Some reflections from me on today’s new #IndyRef economics paper… Important to emphasise at the outset that this is a paper setting out what the Scottish Government *would like* to happen after a successful independence vote…
…if the #Brexit negotiations taught us anything, it is that there can be a bit of a gap between what either side of a negotiation wants, and what the negotiation actually produces once they start working through the details…
Similarly, the past few weeks have demonstrated that financial markets are unsentimental in their assessment of the credibility of the fiscal plans that a government announces. This will be a key concern for a newly independent Scotland.
In some ways, there is not much that is substantively *new* in this paper – which isn't that surprising given how well-rehearsed the arguments are. The recent @EconomicsObservatory series economicsobservatory.com/scottish-indep… summarised the evidence on key issues including…
… the importance of economic arguments in voting decisions… economicsobservatory.com/how-important-…
...the new institutions that would be needed… economicsobservatory.com/what-new-insti…
… the international trade dimension… economicsobservatory.com/how-might-scot…
…and currency… economicsobservatory.com/what-would-the…
But a couple of other aspects of today's paper are worth noting….
1. Gaining powers over immigration policy features, which - given Scotland’s significant skill gaps/vacancies, as well as the challenges of out-migration - may provide an important new policy lever. And too little attention has been given to these challenges by the UK Gov.
More could be done to address these issues under the current constitutional arrangements. Canada for example allows for sub-national variations in immigration rules...
But there is also much more that needs to be done now to understand why – within the current constitutional settlement - we struggle to attract a higher share of migrants to the UK to live in Scotland.
Also, the recent (and excellent) @scotfisccomm paper underlines that higher migration is not a panacea for our ageing population challenges fiscalcommission.scot/publications/t…
2. an interesting – if unsurprising - feature of the paper is the emphasis on the establishment of a Scottish Oil fund. Long called for by the SNP, and the arguments are well rehearsed. The tensions with a #netzero policy are obvious too.
But it’s notable how little mention there's been of doing similar with the offshore renewable revenues that the Scottish Government receive. As always, it’s easy for politicians to pledge to invest for the future but then struggle to resist spending these revenues when in office.
3. On alignment with the EU, this is clearly a political choice and one consistent with the Brexit referendum result in Scotland in 2016.
However, on a purely economic basis, economic integration with the rest of the UK is significantly higher, and there are sizeable economic costs that could arise from trading a border with the EU for a border with the rest of the UK. See e.g. strathprints.strath.ac.uk/80134/
Of course, changes in the degree and nature of economic integration can happen, but these take decades to do so, and in the meantime there can be significant economic costs incurred. See this @EconObservatory article on the Irish experience by @eoinaldo: economicsobservatory.com/what-were-the-…
The paper today represents a broad reassertion of the economic case proposed in 2014, with a slight refresh to take into account the UK’s exit from the EU and the evolving politics since then. The underlying economics arguments are essentially the same.
Constitutional change of this nature hasn’t been attempted in a country of Scotland’s level of economic development. This means that there is significant uncertainty inherent in any proposals associated with it.
What is clear is that whatever is proposed, and whatever is subsequently achieved, there are costs, benefits and tradeoffs that will emerge. None of this is easy, and claims to the contrary should be viewed with suspicion.
Delivering independence will involve significant economic challenges, particularly in the short term, but might also enable Scotland to reshape its economy and society over the longer term in a way not possible under the current constitutional arrangement.
Of course, there are no guarantees here. Poor decisions, economic shocks and costly transitions could lead to a reshaping of the Scottish economy in a way that is less desirable than what the Scottish Government's case today suggests.
The First Minister said yesterday that she wanted a "grown-up, honest discussion” about the path forward. This new paper is a starting point for that – but it's important to emphasise that the paper represents her *preferred* outcome rather than the *actual* outcome that results
These are some initial thoughts after having had a quick run through the document - I might update and add to this once I've spent more time with it. There are undoubtedly aspects of what is proposed that are worth commenting on further in due course.
@EconObservatory even 🤦♂️
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