Scotland's place in Europe: assessment of UK Government's proposed future relationship with the EU

Summary Assessment Of The UK Government’s Deal

Damage of Uncertainty

• Whilst we have yet to leave the EU, the depreciation of Sterling and increase in inflation triggered by the referendum result is already having a negative impact on the economy. Analysis suggests household finances are being impacted to the tune of £600 a year^[1]. The continued uncertainty generated by the UK Government’s approach is depressing investment now, and puts future investment at risk.
• There is no certainty in the Prime Minister’s deal on the future trading arrangements, neither for goods nor for services; there is no certainty as to the future mobility arrangements; there is no clarity on the precise justice and law enforcement tools and measures we will continue to benefit from; and there is no guarantee of continued participation in the broad range of EU programmes and funds which support our universities, communities, NGOs and businesses.

Economic impact of the trade proposals

• The definition of the future relationship remains vague, however given the exclusion of Single Market and Customs Union membership it can only amount to a Free Trade Agreement (FTA). This will introduce trade frictions and non-tariff barriers which would inhibit Scottish companies’ ability to trade with their EU counterparts and is likely to see business investment, productivity, earnings and employment all reduced, compared to staying in the EU.
• By 2030, our previous modelling indicates that, under an FTA, GDP would be around £9 billion lower than if we stayed in the EU, that is equivalent to £1,600 per person in Scotland than if we remained in the EU.
• New research by the National Institute for Economic and Social Research finds that a Canada-style Free Trade Agreement with the EU costs £1,100 a year per person by about 2030.
• Services account for around three quarters of Scotland’s economic output. No free trade agreement in the world provides anything close to the degree of freedom of movement of services as exists within the European Single Market, and is set to intensify.
• Under the deal, border checks and controls will depend on the extent of the UK’s alignment with EU customs and regulatory regimes. However, the declaration contains no commitment to a common rule book on regulation. Therefore, even if a zero tariff agreement were reached, that does not mean ‘frictionless’ trade at the border, which the last two years of negotiation has made clear there is no means of achieving with current UK government red lines. This is crucial for Scotland’s time sensitive food and drink exports, many of which attract a premium for their freshness.
• The Scottish Government has not had any role in negotiations on fisheries, despite the vast majority of the UK fisheries and aquaculture sector being Scottish and, unlike the rest of the UK, Scotland being a net exporter of seafood.
• In this package, the UK has begun the process of reneging on its promises to the fishing industry by accepting both a link between access to UK waters and access to EU markets. It also commits to a separate Fisheries Agreement as part of the economic partnership which could result in either the UK conceding guaranteed access for EU vessels to UK waters, or accepting tariffs and customs barriers on trade in fish, seafood and farmed salmon with the EU. This threatens to leave two key Scottish interests to be traded off against each other.

Impact on labour market and demography

• The political declaration confirms the UK Government’s intention to end free movement of people between the UK and the EU
• Inward migration has made an overwhelmingly positive contribution to Scotland’s economy and society, but this deal does not take account of Scotland’s distinct needs on migration.
• In a scenario of 50% less EU migration, the working age population would decline by almost 1% rather than the current projection of growing by 1.1% and the proportion of children would decline by 4.3%.
• There are particular concerns in the Health and Social Care sector where the impact of the UK Government’s rhetoric on ending freedom of movement has already had a negative impact.
• Figures, published in November 2018 by the Nursing and Midwifery Council, show that the dramatic decline seen in the number of applicants from the EEA for UK registration in the year after the EU referendum (an 87% year on year drop) has not stopped.

Broad and deep cooperation with the EU

• A gap will likely emerge in relation to security, justice and law enforcement cooperation as a result of UK Government red lines, not least on European Court of Justice jurisdiction, putting at risk Scotland’s direct links to EU partners in Europol and Eurojust as well as access to tools such as the European Arrest Warrant.
• The outline political declaration provides limited comfort that the opportunities and benefits of continued full participation in competitive EU funding programmes, like Horizon 2020, will be maintained as part of the future relationship.

Constitutional Implications

• There are profound implications for the constitutional arrangements of the UK and the devolution settlements.
• The UK Government has already taken the unprecedented action of imposing legislation, in the face of overwhelming rejection by the Scottish Parliament, enabling it to constrain devolved powers.
• The draft Withdrawal Agreement ignores the views of the people of Scotland, as expressed in the EU referendum, by rejecting any possibility of a closer and different relationship for Scotland with the EU, while seeking – rightly and properly – such a relationship for Northern Ireland.