Brexit bad for productivity

Leaving EU ‘would harm Scotland’s competitiveness’

Brian AshcroftA British exit from the European Union would harm Scotland’s competitiveness with the rest of Europe, according to a leading economist.

Brian Ashcroft (pictured), Emeritus Professor of Economics at the University of Strathclyde, said a so-called Brexit might have a damage effect on Scotland’s already weak productivity.

His comments followed publication of the latest report on the economy from the university’s Fraser of Allander Institute which forecasts a slowing of growth in Scotland.

Prof Ashcroft offered a warning to Scottish voters of the implications for the economy of voting to withdraw from Europe.

“The Institute’s analysis of the implications of Brexit for the Scottish economy leads to the conclusion that it is difficult to imagine that it would help improve Scotland’s competitive position with respect to our trade with the EU,” he said.

“In recent years, the decline in electronics production and the erosion of Scotland’s manufacturing base has meant that Scotland has struggled to maintain its penetration of EU markets even on the favourable trading terms obtained through membership.

“It is difficult to see how any post Brexit trading relationship with the EU would be better than current arrangements.

“So, not only would actual and potential Scottish exporters have to overcome their weaker competitive position due to lower labour and total factor productivity they would face the additional hurdle of less favourable trading arrangements.

“Moreover, Brexit might worsen Scottish productivity growth particularly via the negative effects on trade, inward investment and financial integration.

Scottish voters in the referendum on June 23 should not lightly dismiss this warning about the consequences of Brexit for productivity growth in view of the already weak performance of Scottish productivity.”

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Derek Hammersley, chairman of the European Movement in Scotland, last night responded to Prof Ashcroft’s analysis. He said: “With more than 40 per cent of our international exports destined for the European Union, and over 330,000 Scottish jobs dependent on these exports, we too share the concerns of the Fraser of Allander Institute.

“The EU single market of over 500 million people has brought considerable benefits to the Scottish economy, providing freedom of movement of goods, capital, services and people across the continent.

“The additional hurdle of less favourable trading arrangements through Brexit, as well as potentially worsening Scottish productivity growth particularly via the negative effects on trade, inward investment and financial integration, should be something Scottish voters are aware of.”

On the general economic outlook, Prof Ashcroft said: “With growth slowing further across the UK and even more so in Scotland, now is not the time for the Chancellor to adopt more austerity measures which will slow growth further and only worsen the flow of tax revenues to the Exchequer.”

The Institute’s forecasts for GDP growth are 1.9% in 2016, and 2.2% in 2017.  The downward adjustment to the 2016 and 2017 projections reflects the evidence of slowing income growth, both home and abroad, a weakening of previously strong domestic investment growth, and an extension of the expected period in which a low price of oil is likely to be sustained.

Paul BrewerPaul Brewer (right), government and public sector partner, PwC in Scotland, which sponsors the quarterly economic commentary, said: “The Scottish economy faces a number of domestic and external challenges. Global markets remain difficult territory for Scottish exporters while domestic consumption in being fuelled by worrying levels of household debt.

“Nonetheless, projected growth is relatively close to overall UK forecasts and remains ahead of other UK regions, with Scottish exporters supported by US demand and a modest upswing in EU markets.

“The potential for the forthcoming Budget to exert further fiscal tightening, oil price uncertainty and the uncertainty surrounding the potential outcome of the EU referendum together create a difficult environment for business and investor confidence.

“With the effects of the lower for longer oil price backdrop now rippling through other sectors, another smart strategy the Chancellor could employ to sustain the flow of oil investments in this mature North Sea basin and protect long-term total tax revenues would be to reduce the tax rates on oil companies.

“Cutting the headline rate, currently ranging from 50% to 67.5%, and the infrastructure tax burden for example could provide a much needed cushion – and, crucially, provide a stimulus for investment and its tax paying employees.”

He added: “Despite those headline concerns, the report projects continued modest growth in output and employment and a steady decline in unemployment.

“And we’re continuing to see the economic fruits of the Scottish Government’s strong focus on major infrastructure projects and construction output figures continuing to outperform the UK trend.

“But lead times are long and generating a sustainable pipeline of new projects over the next few years will be vital if we are to maintain this momentum.”

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