Building a New Scotland: Renewing democracy through independence

The consequences of UK decisions for Scotland

There are practical consequences felt across Scotland and by all who live here from the decisions made by successive UK governments. The first paper in the Building a New Scotland series 'Independence In The Modern World. Wealthier, Happier, Fairer: Why Not Scotland?'^[90] shows that, across a range of economic and social indicators, independent European countries comparable to Scotland have outperformed the UK.

Other significant decisions made at Westminster have proved not to be in Scotland's interests. These decisions at key points in Scotland's recent history have had a profound, damaging impact on the country.

Failure to invest oil revenues for the future

Like many nations, over several decades, Scotland has been a leading producer of oil and gas. Today, and looking ahead, it is a major force in renewable and sustainable energy. Scotland can look to a future where its abundant natural resources can be harnessed in a just transition to a net zero economy.

The extraction of oil and gas has generated substantial revenues for many countries, including the UK. A large part of the economic benefit of extraction flows to the UK Exchequer, through taxation of oil and gas production. Choices about managing the economic benefit of Scotland's oil and gas have also rested with the UK Government. Over the last 50 years, the UK has received £396 billion in revenue from North Sea production in real terms.^[91]

However, rather than choosing to steward these energy resources, particularly oil and gas reserves, to produce long-term, structural benefits for the economy, successive UK governments have used the tax revenue to fund current spending.^[92] In other words, the revenue generated from oil and gas reserves which could have been invested to generate a return for current and future generations, equalising wealth between generations, was allocated to current spending for shorter-term purposes^[93].

Other policy choices were available. Recognising the non-renewable nature of the benefits extractable oil and gas reserves bring, other countries implemented innovative policies to ensure that these resources provided lasting returns. Norway invested in a sovereign wealth fund, which at the end of 2021 stood at 12,340 billion kroner or over $1.3 trillion.^[94] By contrast, the Institute for Public Policy Research has estimated that:

"If a fund had been created from the North Sea oil revenues in the 1980s, it would be worth over £500 billion [in 2018]."^[95]

Austerity

In 2010, the UK Government introduced its first austerity budget, putting in place a set of policy choices that economists and economic historians have called "disastrous" and "reckless".^[96] Like the decision not to introduce a sovereign wealth fund, austerity was a choice "and not one of Scotland's making".^[97] The Scottish Government repeatedly called on the UK Government to "abandon its harmful and counterproductive austerity agenda"^[98] pointing out that:

"Scotland has suffered under a decade of austerity that has disproportionately hurt the poorest and most vulnerable in society."^[99]

The effect of the UK Government's austerity policy is directly felt by low-income families in Scotland and exacerbated by measures such as the benefit cap and bedroom tax.^[100] It is also felt by the wider population of Scotland by restricting the resources available for public services and through the narrowing of options available to the Scottish Government, as it spends to mitigate the effects of UK Government austerity with money that could have been spent on other priorities.

In 2019, for example, the Scottish Government spent more than £100 million counteracting the effects of UK austerity policy,^[101] and in the year 2022-23 the Scottish Government is spending up to £78 million to mitigate, as far as possible, the UK Government's bedroom tax and benefit cap policies, with:

• around 91,000 Scottish households being supported through Scottish Government mitigation of the bedroom tax – which is costing £68 million in 2022-23; and^[102]
• up to 4,000 households being supported this year through Scottish Government mitigation of the benefit cap, 97% of which are families with children.

Mitigating the benefit cap as fully as possible within devolved powers is expected to cost up to £10 million in 2022-23. Mitigation by the Scottish Government makes up for a loss of around £2,500 per family, helping families with the cost of living.^[103]

The Institute for Fiscal Studies estimated that the UK's austerity policy resulted in a 6% fall in Scottish Government resource funding between 2010/11 – 2017/18.^[104]

In Scotland, though core funding (which excludes temporary Covid funding) will be around 3% higher in 2021-22, after accounting for population growth it will still be around 2% lower per person over this 11 year period.^[105]

Over the nine years of austerity prior to COVID-19, £13.6 billion less has been spent on Scotland's public services than if spending had been kept flat in real terms at the level it was in 2010/11 (see Figure 5).^[106]

Source: Scottish Government analysis of HM Treasury Public Expenditure Statistical Analyses, table 1.5. Inflation adjusted using HM Treasury March 2022 GDP deflators. 2020-21 spending excluded due to large increase in RDEL driven by COVID-19 response.

Leaving the EU

As set out in Scotland's Right to Choose, Scotland's place in Europe was a major issue during the 2014 independence campaign.^[107] The people of Scotland were assured by those campaigning for Scotland to stay in the UK that voting 'no' to independence would secure Scotland's place in the European Union.^[108] The UK Government explicitly made EU membership part of its case for a vote to stay part of the UK.^[109]

The Scottish Government's 2014 independence White Paper^[110] clearly stated that an independent Scotland should continue as a member of the EU and that one of the benefits of independence was a stronger guarantee of continued participation in the European Union:

"The advantage of independence is that the people of Scotland will have the sole and final say. We will not be taken out of the EU against our wishes as may turn out to be the case if we are not independent."^[111]

In advance of the Brexit referendum, the First Minister, Nicola Sturgeon, called for a double lock mechanism in the referendum legislation to require majorities in votes by all of the UK's four nations before EU exit could take place.^[112] Such a move would have reflected the commitments made by Prime Minister David Cameron in 2015 that

"Governing with respect means recognising that the different nations of our United Kingdom have their own governments, as well as the UK government."^[113]

The UK Government took forward the Brexit referendum on the basis of a manifesto commitment in the 2015 general election, with legislation voted through by the Parliament in Westminster without any double lock mechanism. In Scotland, however, only one of 59 Scottish MPs was elected on a manifesto commitment to hold a referendum, and 53 of 59 Scottish MPs voted against the legislation for the referendum itself.

In June 2016, the people of Scotland voted to remain in the European Union. 62% of voters supported remaining in the EU, with a majority for remain in every Scottish council area. On 31 January 2020 Scotland, as part of the UK, left the European Union against the wishes of the people of Scotland.

Brexit was taken forward in a way that cut across Scotland's interests at three levels, with direct effects on Scotland's democracy and Scotland's people:

• it was a rejection of the views of the Scottish Government, which set out in December 2016 a proposal for how Scotland might be protected from the worst effects of Brexit. Scotland's Place in Europe made proposals for giving effect to the result of the referendum falling short of its preference of independence in the EU.^[114]
• it was a rejection of the views of the Scottish Parliament, which consistently voted against the UK Government's proposals for EU withdrawal,^[115] including in September 2016 voting on a cross-party basis in favour of Scotland remaining in the European Single Market.^[116] The Scottish Parliament also repeatedly rejected on a cross-party basis legislation which required its consent that related to the approach to Brexit.^[117] The UK Government and Parliament passed this legislation regardless, limiting and reducing the Scottish Parliament's powers without the consent of the Scottish Parliament.^[118]
• and it was a rejection of the expressed position of the people of Scotland, who had voted to stay part of the UK on the basis of continued UK membership of the EU and who voted overwhelmingly to remain in the EU.

The practical outcomes of Westminster's decision on EU departure are that the choices of the people of Scotland are narrowed: it is harder for Scots to travel, work, trade, and provide services in EU countries and for young Scots to benefit from the Erasmus student exchange programme.

Scotland's population and labour force

Migration is critically important to Scotland's demographic, economic and social prosperity.

It is clear in the official population projections produced by National Records of Scotland and the Office of National Statistics that Scotland is facing a demographic challenge.^[119] Scotland is the only country in the UK where the population as a whole and in terms of people of working age is projected to fall over the next 25 years. The population of the UK as a whole is projected to grow by 5.8% in the years to mid-2045. Over that same period, the population of Scotland is projected to fall – by 1.8% from its peak. There are projected to be more deaths than births in Scotland each year and the number of people aged 65 and over is projected to grow by almost 30% by mid-2045.

Scotland is the only country in the UK to project population decline over the next 25 years. In particular, the 2020-based projections – which incorporate effects of the first phase of the COVID-19 pandemic – show that Scotland's population is now projected to begin to decline within the next decade. These are the first projections in many years to show Scotland's population falling in the near term (see Figures 6 and 7).

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

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

The threat of population decline to Scotland's economy, public services and fragile communities has long been a concern. It was recognised as a key issue among policymakers from the time the Scottish Parliament resumed in 1999 as was the value of inward migration to meet the challenge. In the early years of the new Scottish Parliament, the Labour and Liberal Democrat Scottish Executive of the time worked with the Labour government in Westminster to introduce a tailored route in the immigration system to help address these concerns.

The Fresh Talent: Working in Scotland initiative was a post-study work visa for international graduates of Scottish universities. It was designed to attract and retain talented young people, encouraging them to put down roots in Scotland and contribute to the society where they benefitted from our world-leading higher education. Fresh Talent ran only for a short period, for four years from 2004 – but that was because it was mainstreamed across the whole of the UK from 2008.^[120] This was an early example of policy innovation in Scotland influencing policy decisions elsewhere in the UK.

However, the subsequent government in Westminster abolished the post-study work visa in 2011 as part of its measures to limit immigration.^[121]

The need for tailored routes to address the more pronounced demographic challenge in Scotland was raised by the cross-party Smith Commission in 2014. The report of the Smith Commission recommended "introducing formal schemes to allow international higher education students graduating from Scottish further and higher education institutions to remain in Scotland and contribute to economic activity for a defined period of time".^[122]

A working group representing interests across civic society in Scotland, guided by a cross-party steering group involving every party in the Scottish Parliament, presented concrete proposals for a new scheme^[123] which were rejected by the UK Government.

A post-study work visa has now been reintroduced across the UK, after a ten-year gap, with stricter eligibility criteria than Fresh Talent.^[124] But in that time, the impact of Brexit and the ending of free movement has increased the importance of a wider and more tailored approach to support immigration to Scotland.

The UK Government's immigration system after Brexit puts in place thresholds and criteria that significant numbers of vacancies in Scotland cannot meet. Employers who previously were able to recruit EU workers under free movement are now not able to access labour supply through the immigration system. Table 1, below, produced by the Expert Advisory Group on Migration and Population in 2020, shows occupations within the Scottish labour market and the estimated proportion of roles that did not meet the thresholds and criteria in the UK immigration system. Over 90% of caring personal services, skilled agriculture, and secretarial, administration services and sales occupations did not meet the requirements in the UK immigration system. Almost 60% of associated professionals in health and social care did not meet the requirements.

Table 1: Effects of salary threshold on selected broad occupations within the Scottish labour market

Occupation: Proportion not meeting £25,600 threshold

• Sales occupations: 97.4%
• Elementary administration service occupations: 91.8%
• Skilled agricultural related trades: 91.2%
• Caring personal service occupations: 90.9%
• Secretarial related occupations: 90.7%
• Sales customer service occupations: 89.6%
• Caring, leisure and other service occupations: 88.9%
• Elementary occupations: 88.5%
• Leisure and travel related personal service occupations: 88.3%
• Customer service occupations: 77.9%
• Administrative and secretarial occupations: 71.5%
• Administrative occupations: 68.9%
• Culture, media and sports occupations: 62.4%
• Health and social care associated professionals: 59.0%

Source: Expert Advisory Group on Migration and Population^[125]

The Expert Advisory Group on Migration and Population estimated that UK Government policy proposals on immigration after leaving the EU could reduce net migration to Scotland by between 30% and 50%.^[126] Scottish Government modelling during the Brexit negotiations estimated that real GDP in Scotland will be 4.5% lower by 2040 than it would have been otherwise, as a result exclusively of the Brexit-driven reduction in migration.^{[127], [128]}

The Scottish Government has presented proposals for options to tailor the UK-wide immigration system to create new routes for Scotland, up to and including a Scottish visa to encourage people to live and work here.^[129] These moderate and considered proposals were dismissed by the UK Government^[130] despite assertions during the EU referendum campaign that "Holyrood would be strengthened if we left the EU. The Scottish Parliament would have new powers… over immigration".^[131]

Alongside migration issues, Scotland, like many other nations, is also facing a falling birth rate. Deciding to have a child is an important decision and it is a decision for that individual or couple. It is not for government to seek to dictate or influence whether an individual should have a child or how many children they should choose to have. However, there is a role for government in addressing the barriers that may prevent individuals and couples from starting a family. There are a range of factors which influence people's decision to start, or to expand, their family. However, we know that financial concerns are often key.

The Scottish Government is committed to building a family friendly nation. This will involve further action to address financial concerns, focus on the pre-birth to 3 stage – which makes a huge difference to life outcomes – and ensure the wellbeing of the family unit. Current actions to support this include: providing a box of essential items to all expectant mothers with our baby boxes; commitments to fund more early learning and childcare hours; commitments to free education for all of our children; providing support through the range of Scottish benefits; and transforming the provision of whole family support.

Employment Law, including the provision of parental leave and pay is a matter reserved to the Westminster Government, which means Scotland is currently limited to following the decisions of the UK Government in these areas.

Independence would provide the Scottish Parliament with powers to address population decline in Scotland, put in place an approach to immigration that meets Scotland's demographic, economic and social needs, and treat everyone involved in the immigration system with dignity, fairness and respect.