Building a New Scotland: A stronger economy with independence

A better economy with independence

Key points

Decisions on economic policy would, of course, be for future governments and parliaments. This section sets out the current Scottish Government’s proposals for a new economy with independence: one that is greener, fairer, more open, and more dynamic. An economy that:

• can take advantage of abundant, low-cost energy
• reflects the new economic thinking discussed earlier in this publication
• is able – like the comparator countries discussed in the first publication in the Building a New Scotland series – to marry high productivity, innovation and economic dynamism with strong social solidarity.

A key principle is that Scotland’s economy would be reconnected with Europe.

With the full powers of independence and EU membership, Scotland’s economy can be transformed in four key ways.

A greener economy. Scotland can build on its outstanding natural resources to maximise the economic and social benefits of the move to net zero carbon emissions. We would carefully nurture and support the industries like hydrogen and carbon capture and storage, that will play a part in that transition. This would help ensure that they deliver significant national wealth, high quality jobs and crucial action on climate change.

A more dynamic and productive economy. Scotland can seek to replicate the success of comparable independent European countries, with improved approaches to investment, entrepreneurship, corporate governance, family-friendly policy and co-operatives.

A more open and welcoming immigration system. Scotland can leave behind the ‘hostile environment’ that characterises the UK’s approach to immigration. Instead, we would encourage and support people to settle here for the long term. This would be good for the economy and broader society. It would help address the needs of all of Scotland, including businesses and those areas most at risk of depopulation.

A fairer labour market. A modernised labour market would bring improvements to wages and terms and conditions. We propose that Scotland should have a single rate for the national minimum wage, one that better reflects the cost of living, with no lower rates for younger workers. Access to flexible working would be strengthened to make sure parents and carers, most of whom are women, have more choice over how to balance caring and employment responsibilities, also helping to tackle child poverty. Scotland’s gender, disability and ethnicity pay gaps would be addressed, in part by introducing greater transparency in pay reporting. And unfair labour laws – like the UK Trade Union Act 2016 – would be repealed in recognition of the fact that good industrial relations, and active trade unions, help build a stronger, fairer country.

Economic dynamism and social solidarity

The current UK Prime Minister has argued that “…to look at everything through the lens of redistribution I believe is wrong because what I’m about is growing the economy and growing the economy benefits everybody”.^[201]

However, as we highlighted in the first publication in the Building a New Scotland series,^[202] other countries manage to be more productive and more equal than the UK.^[203] For these countries, economic dynamism and social solidarity are mutually reinforcing. The relationship between growth and fairness should not be seen as a trade-off.^[204]

Indeed, as set out earlier, the OECD, IMF and European Commission all now acknowledge that tackling inequality should be a key policy objective and that policies aimed at doing so can also contribute to higher productivity and greater economic dynamism. The OECD has found that “higher inequality drags down economic growth and harms opportunities”^[205] and the IMF that “a higher Gini coefficient [a measure of inequality]^[206] is associated with lower output growth over the medium term”.^[207] As discussed later, the EU is currently preparing a Directive aimed at boosting minimum wages and collective bargaining coverage.

The policies outlined here – including on energy, the labour market, immigration, trade and corporate governance – and elsewhere in the Building a New Scotland series are intended to support a shift away from the relatively poorly performing UK economy towards the type of model long pursued by European nations comparable to Scotland. Such models continue to successfully combine relatively low inequality with relatively high employment, productivity, innovation and internationalisation. There is no reason why Scotland, with the full powers of independence and EU membership, cannot replicate their ongoing success.

Releasing Scotland’s economic potential

As highlighted earlier, Scotland has significant economic strengths, capabilities and specialisms. We have a highly educated workforce and a number of long-standing sectoral strengths. We have exciting and growing life science and technology clusters and natural capital that leaves Scotland especially well positioned to generate quality employment through the transition to net zero. The full powers of independence would enable Scotland to build on these strengths.

An independent Scotland would be able to forge an economic model that is quite distinct from the UK’s. The full powers of independence would enable Scotland to marry economic dynamism with social solidarity much more effectively than it is able to do within the constraints of devolution.

Independence would enable the Scottish Government to put fairness front and centre of economic development policy. Genuine progress can be made on current priorities such as fair work and wellbeing that have until now been constrained by a lack of relevant powers.

We consider that Scotland, building on existing strengths, can use the full powers of independence to choose a different economic path; one that is greener, fairer, more open and welcoming, more dynamic and more productive. Our proposals are not intended to be a comprehensive assessment of how independence would affect every sector of the Scottish economy – however, we illustrate the kind of choices that would be open to us with independence.

Later publications in the Building a New Scotland series will set out further detail on the Scottish Government’s specific proposals with the aim of leading a debate on how a stronger economy is possible with independence.

A greener economy with independence

Vision: Scotland’s massive renewable energy resources can be the bedrock of a new independent economy. We can be a model for how an economy can transform itself, de-carbonising and creating well-paid and secure jobs. Over the long term, Scotland’s resources can provide lower cost energy to households and businesses, providing a major competitive advantage.

A number of great challenges and opportunities – demographic, technological, and, most pressingly, environmental – characterise the modern economy. The success of countries depends on the skill with which they manage this profound economic change. Scotland possesses a wealth of assets and natural resources that leave us well placed to meet these challenges and maximise opportunities. Indeed, the economic and employment opportunities presented by the shift to net zero are huge.

An independent Scotland could set a clear course by investing early through the Building a New Scotland Fund to stimulate sustainable growth and support the just transition to net zero. The Scottish Government is already committed to supporting a transition that maximises the social and economic opportunities of climate action, while minimising and managing any challenges – including through dialogue with those impacted, and respect for labour principles and rights.

The Scottish Just Transition Commission is already working to support a shift to a net zero economy that will support workers and communities and create new job opportunities.

The net zero opportunity

Scotland is an energy-rich nation. In 2021, Scotland generated enough renewable electricity to power all households in Scotland for three years, and exported electricity with an estimated wholesale market value of £2.4 billion.^[208] In June 2022, our renewable energy capacity was 13.3 GW, up from 1.4 GW in 2000.^[209] By way of comparison, peak electricity demand in Scotland is between 5-6 GW.^{[210], [211]}

Scotland’s renewable energy potential is vast and is fundamental to the new economy we want to build (see Box 11 below). An independent Scotland could ensure the long-term affordability of electricity, as offshore and onshore wind farms can provide electricity at a lower cost than nuclear or gas power plants. Scotland’s renewables potential also means we can not only ensure energy self-reliance and generate enough green electricity to power Scotland, but also export increasing amounts of low carbon energy to our neighbours, supporting the wider security of supply needs and decarbonisation ambitions of our neighbouring nations.

Box 11: Scotland’s vast renewable energy potential

Current onshore wind capacity is 8.8 GW^[212] and we are consulting on aiming for an additional 8-12 GW by 2030.^[213] Expansion of onshore wind could generate the equivalent of £27.8 billion in GVA, and deliver around 17,000 more jobs by 2030.^[214]

Current offshore wind capacity is 1.8 GW.^[215] We have capitalised on our significant offshore renewables resource by launching the world’s largest floating offshore wind leasing round through ScotWind, which provides seabed rights for potential development of almost 28 GW of offshore wind energy, including a potential for 17.6 GW of floating offshore wind, putting Scotland at the forefront of the global development of the sector.^[216] If consented and fully deployed, ScotWind projects could deliver up to £28.3 billion of Scottish supply chain benefit across 20 projects.^[217]

As of June 2022, 378 renewable electricity projects with a capacity of 16.3 GW are in the development pipeline in Scotland.^[218]

Currently, we have 1.67 GW of hydro and 0.74 GW of pumped-storage hydro in Scotland.^[219] We have a number of projects – a total of around 2.8 GW – either in the pipeline or consented that do not have a route to market under the current GB market approach.

To put this in context, peak electricity demand in Scotland is between 5-6 GW. Scotland’s energy potential can help deliver wider renewable energy ambitions. At EU level, on 12^th September 2022, the North Seas Energy Cooperation countries agreed in a Joint Statement to reach at least 260 GW of offshore wind energy by 2050, complemented with intermediate targets of at least 76 GW by 2030 and 193 GW by 2040.

Onshore and offshore wind

Onshore wind accounts for about 70% of our current renewable energy capacity, followed by hydro and offshore wind. Scotland has the potential to significantly expand generation from onshore wind and we are currently consulting on a proposal that Scotland should aim for an additional 8-12 GW by 2030.^{[220], [221]} Expansion of onshore wind could generate the equivalent of £27.8 billion in GVA and deliver around 17,000 more jobs in Scotland by 2030.^[222]

Scotland also has massive offshore wind potential which can provide renewable electricity not only for Scotland but for export to the rest of the UK and Europe. This can support security of supply and decarbonisation.

Offshore wind is set to become the largest part of the Scottish renewables sector in the years ahead. The recent ScotWind leasing round^[223] has awarded seabed rights for the possible deployment, subject to planning consent, of up to 27.6 GW of offshore wind. ScotWind includes the world’s largest commercial round for floating offshore wind, with the potential for 17.6 GW of floating offshore wind. This puts Scotland at the global frontier of renewables technologies. And ScotWind projects, if fully deployed, will also deliver investment of up to £28.3 billion across the Scottish supply chain across 20 projects (equating to £1.4 billion of supply chain investment per GW of power capacity).

Hydro

We have 1.67 GW of hydro and 0.74 GW of pumped-storage hydro in Scotland.^[224] But we have a number of projects either in the pipeline or consented that do not have access to sufficient financial support through the current UK subsidy regime to begin construction. We could use powers over energy market design to provide support for flexible generation, such as pumped-storage hydro and battery storage. Creating more low-carbon pumped-storage hydro capacity in Scotland will further diversity our electricity supply mix, help security of supply and lessen reliance on high-cost gas generated electricity. This is an example of how the Building a New Scotland Fund could meet its aims including net zero. It is through such measures that in the longer term costs for consumers and businesses could be reduced in an independent Scotland.

Wave and tidal energy

Scotland is a leader in the development and deployment of wave and tidal energy technologies with: the world’s leading wave and tidal test centre, the European Marine Energy Centre in Orkney; the world’s largest tidal stream array; and the world’s most powerful tidal stream turbine.

Box 12: Hydrogen

Hydrogen is a clean alternative to natural gas, and can be produced from a variety of sources, including gas and renewable sources such as wind and solar. Scotland has the resources, the people, and the ambition to become a leader in hydrogen production for both domestic use and for export to Europe.^[225] Hydrogen, powered by renewable electricity, may be Scotland’s greatest industrial opportunity since oil and gas. Estimates based on scenarios developed for the Scottish Government indicate that a range from 70,000 to over 300,000 jobs could be protected or created and with potential GVA impacts of between £5 billion and £25 billion a year by 2045.^[226] For comparison, oil and gas extraction alone was worth an estimated £8.8 billion in GVA to Scotland’s economy in 2020, representing around 5% of total Scottish GDP.

The Scottish Government already has a hydrogen production ambition of 5 GW by 2030 and 25 GW by 2045. Hydrogen will play a key role in delivering net zero in industrial and heavy transport use and in the domestic economy, potentially heating our homes and buildings. Scotland also has significant hydrogen export potential.

Scotland will produce substantial electricity from its renewable capacity. This capacity presents opportunities for the production, use, and export of hydrogen. By moving quickly on offshore wind, and supporting hydrogen production from onshore wind, Scotland has created conditions to establish a competitive, at-scale green hydrogen capability, and to attract parts of the value chain to locate in Scotland.

Oil and gas

Oil and gas remain a significant part of Scotland’s energy mix and, while all countries must move away from fossil fuels as quickly as possible, will continue to be so during the transition to net zero. The oil and gas industry is an important part of the Scottish economy - oil and gas provides 76.5% of all Scottish energy consumption.^[227] The industry also supports approximately 71,500 jobs, and generated £12.9 billion in GVA (7.1% of total Scottish gross domestic product^[228] in 2021).^{[229], [230]} The recently launched seabed leasing round for decarbonising Scottish oil and gas operations through renewables demonstrates our commitment to making these operations as clean as possible for the remainder of their lifetime. The North Sea will continue to play an important role now and in an independent Scotland. Our oil and gas infrastructure and highly skilled workforce have long been at the forefront of energy innovation and will be crucial to our long term success in renewable energy.

As set out above, Scotland has already made great strides in the transition away from fossil fuels. The move to net zero is an environmental imperative, but also a massive economic opportunity. As we continue the transition to alternative energy sources, we will work to ensure job opportunities and wealth are created in a way that does not leave communities behind. We will work to deliver a just transition that supports those currently employed in oil and gas to capitalise on the employment opportunities of net zero energy. This involves identifying future opportunities, future skills requirements, and where jobs will be located. It means building the workforce required for the new economy, through upskilling and cross-skilling, in a fair and effective way. And it means targeting locations where there is the greatest need in planning and developing training facilities and outreach programmes from universities.

Box 13: Carbon Capture and Storage

Scotland has significant opportunity from carbon capture and storage (CCS), where carbon dioxide (CO₂) can be captured, transported and stored in depleted oil and gas fields. Scotland’s North Sea is potentially the largest carbon storage resource in Europe. While it must not be used to justify further fossil fuel extraction, with existing industry capability, supply chain, and infrastructure for potential transport of CO₂, Scotland is one of the best-placed countries in Europe to deliver CCS. CCS will also play an essential role in the decarbonisation of our energy sector and helping to tackle climate change. We can also provide a route for much of the UK’s emissions to be safely stored and to position Scotland as a European carbon storage hub.

The Scottish Government has consistently supported the development of CCS, including the Acorn CCS project^[231] in the North East of Scotland. With expansion, Acorn has the potential to cumulatively store 25 megatonnes of CO₂^[232] by 2030 and 500 megatonnes by 2050,^[233] and could unlock more than 20 gigatonnes^[234] of potential CO₂ storage within this area of central North Sea.^[235] And this can support an average of 15,000 jobs between 2022 and 2050, with a peak of 20,600 in 2031.

The UK Government has not funded Acorn CCS, designating it a “reserve cluster” in Track-1 of their cluster sequencing process. This decision significantly compromises our ability to take crucial near-term action to reduce our emissions, and achieve a just transition for our workforces as we transition from fossil fuels.

Home-grown power

The need to accelerate the energy transition has been made clear by the impacts of war in Ukraine on European and global energy markets. With existing powers, there is little the Scottish Government can do in in the short-term to influence these wider market trends. But rising energy costs for consumers, driven by the price of gas, has shown the need to move to, lower price renewable energy.

With independence, and maximising home-grown, renewable power generation, Scotland can create even greater energy self-reliance and reduce our exposure to the volatility of global gas prices. With full powers, an independent Scotland could ensure the lower cost of renewables is passed through to customers, with the price of electricity more accurately reflecting our abundant, low-cost renewable resources.

Electricity market design and using the full powers of independence

Currently, the Scottish Government and Parliament have no powers over electricity market design – for example, how electricity is traded or how security of supply is provided. With independence, we would be able to determine how government support was delivered, and for which technologies, and have direct influence over how the grid network is built and charged for. We would be able to put in place new market frameworks to develop and deploy renewable hydrogen and CCS.

An independent Scotland would design the electricity market: either as an equal partner in a joint design authority with the UK Government, or under a different system. We would do whatever is in Scotland’s interests. This would allow us to break the link between the price of electricity and the price of gas, which is a key factor driving the high prices for Scottish households and businesses. It would also allow us to support new and evolving technologies, to decide which technologies to support, and, working within EU and international law, how much support to provide. The EU is already looking at doing this by diversifying gas supplies and increasing the amount of gas stored across Europe, boosting energy efficiency, increasing renewables to accelerate the reduction of reliance on fossil fuels, and introducing pricing mechanisms to keep electricity affordable.^[236]

With powers to influence the design of the regime for paying for Scotland's electricity grid, we could determine how quickly the grid network expands to support the growth of renewable generation, both onshore and offshore. Plans for offshore wind in the North Sea and for a grid connecting countries and markets around the basin are increasingly gaining traction.^[237] A North Sea grid could see the creation of an integrated offshore energy grid which links wind farms and other renewable energy sources between markets and countries across the northern seas of Europe. Scotland could play a role in this expansion and support electricity interconnectors to link us directly to European markets, by either regulating their cost by or directing government investment.

Many countries have successfully chosen to follow a public ownership model in energy projects, such as in offshore wind, including Denmark (with the Danish wind company DONG), Sweden (with Vattenfall), and Norway (with Statkraft). Full powers in relation to energy would also enable Scotland to consider public sector involvement or ownership, expand the range of areas in which government invests, and encourage private investment in key energy technologies, including hydrogen production, transport and export, but also in carbon capture and storage, types of renewable generation, and also energy export capacity from Scotland.

We are already using our existing powers of regulation, and support for innovation, to accelerate the decarbonisation of heat and better energy efficiency across Scotland’s building stock. Better energy efficiency and using less energy, will help tackle high energy costs for consumers. Full powers over energy would enable us to take additional steps – for instance, through market mechanisms aimed at requiring suppliers of fossil fuel heating systems to provide an increasing proportion of zero carbon heat, and reforms to the electricity market designed to remove the running cost disincentive of switching to a heat pump.

With full powers over consumer protection, we would ensure the needs of Scottish energy consumers are protected, including in areas like the heating oil market and supporting the most vulnerable consumers, including those on pre-payment meters.

Later in the Building a New Scotland series we will set out in more detail how we will use the powers of independence to deliver Scotland’s full energy potential and support our wider net zero ambitions.

Additional economic opportunities of net zero

There are significant additional economic opportunities in energy, including:

• export opportunities beyond the physical commodities of electricity and hydrogen to advisory services, intellectual property and other expertise. As in the oil and gas sector, Scotland can become a hub for advisory and services firms serving global markets
• benefits beyond the jobs created in the renewables industry and technologies such as hydrogen production and carbon capture and storage. Rapid development of renewables, production of hydrogen and deployment of carbon capture and storage offer significant opportunities across the economy. Competitive advantage in products produced using renewable sources of energy will be of increasing value.

Giving communities a stake in renewables development

In an independent Scotland, economic opportunities such as renewables development can be exploited in ways that benefit as many people as possible and leads to better social outcomes. This includes:

• good jobs: the shift to a net zero economy should be a growing source of good, skilled and well-paid jobs. Control over employment law would enable Scotland to maintain higher employment standards than has been the case in the UK over recent decades
• local content: with independence, and working within EU and international law, we would work to ensure that workers, communities and firms throughout the supply chain can benefit from energy developments and make more use of local content building on the experience of the ScotWind Supply Chain Development Strategy. It would be essential to ensure that more manufacturing jobs are generated through renewables development than has been the case to date
• community ownership: new ownership structures – including public, community and cooperative ownership opportunities – could be developed more widely. This could ensure communities take direct stakes in local developments. This could provide steady revenue streams to support community facilities and boosting local economies. There would be an opportunity to grow cooperatives in related advisory and services firms.

The interplay between addressing climate change through the transition to net zero and the need for a just transition that protects and supports the most affected by sectoral shifts is critical. As an independent country Scotland would have control, not only of how to marshal the energy transition, but also over the employment powers that would underpin a just transition.

In summary, over the longer-term an independent Scotland could deliver affordable renewable energy, and this would help reduce the cost of energy for households and businesses. We would improve Scotland’s self-reliance in energy and improve security of supply by designing a market that maximises the economic and employment benefits of Scotland’s advantages in wind, hydro, pumped-storage hydro, hydrogen, wave and tidal and carbon capture and storage. By breaking the reliance on gas by incentivising investment in these technologies, delivering affordable renewable energy and supporting energy efficiency measures in the housing stock, energy costs should fall.

A fairer labour market with independence

Vision: We want Scotland to be fairer, more equal and more prosperous. A country offering a decent future for all workers, their families, and communities, underpinned by a strong labour market.

This section sets out how an independent Scotland, with full control over employment law, could make different choices on the labour market.

The Scottish Government is strongly committed to Fair Work.^[238] All workers should have better job quality, wages, economic security and work-life balance. They should have an effective voice, opportunity, security, fulfilment, and respect.

However, recent Westminster Government labour market policies often work in the opposite direction. They include:

• the introduction of the Trade Union Act 2016. This makes it more difficult for trade unions to take industrial action and organise in the workplace
• plans to introduce fees for Employment Tribunals
• inadequate enforcement of minimum employment standards, including the national minimum wage.^[239]

The UK labour market has serious structural weaknesses in particular areas. It has high proportions of both low-wage workers and very high earners. So it also has high income inequality.^[240]

What is more, the UK’s high overall employment rate masks relatively low rates among groups who continue to face structural barriers to fair work:

• women are hugely under-represented in some key sectors and in senior positions across the economy. The UK’s gender pay-gap is high^[241] and stubbornly persistent
• the employment rate for disabled people is low,^[242] reflecting at least in part, its low priority at UK level and low spending on support and rehabilitation^[243]
• the employment rate for all the main minority ethnic communities is lower than for the white population.^[244]

All the above groups are over-represented in sectors that tend to offer low-wage, precarious work.

Many European countries take a different approach to the UK.^[245] The UK has heavily deregulated its labour market^[246] and has acted to weaken institutions such as trade unions and collective bargaining on wages, terms and conditions.^[247] While the nations discussed in the first publication in the Building a New Scotland series have all deregulated to some extent,^[248] most still have relatively high levels of trade union membership and collective bargaining. These important counterbalances to de-regulation tend to lead to very different outcomes.^[249]

The full powers of independence would open up a range of potential policy measures that go much further than marginal tweaks to UK policy.

For example, the presidency of the European Council and the European Parliament recently reached a provisional agreement on adequate minimum wages in the EU.^[250]

The new law – once adopted – would aim to achieve decent working and living conditions for all European employees. The provisional agreement proposes that where fewer than 70% of all employees have the right to bargain, member states should establish an action plan to increase collective bargaining coverage. The action plan should set out a clear timeline and concrete measures to increase the rate of collective bargaining coverage.

A new approach to Fair Work

Building on current Fair Work policy and learning from the best-performing European nations, an independent Scotland could develop a new, transformative model for the labour market. We would seek to strengthen our Fair Work agenda in an independent Scotland, introducing new protections where none currently exist, and delivering a more socially just Scotland.

Specific measures we propose include the following:

1. Better pay and conditions. An independent Scotland would be able to set higher minimum standards in these areas:

• establishing a fair national minimum wage at a level that better reflects the cost of living in Scotland – with a single rate for all age groups. This would end the current approach that discriminates against young workers. Responsibility for determining future increases in the rate could fall to a new Scottish Fair Pay Commission, which is discussed below
• stronger access to flexible working which would help make sure parents and carers, most of whom are women, have more choice over how to balance caring and employment responsibilities, also helping to tackle child poverty. This would, for instance, allow parents and carers to work around school hours. We are committed to working with business representative organisations and trade unions to develop effective approaches to flexible working that benefit both employers and workers
• greater transparency in pay reporting and action on data to help address gender, ethnicity and disability pay gaps, as well as discrimination based on age. This action would build on the Scottish Government’s existing commitments in the Fair Work Action Plan,^[251] the Gender Pay Gap Action Plan^[252] and the Disabled People’s Employment Action Plan,^[253] as well as the forthcoming Ethnicity Pay Gap Strategy
• repeal of the UK Trade Union Act 2016 as part of the process of developing an approach to industrial relations that works in the interests of all
• development of a national action plan to extend collective bargaining coverage consistent with the expected requirements of the EU legislation discussed above and in line the established SG support for collective bargaining.

When circumstances allow over the longer term, future Scottish governments could consider gradual improvements in areas such as:

• higher minimum standards for statutory sick pay and parental leave, bringing both to at least the average for OECD nations. These would be important changes, not least as the UK currently has the lowest statutory sick pay among OECD nations. For the first four weeks of sick leave, this could raise the median worker’s sick pay from roughly £2,600 (10% of earnings – the average for UK workers) to £18,204 (70% of earnings – the average for workers across OECD nations)^[254]
• full employment rights for all from day one of employment. Currently the right to request flexible working is only available after 26 weeks. The right to take parental leave comes after one year. And the right to claim unfair dismissal is only available after a full two years of continuous employment
• new approaches to productivity, supporting pay progression, and linked to investment in skills, and industrial strategy to sustain investment over time.

2. Better regulation. An independent Scotland could improve regulation, ensuring that individuals have adequate protection at work. At the same time, the labour market would remain flexible so it can adapt to keep pace with a dynamic economy.

The UK employment law framework has failed to move with the changing shape of the economy and workplace. Currently, too many workers have insufficient protection at work.^[255]

Independence offers an opportunity to redesign the system to better meet the needs of both workers and employers. Measures could draw on the recommendations of recent high-profile commissions such as the Taylor Review of Modern Working Practices and the Institute for Public Policy Research (IPPR) Commission on Economic Justice.

We propose these actions as a minimum:

• give clarity on the legal status and associated rights of different categories of workers. This would help prevent exploitation of workers, especially in the ‘gig economy’.^[256] For example, all workers would be entitled to a written statement of their status and conditions from their first day at work.
• reform rules about holiday pay. We want to make sure people in flexible or casual work arrangements get the paid annual leave they are entitled to, in full. One way to do this would be to extend the ‘pay reference period’^[257] to 52 weeks for agency workers, those who work variable hours, and those on zero-hour contracts who often do not receive their full entitlement of paid annual leave
• legislate to support workers in precarious employment. This would allow agency workers and those on zero hours contracts to ask to formalise the reality of the working relationship. This would help ensure that workers are not being discriminated against by being forced to operate as self-employed
• legislate to ban fire and rehire. That means an end to the practice of employers making workers redundant and offering to rehire on reduced wages and conditions
• ensure statutory public holidays can no longer be counted towards statutory minimum leave entitlements. The UK, which already has relatively few statutory public holidays, is the only European country where employers can do this^[258]
• properly resource the enforcement of the national minimum wage. The Resolution Foundation has found that the current enforcement regime does not persuade rogue employers to follow the law on the national minimum wage.^[259]

3. Better institutions and approaches. One lesson from the most successful labour markets across Europe is that effective regulation, on its own, does not guarantee good outcomes. Instead, regulation should be complemented by institutions developing a new approach to setting labour market standards, focussed more on consensus.

In an independent Scotland, these new institutions and/or arrangements could include:

• a Scottish Fair Pay Commission, to lead a new approach to setting the National Minimum Wage. This would include a role for employers, trade unions and government and seek to set a level to match Scotland’s specific circumstances and needs. The Commission would have a wider remit than the current UK Low Pay Commission. It would be able to examine issues such as setting a higher minimum wage on non-guaranteed hours as proposed by the Taylor Review^[260]
• new approaches to Fair Work Agreements. An independent Scotland could consider modern, sectoral bargaining mechanisms such as those currently being developed in New Zealand to support pay progression, improve conditions in low pay sectors and support inclusive workplaces. These would need wide engagement and buy in
• new approaches to partnership. An independent Scotland could develop social partner (trade union and employer bodies) led approaches to health and safety, regulation of working hours and other workplace matters.

4. Better policy alignment. Full powers would allow for more effective alignment between social security and employability objectives and better integration of skills and employment support provision. This would help remove barriers to employment and create better matches between job seekers and job vacancies. It should help unemployed people who are able to work to return to work more quickly and transfer skills across sectors faster too. Policies could also be developed to support people to remain in work for longer.

A longer-term aspiration would be to gradually raise spending on labour markets (e.g. public employment services, unemployment benefits and a range of measures such as training and supported employment and rehabilitation) to levels similar to the best-performing European nations such as Denmark. The UK spends considerably less than other nations. In 2011 (the last year for which UK data are available), the UK spent 0.53% of GDP on labour markets, compared to 1.76% in Germany, 2.7% in Finland and 3.6% in Denmark. The UK spent only 0.01% of GDP on training while Denmark spent 0.64%, Finland 0.49% and Germany 0.25%.^[261]

5. More resilience. New infrastructure would make it easier for an independent Scotland to deal with labour market shocks. In responding to the global financial crisis and pandemic, other countries were able to quickly draw on existing institutions and initiatives. This could include the development of:

• a permanent short-time working scheme, modelled on the German Kurzarbeit programme.^[262] The German scheme provides compensation for private sector workers whose hours are reduced because of economic difficulty. The Scottish scheme could kick in at times of severe economic shock. This would help retain skills, reduce long-term unemployment and the associated costs and allow for more rapid economic recovery
• Job Security Councils (JSCs) modelled on the Swedish initiative, led by social partners: employer representative bodies and trades unions. JSCs are non-profit foundations that provide support to employees who have lost – or are at risk of losing – their jobs. The JSC helps workers find new employment by providing a range of advice and support. JSCs would encourage greater labour market dynamism. The Swedish experience shows that workers are more willing to embrace technological change in the workplace if high-quality retraining support is available.^[263]

6. Better partnership working. Future governments would be able to take a new approach to trade union legislation that better reflects the role of unions as economic and social partners rather than the approach pursued by successive Westminster Governments. There would also be an opportunity to re-assess the wider role of trade union and business/employer bodies in economic development.

Other European countries have long-established systems of social partnership where governments work with trade union and employer confederations to develop consensus-driven approaches to economic development. It is difficult to do this under devolution, as the key policy areas of mutual interest are reserved. Under independence it would be possible to develop more European-style approaches which might involve:

• the establishment of new consensus-building institutions of economic development along similar lines to the statutory national Economic Councils in Denmark and Finland^[264]
• social partner-led national inquiries to shape national policy and agreed approaches into key economic issues/challenges. These could be under the auspices of the Economic Council. Similar inquiries have been undertaken in Finland, while Denmark’s Disruption Council ran a major inquiry into the impacts of technological change^[265]
• establishing research foundations linked to employers and trade unions with the aim of supporting informed engagement with each other and government.

A more dynamic and productive economy with independence

Vision: Scotland should promote its economic values of inclusive growth, wellbeing, sustainability, net zero and good governance on the international stage. An independent Scotland in the EU will expand international trade and attract entrepreneurs and investment from across the world to help contribute to a more dynamic and productive economy.

As discussed in previous sections, an independent Scotland in the EU would benefit from the EU’s size and scale in securing trade deals – a significant step up from the narrow focus of Brexit. Scotland could also focus its investment strategy on key national and global priorities and become one of the most attractive places in Europe for entrepreneurs. With full powers, we could develop a new and distinct approach to corporate governance.

Strengthening investment performance

Inward investment^[266] makes a disproportionately positive contribution to Scotland’s economy. Although only 3% of businesses in Scotland are inward investors, these businesses account for over a third of jobs, around half of GVA, just under two thirds of Business Expenditure on Research and Development (BERD) and three quarters of international exports.^[267] Inward investment creates opportunities for Scottish businesses and supply chains, increasing their access to global markets, technology, talent and investment. Maximising ‘spillover’ benefits allows us to strengthen Scotland’s economy at all levels.^[268]

EY’s latest Annual Attractiveness Survey showed that Scotland is leading the UK in attracting inward investment. Scotland has maintained its position as the top performing Foreign Direct Investment (FDI) region or nation of the UK outside of London in 9 of the last 11 years,^[269] outperforming the rest of the UK and Europe in terms of number of FDI projects attracted. Scotland’s FDI projects were up by 14 per cent from 2020, compared to a 5.4 per cent increase in Europe and a 1.8 per cent increase in the UK.

While Scotland’s performance in inward investment is strong, there is scope to improve performance in relation to global capital investment. In 2021, Scotland attracted £690 million in investment, which equalled 3% of the UK total and an increase of 36% in value from the year before.^[270] Attracting investment is vital for Scottish companies to realise their growth ambitions at home. It is also important for ensuring that Scottish companies have the right infrastructure and conditions to thrive.

The Scottish Government has signalled it wants to work with like-minded investors to address the great challenges that we face in Scotland and around the world.^[271] Significant levels of global capital investment will be needed to deliver Scotland’s net zero commitments, for example, and wider infrastructure ambitions.

With the full powers of independence, it would be possible to set further strengthen our approach to attracting investment. The full range of fiscal and regulatory powers and incentive mechanisms could be aligned to match our policy ambitions and values and unlock more ‘responsible investment’ into Scotland’s priority markets.

Box 14: The Scottish National Investment Bank

Founded in 2020, the Scottish National Investment Bank provides long-term capital investment to businesses and projects to support wider investment which provides economic, environmental, social and financial returns for the people of Scotland.

The Bank’s mission-oriented approach allows it to fully develop and catalyse private investment, create and shape new markets and spark innovation. Since opening for business in November 2020, the Scottish National Investment Bank has committed just over £249.4 million across 19 investments in line with its strategic missions – with more in the pipeline.^[272]

How the Bank evolves in the future would be shaped within an independent Scotland, rather than have terms set by the UK Treasury. A future Scottish Government could, for example, allow different approaches to the £2 billion funding cap and increase its capacity.

Building a nation of entrepreneurs

An independent Scotland could make itself more attractive to entrepreneurs.

Scotland’s rate of Total early-stage Entrepreneurial Activity (TEA) has been gradually improving over time,^[273] but still remains below that of other advanced economies, and the UK average.^[274] Universities are increasingly focusing on entrepreneurialism, with 283 new spin-off businesses from Scottish higher education institutions in 2020/21 – a 55% increase from 2015/16. There were over 1,200 active university spin-off businesses in Scotland in 2020/21 generating an estimated turnover of £458 million in total.^[275]

In 2022, the Scottish Government appointed Mark Logan as the country’s first chief entrepreneur, with a focus on building a network of support for start-up and scale-up businesses. The appointment followed his review of the Scottish technology sector and the government’s endorsement of its recommendations.^[276]

The Logan Review highlighted the importance of attracting international tech talent to Scotland. An immigration system tailored to Scotland’s needs would aim to attract new skills and experience, enhancing existing strengths.

With the ability to set our own immigration policy, an independent Scotland could create better routes for international entrepreneurs to come and start businesses here. We could also attract talent from the UK and the EU who would be able to work and live in Scotland without restrictions.

For international talent a simplified and more responsive system, centred around key routes, could help graduates to stay on in Scotland once their studies have finished. Employers could sponsor visas for talent they have identified, giving high-potential individuals the ability to choose Scotland as the destination to build their careers.

Using new powers to strengthen the post-study work visa option would be an important measure to encourage start-ups and entrepreneurs to build their businesses in Scotland.

Corporate governance with a purpose

Company law is wholly reserved to Westminster.

The long history of failed efforts to reform corporate governance at UK level indicates that the system has not always worked to the long-term benefit of the economy. Indeed, that has been the broad conclusion reached by a number of researchers and commissions such as the Purposeful Company Taskforce,^[277] the British Academy’s Future of the Corporation project and the Kay Review of Equity Markets.^[278]

Control over company law could support the evolution of a distinct Scottish system. The Scottish Government in partnership with the Scottish Council for Development and Industry (SCDI), recently supported the work of the Business Purpose Commission for Scotland (BPCfS) which found that:

“The purpose of a business is why it exists, is created, and its reason for being. It is fundamental to every business and should drive its core strategy and activities. This is currently associated with the commercial success and profitability of business but what the report demonstrates is the need to look beyond bottom-line financial returns to shareholders to impacts on societies and environments in which business operates.”

The BPCfS set out a series of recommendations for how “business, government, investors, consumers and educational institutions can all contribute to embedding purpose throughout the Scottish economy and how working together they can promote a prosperous, flourishing and fair society”.^[279] With full control over company law the Scottish Government and Parliament could implement the following:

• requiring companies to state their purpose in their articles of association and operate in a manner that benefits their stakeholders, including workers, customers, communities, and the environment while seeking to deliver profits for shareholders
• changing the focus of directors’ duties from “to promote the success of the company” to a duty “to advance the purpose of the company”
• ensuring company reporting requirements require larger companies to include information on non-financial measures, such as impacts on and investment in workforces, society, and the environment.

Other aspects of corporate governance reform might include:

• the introduction of worker representatives on company boards or ‘Works Councils’ – the system of ‘codetermination’ that has proved successful^[280] in many European nations with benefits including higher investment, enhanced resilience, and lower income inequality
• specific initiatives to increase women’s and minority representation on company boards – learning from successful legislative initiatives in Norway and elsewhere
• establishing a new Companies Commission to oversee a new corporate governance code.

Family-friendly policy

The analysis in the first publication in the Building a New Scotland series showed that countries with higher social spending and measures which support a better work-life balance tend to see the benefits in terms of higher productivity.^[281]

This points the way towards some of the interventions that would be necessary if an independent Scotland is to achieve Nordic-level outcomes, including very low levels of child poverty. Scotland already has strong foundations in developing interventions, such as the Scottish Child Payment, that are helping to reduce financial pressure on households.^[282]

This Scottish Government’s long-term aspiration is to raise the level of social spending and improve outcomes to the best performing European nations. In addition, the Child Poverty (Scotland) Act sets stretching targets for the Scottish Government to meet by 2030. Our delivery plan Best Start, Bright Futures^[283] is already helping families, but with independence still more could be achieved. Key areas of focus could include:

• early learning and childcare (ELC), which is essential to facilitate parental labour market participation, particularly for women, as well as supporting household incomes
• parental leave – as with ELC, this helps facilitate a higher employment rate for women
• labour market policies such as training, rehabilitation and supported employment – which help support disabled people into work.

The UK currently invests significantly less in these issues than most small European countries.^[284]

ELC and parental leave will be covered in more detail in future Building a New Scotland publications.

Boosting co-operatives

A range of policies would be available under independence to help achieve a fairer distribution of wealth.

For instance, an independent Scottish Government would have more tools to boost worker co-operatives. While there is much that can be achieved through Cooperative Development Scotland, important aspects are reserved.

An independent Scottish Government could introduce a ‘Marcora law’ (named after an Italian law introduced in 1985). This would give workers support to organise a co-operative buyout or rescue when a business is up for sale or under threat. Worker-led buyouts are very rare in the UK. However, there is impressive evidence from Italy, Spain and France that, with the right support, cooperative buyouts and rescues can result in resilient and successful businesses.^[285] And co-operatives have the benefit of sharing wealth and power with their workers.^[286]

Benefiting all regions and communities

An independent Scotland in the EU would have access to the raft of substantial EU funding programmes, allowing the Scottish Government to align our own funding streams to these multi-year programmes offering far greater security and stability to regional partners to invest in economic development interventions.

Greater alignment of complementary Scottish and EU funding streams offers an opportunity to simplify the funding landscape and provides a catalyst to further advance new means of enabling a wellbeing economy, such as Community Wealth Building.

Multi-year funding is difficult under HM Treasury (HMT) rules, because a large amount of Scottish Government funding is driven by HMT spending decisions (and the Barnett formula). While HMT can set out multi-year spending reviews and commitments, there is always a very high, and often realised, risk that the Westminster Government will change plans and consequently change the Scottish Government’s budget position. This introduces instability and insecurity, making long-term funding decisions too risky and constrains the Scottish Government’s current ability to set long-term funding commitments.

In an independent Scotland, the Scottish Government would not have to depend on, or fall victim to, unpredictable Westminster Government funding decisions. We would have autonomy and control over our budgets.

By aligning Scottish and EU funding, allowing long term funding commitments, we would be able to offer up far greater security and certainty to our regional partners. National and regional long-term economic strategies can be underpinned by secure funding, which has the added benefit of making it far easier to attract inward investment to Scotland.

With independence the Scottish Government would oversee a greater range of government and public sector functions and jobs, with the ability to shape their distribution around Scotland. The opportunities to do so will be revisited later in the Building a New Scotland series.

A more open and welcoming immigration system with independence

Vision: Scotland should be an open and welcoming country, in control of its own immigration system. As a country, we should encourage those who want to make a positive contribution to our economy and our communities, especially in remote and rural areas, to make a life here.

Responsibility for immigration, asylum and visas, and nationality and citizenship, is currently reserved to Westminster. Taking responsibility for these crucial issues represents a major opportunity for an independent Scotland.

We would be able to decide who can come and make their life here – visit, work, study, or live. Membership of the EU and Common Travel Area (CTA) would open up opportunities to attract talent to Scotland, helping to reverse population decline and address labour supply challenges.

Migration is one of the main levers available to help address population ageing and decline. Migration can both increase the number of people of working age and help with a country’s age structure, as migrants tend to be younger. An immigration policy designed to attract and retain working age people and their families would mean that the projected decline in Scotland’s working population would be offset, with more people in employment to strengthen the economy and public finances.

Office for National Statistics (ONS) and National Records of Scotland (NRS) projections show the challenge Scotland faces within the UK. Scotland is the only UK country whose population is set to fall, as seen in Figure 12. Scotland’s share of the UK population would fall from 8.1% in mid-2020 to 7.6% by mid-2045.

Source: Projected Population of Scotland (2020-based) | National Records of Scotland (nrscotland.gov.uk)

In the rest of the UK, the working population is projected to continue to grow,^[287] emphasising the need for Scotland to be able to shape migration policy according to its own needs and priorities.

As part of their Fiscal Sustainability work, the Scottish Fiscal Commission has developed longer-term population projections, using the same data. In its report published in August 2022 (Trends in Scotland’s population and effects on the economy and income tax), the Commission projects that the Scottish population will decline from 5.5 million in 2022 to 4.6 million in 2072, a fall of 900,000 people, or 16% of the total population.^[288]

Importantly, the Commission notes that Scotland’s declining population and the influence of the ageing population on the overall participation rates drives its long-term projections for Scottish GDP growth rates.

Scotland’s population and Brexit impact

Historically, Scotland has been a country characterised by net emigration, with young people leaving often due to lack of economic opportunity. Since around the time of devolution, this trend has been reversed. Recently we have seen net inflows of people into Scotland both from the rest of the UK and the rest of the world.

Yet Scotland’s ability to increase the working population is seriously constrained by UK policy, and specifically Brexit. The UK’s hard Brexit ended freedom of movement for EU citizens. And the UK-wide migration strategy does not allow Scotland, or other parts of the UK, to take different immigration approaches to address their needs.

Scotland previously benefitted significantly from EU free movement rules. The most recent data, for 2020-21, estimated over 230,000 EU citizens living in Scotland, with a further 165,000 people from elsewhere in the world.^[289] In contrast, post-Brexit restrictive immigration rules limit opportunities for people to move to Scotland and concentrates new migration in London.^[290]

Economic impact of migration

Most of the economic literature on migration finds that, overall, migrant workers have a positive effect on the host country and can contribute to higher economic growth.^[291]

New migrants can boost labour supply, expanding the productive capacity of the economy. This can then result in higher levels of economic activity and employment, making the whole economy more competitive.

Scottish Government modelling illustrates the potential impacts of increased migration on GDP and revenues. Three scenarios were modelled, based on a long-term increase in net overseas migration of 5%, 10% and 20%.^[292] This showed increased economic activity and employment from a growing working population would lead to a long-term increase in real GDP equal to 0.4% (£0.5 billion), 0.8% (£0.9 billion) and 1.6% (£1.8 billion). This increase in economic activity would also have a positive impact on real government revenues, which rise by 0.3% (£0.2bn), 0.7% (£0.3bn), and 1.4% (£0.6bn) respectively.

Many other research studies also show the positive economic impacts of migration. For example:

• migrants tend to make a positive contribution to the public finances and the evidence suggests that migrants who move for economic reasons tend to pay more in taxes than they receive in benefits^[293]
• the Migration Advisory Committee’s 2018 report draws on three papers, all of which find that migration has a positive effect on productivity in the UK economy^[294]
• research from the Federation of Small Businesses (FSB)^[295] estimated that immigrant-led small and medium-sized enterprises (SMEs) in Scotland generated 107,000 jobs and around £13 billion in revenues in 2017
• evidence shows that migrants tend to be more entrepreneurial than the native population and can help to boost innovation and productivity. For example, recent research found that migrants bring knowledge that reshapes patenting activity in the destination country, moving it towards new technologies^[296]
• FSB research also uses data from the Global Entrepreneurship Monitor (GEM) and NRS and finds that overseas immigrants and Scottish returnee emigrants are nearly twice as likely to be actively trying to start a business or run their own business, compared with Scottish non-migrants.^[297]

A new approach to immigration policy

Independence would enable Scotland to decide how we want to attract people to come here to live, work and study.

We would reject the ‘hostile environment’^[298] promoted by the Westminster Government. Instead, we could develop a humane and responsive immigration system to meet Scotland’s demographic, economic and social needs.

Building on the Scottish Government’s seven principles of migration policy set out in March 2020,^[299] a new approach to immigration in an independent Scotland would:

• address the needs of all of Scotland including those areas most at risk of depopulation. , Places and sectors in need of more people would be specific priorities. Sectors like food and drink, manufacturing, and tourism and hospitality are major employers in rural areas but are currently experiencing severe labour shortages because of both Brexit and the pandemic
• encourage and enable long-term settlement in Scotland. An independent Scotland would be able to decide the conditions under which people could migrate here to work. This would include opening up routes to long-term settlement, alongside time-limited visas. By encouraging long-term settlement including through improved family migration routes and a comprehensive post-study work offer, Scotland could begin to address the challenges of a declining population
• attract talented and committed people from Europe and across the world to work and study. We could do so without excessive barriers. Indeed, our migration policy should support mobility, collaboration and innovation. An independent Scotland would have the power to set out a welcoming and expansive approach to attract talent from around the world to come to Scotland to work and collaborate
• support fair work protect workers’ rights and prevent exploitation and abuse. ,Migration policy would not be set in a vacuum. An independent Scotland would be able to ensure its coordination with broader labour market policies. The section on the labour market in an independent Scotland sets out what the new employment approach could look like
• enable people who are entitled to live in Scotland to bring close family with them and ensure migrants have access to services and support to encourage integration into communities. Enabling workers to bring their families should improve their ability to integrate and settle in Scotland
• establish a migration system that is easy to access and understand and focussed on what a prospective migrant can contribute, not on their ability to pay – therefore fees and charges should be proportionate. The Scottish Government would work in line with public finance principles that say fees and charges for services should recover the cost it takes to deliver that service. In contrast, the Westminster Government generates excessive surplus revenue from immigration and nationality services to finance its enforcement regime^[300]
• deter and prevent abuse, fraud and criminal activity, including terrorism, human trafficking and other serious offences. As good neighbours, we would work closely with the UK and Irish governments on matters of border control within the common travel area. This would help to protect the safety and security of our citizens and residents. Scotland would also take part in EU-wide migration programmes, with a voice in shaping policy in line with our values.

A future publication in the Building a New Scotland series will say more about how we propose a new immigration system would be structured and regulated, with dignity, fairness and respect at its heart.