Jim Gallagher: Exports Matter

Exports matter. They are how a country makes its living in the world, enabling it to pay for the things it needs to import to survive or flourish, from food to fancy smartphones. So today’s rather dull Scottish export statistics are worth a look.

These go back to 2019, so don’t show the effect of Covid or maybe the full effect of Brexit. But they paint the big picture of Scotland’s economy, and teach the same clear lessons as they have done before.

Scotland mostly exports to England. Exports to the rest of the UK are much bigger than to the rest of the world combined. No other market matters anything like as much to Scottish businesses, not the EU, not the USA, and certainly not anywhere else. We sell over £50bn a year of goods and services to the rest of the UK: £10,000 for each man, woman and child in the country. And it was the fastest growing part of our exports in 2019.

Maybe not surprising. After all, countries usually trade the most with the ones next door. But in Scotland’s case the deep integration of the UK economy – a single domestic market, a common currency, a single VAT and regulatory system and so on – means the Scottish and English economies are very deeply intertwined. One study, by trade experts at the London School of Economics (LSE) , estimated that means 6 times as much trade as just living next door to England would have led to.

No harm in that: we can all get the same goods and services as people in England, whether it’s from Marks and Spencer, Tesco or a high street bank, if we want them. But it does have important consequences. If however we leave the UK, put up a border with England , and so break up that economic integration, trade gets a lot harder. There are different product rules, different tax forms, and a hundred different hassle barriers for business to overcome before they can sell their stuff or market their service in the rest of the UK.

This is just the sort of problem we are now seeing in reality from Brexit. Trade gets harder, exports fall, and so do incomes and jobs. But the effect of separation on Scotland is much bigger than the effect of leaving the EU, because UK trade is so much bigger and more important. The LSE experts estimated that the effect of independence on trade would be two or three times worse than leaving the EU, and that rejoining the EU would not offset the loss, because it would mean an even harder border with England. Overall, we could all in the long run be 6% or more poorer.

It’s also worth looking at what Scotland’s exports are. Whisky, of course. Surely folk would keep buying that. But to the rest of the UK one of our biggest exports is services, things like finance and insurance, in which Scotland has a long tradition of success. 160,000 people in Scotland work in financial services. 90% of their customers are in England. They can export their service to the rest of the UK because we are in a single economy, with a single currency and a single regulatory system, and a UK compensation scheme that safeguards customers if a company fails. Those would be lost with separation. As a result, most likely, so would many of the highly skilled, well-paid jobs in the sector.

Worrying messages from apparently dull statistics. But there is no need to lose any of this. The decision the Scottish people took in 2014 was to remain part of the UK but to have the autonomy to make as many of our own decisions as possible in Scotland, so we keep the UK market for everything from our whisky to our insurance policies, and the jobs that go with them. We called it the best of both worlds at the time.

You can read more on Scotland's exports here.