Calls for UK to stay in single market likely to grow after Fraser of Allander Institute’s report says leaving would shrink Scottish economy by £8bn in a decade
The Scottish economy would suffer a severe shock if the UK has a “hard Brexit”, losing up to 80,000 jobs and seeing wages fall by £2,000 a head per year, an economics thinktank has warned.
The Fraser of Allander Institute (FAI) has told the Scottish parliament that entirely leaving the EU single market – known as a hard Brexit – would see the Scottish economy decline by 5% overall, or by £8bn within a decade.
The prospects of the UK government pursuing a hard Brexit, basing trade with the EU on World Trade Organisation tariffs and bilateral deals, appears to have jumped following the hardline rhetoric at this week’s Conservative conference in Birmingham.
With some ministers openly talking of heavily cutting the UK’s foreign workforce, Theresa May, the prime minister, hinted at a hard Brexit by saying she would prioritise tight controls on immigration and ending the European Court of Justice’s jurisdiction in the UK.
Those moves would appear to preclude membership of the single market, which requires freedom of movement and standardised rules for business. But May insisted she would still seek “to give British companies the maximum freedom to trade and operate in the single market”.
The report’s stark warnings are likely to redouble demands from Nicola Sturgeon, the first minister, that keeping single market membership should be the UK’s main priority after the June referendum’s narrow vote to leave.
The FAI’s study for Holyrood’s Europe committee forecasts that even in a best-case scenario, where the UK adopts Norwegian-style membership of the single market but remains outside the EU, the Scottish economy would lose up to £5bn in value over 10 years.
The institute, part of the University of Strathclyde, said its modelling suggested that up to 30,000 people in Scotland could lose their jobs while wages for those still in work would fall by about 3-4% or £800 to £1,200 a year.
Professor Graeme Roy, the thinktank’s director, said its forecasts suggested the UK’s economy would be even harder hit by Brexit because a far higher volume of its exports went into the EU, suggesting higher job losses and deeper cuts to GDP.
Scotland’s economy was weaker and more sluggish than the UK’s as a whole before the referendum, with public spending running a substantial £15bn annual deficit, increasing its vulnerability.
As Scotland’s largest market remains the rest of the UK, with EU trade worth £11.5bn versus £48.5bn from the rest of the UK, a recession south of the border would add to the pressure on Scottish businesses. And unlike the 2008 banking crash, this impact would be long-term.
Roy added that there were complex forces at play. Some industries with greater reliance on EU trade, such as transport and services, would be hit hardest. Under a hard Brexit scenario, 25,000 jobs would be lost from wholesale and retail, transport and warehousing sectors alone. Ministers could now start looking at strategies for supporting the most vulnerable sectors.
But others with a wider global market may not be so hard hit. The Scotch whisky industry, which generates up to £5bn a year in exports but supports relatively few jobs, could benefit from a lower pound and see sales grow in non-EU markets.
Joan McAlpine MSP, the convener of the culture, tourism, Europe and external relations committee which commissioned the report, said it“paints a grim picture”.If the UK government leads us into a hard Brexit the evidence presented in this report indicates that there could be disastrous consequences for jobs, exports and production,” she added.
Jackie Baillie, Scottish Labour’s economy spokeswoman, said: “This report shows the cost of the Tories’ reckless Brexit gamble and how vital it is that Scotland, and indeed the whole UK, retains access to the single market. When Theresa May hinted at a hard Brexit earlier this week, sterling crashed to a 31-year low. Even the most blinkered of Brexiteers cannot ignore the huge risk this poses to our economy.”
A UK government spokeswoman said May and David Mundell, the Scottish secretary, had already made clear they were seeking a bespoke deal with the EU, to get the best outcome possible. “As the report itself recognises, we have not begun negotiating our exit from the EU, so it seems very premature to draw conclusions from some highly speculative models,” she said.