown at this stage, though.

Verdict: Mixed, with independence being better for some companies and worse for others. On average, I think independence will be somewhat better for the Scottish economy.

The (r-)UK gets a limited trade deal

This scenario is of course rather vague – a limited trade deal would necessarily prioritise some products or sectors over others, and there are infinite possibilities. What is certain, however, is that it will be somewhere between the preceding scenario and the following one. This scenario is likely to be accompanied by a recession (but a smaller one than in the next scenario).

Would Scottish independence be good or bad for different types of businesses in this scenario?

  • Exporters to the rUK: If Scotland is independent, some companies will not feel much of a difference, while others will struggle badly, depending on whether they’re included in the trade deal. If Scotland remains within the UK, things won’t change much at first for these companies, but any supply chains depending on EU links could break, and the general recession is likely to affect them.
  • Exporters to the EU: If Scotland is independent, nothing will change (and companies from the rUK will move to Scotland to remain within the EU). Without independence, some sectors will struggle while others are OK, but worse than they would have been.
  • Exporters to the rest of the World: Scottish independence is a lot better, because Scotland then keeps the EU’s great trade deals.
  • Other businesses: Independence is likely to be better, because of the increased economic activity caused by companies and people moving north; furthermore, the rUK recession can hopefully be avoided.

Verdict: Independence is better on average, even though a few companies who focus solely on exporting to the rUK in sectors not covered by the trade deal will struggle.

WTO terms

In this scenario, the (r-)UK leaves the EU without any agreement and has to trade on WTO terms, which means there will be tariffs on lots of exports, and no free movement of people. There will also necessarily be a hard border in Ireland. In this case, there is broad agreement that the economy will take a severe hit, with many companies and people fleeing the country. Things might improve eventually, but the economy will first experience a severe recession for several years.

Would Scottish independence be good or bad for different types of businesses in this scenario?

  • Exporters to the rUK: If Scotland is independent, these businesses will suffer, but people will still want their whisky to forget their worries, and they’ll still need energy produced in Scotland, so the exports won’t collapse. If Scotland remain within the UK, these exporters will still suffer because of the UK recession.
  • Exporters to the EU: Scottish independence is a hundred times better for obvious reasons.
  • Exporters to the rest of the World: Scottish independence is a lot better, because Scotland then keeps the EU’s great trade deals.
  • Other businesses: If Scotland isn’t independent, they’ll suffer because of the recession. If Scotland is independent, it’s likely the rUK recession will be felt north of the border, so things will still be bad, but much better than it would have been without independence.

Verdict: Companies focused on exports to the rUK will struggle after independence, but they’d struggle anyway because of the severe recession. For other companies, independence is much better.


Interestingly, independence seems to be better in all scenarios, but in some of them, the difference is much bigger than in others.

The Unionists going on about the amount of Scottish exports to the rUK compared with the rest of the World seem to be overlooking two big issues: (1) The more the UK cuts itself off from the EU, the more the economy will suffer, and that will hurt also those companies exporting to the rest of the UK; (2) the UK is likely to get trade deals that are much worse than what the EU has already negotiated, and that will be bad for lots of companies if we remain within the UK.

It’s really misleading to look at the size of the exports without looking at what will happen to them in the future, especially if Theresa May manages to shoot the UK in the foot. The more the rUK cuts itself off from the EU, the more we’ll need Scottish independence.

Retailers and the customs union

Stillorgan Shopping Centre - South Dublin (Ireland)
Stillorgan Shopping Centre – South Dublin (Ireland).
There was an interesting article in The Irish Times today about the consequences for Ireland when the (r-)UK leaves the EU’s customs union:

Even if there were a free-trade agreement, allowing free movement of goods between the UK and the EU, this will not apply to imports from countries outside the EU. Thus border controls will be essential to ensure that imports from third countries, such as China or India, comply with EU regulations.

This will have huge implications for the retail sector, much of which currently operates on a British Isles basis. Goods travel from warehouses in the UK to the Republic without problem. After Brexit, this will require new bureaucracy and customs duties, entailing a major increase in cost.

That could raise prices significantly for Irish consumers, posing serious competitiveness problems for the wider economy. Because of the small size of the Irish retail market, going it alone is a high-cost option.

Although they don’t mention it, this is likely to be a much bigger problem than most people realise because of the way modern businesses depend on just-in-time manufacturing and low stock levels. What this means is that shops tend to get new deliveries all the time instead of having a lot of stock, and this will lead to huge problems if the over-night deliveries sometimes get disrupted by customs checks.

It’s possible some companies will start treating Ireland as part of their French operation rather their British one (for instance, Kellogg’s might prefer to sell the products made for the French market in Ireland instead of the British ones to avoid the customs checks). That would definitely make Ireland feel less British over time.

From a Scottish perspective, it means that if we leave the UK at the same time as Brexit in order to remain in the EU, and if the rUK proceeds with the harmful policy of leaving the EU’s Customs Union, retailers are likely to start treating Scotland and Ireland as one market (which again might been seen as a subdivision of the Scandinavian or the French one), whereas the rUK will be seen as a rather distinct one. It would make the products in Scottish and Irish shops more similar over time, and less similar to the ones found in England and Wales.

It’s worth bearing in mind that the EU’s Customs Union is almost ten times as big as the rUK’s one, so although it will be annoying to lose some of the English and Welsh products in the supermarkets, the consequences for Scotland will be much worse if we leave the EU together with the rUK.

I’d much rather Westminster decided to remain in the EU’s Customs Union, but if they really are hell-bent on leaving it, it’s yet another argument why Scotland should become independent within the EU.

People and companies are starting to leave the UK – we need Indyref2 soon!

The UK government seems to be moving towards a hard Brexit, perhaps even a chaotic one. Of course it might well be that they’ll change their minds after a few meetings in Brussels, but people and companies are already starting to act to protect themselves in case worst comes to worst. It’s clear from the Facebook forum for EU citizens in the UK that a large number of people are already starting to leave the country, and in this article the Financial Times warns that companies will leave soon if there isn’t a transitional deal to prevent Brexit from kicking in as soon as 2019:

The uncertainty over losing rights has made UK-based businesses call for early transition guarantees. Without those, big banks in London say they will take decisions assuming there will be no transition.

If there is no agreement by March 2018 — basically one year before Britain’s formal exit in 2019 — the value of the interim deal diminishes dramatically for the UK. Companies would already have taken action to protect their own interests. The Treasury is alive to the risk of a City exodus if transition terms are not clear at an early stage.


That leverage is strengthened by another cold calculation in Paris, Brussels and Berlin: the longer Britain waits for a transition deal to be discussed and agreed, the more likely businesses will decide to move or shift investment away from the UK. For the EU-27, late agreement on transition would maximise relocation while still avoiding a “cliff edge” — sudden and disruptive change for businesses stemming from a sudden exit.

So people have started leaving already, and companies will follow soon, and unfortunately they’ll leave Scotland, too, unless it’s clear that we’re likely to remain within the EU. If we don’t hold Indyref2 till Brexit is done and dusted, they will all have left and found permanent new homes elsewhere, and they’ll be extremely difficult to tempt back to Scotland.

I’m not saying that we need to hold Indyref2 very soon – but just announcing that it definitely will be held in 2018 will make people and companies delay a move away from Scotland, and it might make companies in the rUK explore whether a move to Scotland would be cheaper and easier than relocating to Dubling, Paris, Amsterdam or Berlin.

Indeed, just announcing Indyref2 is likely to have a beneficial effect on the Scottish economy, so I reckon Kenny MacAskill is worrying needlessly when he thinks the economy is doing too badly to allow us to win a new independence referendum now.

If companies are leaving the rUK (but not Scotland) in great numbers during the Indyref2 campaign, surely that will be a great reason for many people to vote Yes.

However, we can’t afford to wait till they’ve all left before we call the referendum. Nicola Sturgeon has been saying exactly the right things recently, reassuring people and companies in Scotland that we won’t be leaving the Internal Market because she’ll call the referendum if the Brexit isn’t soft.

I expect the exodus away from the UK will speed up drastically once Article 50 gets triggered, so that would probably be the best time to announce the date for Indyref2 to ensure that Scotland doesn’t get completely flattened by the Brexit train crash.

An extra referendum to cheer up the unhappy ones?

They Call Me Mellow Yellow
They Call Me Mellow Yellow.
Wings over Scotland is asking how we can prevent Yes-Leave voters from becoming No voters and suggests that the SNP should promise a referendum on EU membership post-independence:

We’re increasingly coming to the view that the answer is for the SNP to commit to a second EU referendum in the event of Scotland becoming independent.

Now, we can hear a lot of people sighing already. FOUR national referendums in the space of about five years (we’re not including the AV one, which nobody cared about) would be an awful lot of democracy and an awful lot of campaigning.

But we can see no other way to cut the Gordian knot of the electorate coming to decisions that contradict each other.

I fully understand the reasoning, and it’s an argument that has crossed my mind, too. However, I think it would be a bad idea.

Firstly, I fear it will put off many No-Remain voters, which is the very group we need to convince to obtain a Yes vote next time. We’ll need to argue till we’re blue in the face that the extra referendum of course is a formality that will of course be won by the pro-EU side, and that’ll turn off the exact voters that the referendum was designed for.

Secondly, as I’ve argued in another blog post, there simply aren’t that many Yes-Leave voters left in the Yes camp. There are many, many more No-Remain voters that could be convinced by a Scotland-in-the-EU campaign than there are Yes-Leave voters who might vote No because they hate the EU so much.

Thirdly, all signs are that the negative consequences of Brexit will become much more visible over the next year. It would be foolish to have committed to a Scottish EU referendum if Brexit turns toxic.

Finally, we mustn’t forget – as I’ve said before – that we cannot win a referendum by appealing only to Yes-Remain and Yes-Leave voters. Those two groups together add up to about 45% of voters, as Indyref1 showed. We have to win over a sizeable chunk of the No-Remain voters. As the Brexit referendum demonstrated, Yes-Remain plus No-Remain add up to 62% of the Scottish electorate. That’s the way to win Indyref2. Chasing Yes-Leave voters is a dead end, and especially so if doing so means turning away No-Remain voters.

Brexit: The book

I often feel that the vast majority of people in the UK (including Scotland) know very little about the EU, believing it is basically a glorified free-trade area.

This lack of understanding has made it very easy for the right-wing media to portray the EU as being out of control, when most of the time it is doing exactly what it was supposed to do.

Ian Dunt’s wee book about Brexit is thus very much needed. A lot of it is basically teaching the reader about the EU and the associated countries (with chapter headings such as “What is the European project?”, “What is the single market?”, “Norway” and “Switzerland”), and only then does it proceed to look at the details of Brexit, cataloguing the hurdles ahead (e.g., “How can we keep the UK together?”, “How talented are the Brexit ministers?” and “Making a new country”).

In general it’s a fine book. Many people have described it as really scary, but I actually found it too positive and optimistic about Brexit in places. There are many interesting details in it – for instance this bit about vets was entirely new to me:

Industry estimates suggest that 95% of vets in meat hygiene graduated elsewhere in the EU. British vets simply do not like the work. The problem is not only it is more poorly paid, though it is. The trouble is that someone willing to go through the extensive training requirements of veterinary medicine generally does not do so in order to spend their working life watching animals being killd and the washing of their carcasses by former convicts.

I didn’t like the chapter about Scotland much, though. I think the author has spent too much time speaking to Unionists or Yellow Tribe members like Alex Neil, because he seems to think that getting more powers devolved to Scotland (e.g., with regard to agriculture and fishing) would satisfy pro-independence voters, when of course it wouldn’t. Those powers would be pointless because they’d need to be handed back to the EU post-independence, and they wouldn’t allow us to build a more compassionate and socially just society, which is what motivates most of us.

In the concluding chapter, Ian Dunt suggests that the outcome of Brexit will be a European Hongkong:

Britain is about to experience a toxic mix of weak law and strong lobbying. It is tantamount to switching a country off and on again. Except that it will not revert to its original state. It will revert, in all likelihood, to a low-tax, low-regulation laissez faire economy, more akin to that of Singapore or Hong Kong than the countries on the Continent. [p.161]

As I’ve explained in another article, I agree this would seem like the likely result, and if we can’t prevent a hard Brexit from happening, we need to get out before it’s too late.

If you aren’t a major EU policy wonk, you’ll probably learn a lot of useful stuff from reading this book, and if you are, it’s still a useful list of all the options and obstacles in one place. Everybody should read it before it’s too late.

Stands Scotland where it did?

MovementsIf we take the Panelbase poll from September (which divided the Scottish electorate into four groups, Yes-Leave, Yes-Remain, No-Leave and No-Remain) and combine it with the findings from the recent YouGov poll that found that 15% of the voters who voted Yes in 2014 would now vote No and that 10% of former No voters have moved to Yes, we can draw an interesting graph.

I’m assuming that the two groups losing voters are Yes-Leave and No-Remain because they’re both desperately unhappy with what’s happening. So in the pie chart above I’ve split Yes-Leave into Yes-Leave-Yes (bluish yellow) and Yes-Leave-No (bright yellow), and No-Remain into No-Remain-No (green) and No-Remain-Yes (turquoise). Of the two groups changing their Indyref stance, Yes-Leave-No is slightly bigger than No-Remain-Yes (7% vs. 5%). This is consistent with the fact that YouGov found a tiny drop in the support for Yes.

So basically the polls are practically static because we’re losing slightly more voters to No than we’re converting to Yes.

We should be optimistic, however. We’re unlikely to lose many more Yes-Leave-Yes voters to Yes-Leave-No – surely most of the remaining ones are so strongly pro-independence that nothing can convert them to No – and the Yes-Remain voters are unlikely to go anywhere so long as the Scottish Government remains pro-EU. At the same time, 24% of voters are still to be found in the No-Remain-No camp, and one would expect more of them to drift towards a Yes when it becomes a certainty that the UK is heading for a hard and messy Brexit with no special status for Scotland.

In other words, I expect the polls will start shifting towards Yes soon.

Brexit shock therapy

Child Labour Photo Contest 2012_Third Prize
Child Labour Photo Contest 2012_Third Prize.
Ever since the Brexit referendum, I’ve kept thinking that the hard Brexit plans surely must be due to a lack of understanding of the consequences, that the Tories would eventually opt for a much softer outcome (such as the Norwegian solution) or at least apply for a decade-long transitional deal to give them time to negotiate new trade deals and all that.

I simply couldn’t see any benefit in causing utter devastation to so many people and businesses across the UK, so I kept believing the people opting for a hard Brexit must be ignorant or deluded.

Then two things happened. Firstly, the leaked memo showed that people in government do seem to realise what they doing and what the consequences will be. Secondly, I started reading Naomi Klein’s “The Shock Doctrine”.

Parts of this book are now a bit dated (it’s from 2007, so from before the crash), but the bits where she explains why it’s only possible to implement radical neoliberal reforms after some sort of societal crisis are just as relevant today:

It was in 1982 that Milton Friedman wrote the highly influential passage that best summarizes the shock doctrine: “Only a crisis – actual or perceived – produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.” […]

What [Friedman] understood was that in normal circumstances, economic decisions are made based on the push and pull of competing interests – workers want jobs and raises, owners want low taxes and relaxed regulation, and politicians have to strike a balance between these competing forces. However, if an economic crisis hits and is severe enough – a currency meltdown, a market crash, a major recession – it blows everything else out of the water, and leaders are liberated to do whatever is necessary (or said to be necessary) in the name of responding to a national emergency. Crises are, in a way, democracy-free zones […]. [p.140]

If this is true – which I fear it is – a hard and chaotic Brexit will be a huge opportunity for the Tories to completely abolish the welfare state. They’ll be able to get rid of the NHS, free education, unemployment benefits and whatever else they don’t like. They’ll be able to do this while looking immensely sad, saying that it’s all the EU’s fault for denying them the package they wanted (but quietly always knew wouldn’t be acceptable to the other EU member states). They’ll blame everybody else for the economic collapse, but use it to create a neoliberal wonderland where only the strong survive. Eventually people will realise what has happened, but by then it’ll be too late to reverse.

In Ian Dunt’s new book (“Brexit: What The Hell Happens Now?”), the conclusion is similar:

Britain is about to experience a toxic mix of weak law and strong lobbying. It is tantamount to switching a country off and on again. Except that it will not revert to its original state. It will revert, in all likelihood, to a low-tax, low-regulation laissez faire economy, more akin to that of Singapore or Hong Kong than the countries on the Continent. [p.161]

More than three years ago, I warned that many people in England wanted to go down that Singapore-style route:

In their book Going South: Why Britain will have a Third World Economy by 2014, Larry Elliott and Dan Atkinson claim the UK needs to make a fundamental choice: Should it move in the direction of a Scandinavian welfare state (similar to the Common Weal ideas currently being discussed in Scotland), or should it become a low-tax state based on free trade (called “Freeport Ho!” and “Freeport Britain” in their book)?

They don’t really discuss Scottish independence in their book, and they seem to think that the UK must make the choice as a whole.

However, it appears to me that Scotland and London have already chosen. Scotland wants to go down the Common Weal path (and what we’re really discussing in the independence referendum campaign is whether we can convince the rUK to go down that road with us, or whether we should do so alone), and Greater London has practically decided to become a global free port (which is why so many people in the South-East want to leave the EU, dismantle the NHS, and all that).

What I didn’t foresee back then was that the Tories would be able to use the chaos created by their hard Brexit to implement this vision, which is so utterly different from the vision of an egalitarian society based of solidarity and fairness that the vast majority of people in Scotland share.

If we can’t stop the Tories from administering their neoliberal shock therapy, we need to get out before it’s too late. We’re about to witness something that’ll make Thatcher look like a cuddly socialist in comparison.