Brexit: Why Scotland is Unlikely to Rejoin the EU

The following is a guest blog from UK-based Neil McIntosh, Globalocity‘s recent podcast guest.  You can listen to our Brexit-related podcast with Neil here. 

It’s no secret that Scotland never wanted Brexit; they voted strongly in favor of remaining in the EU (62% remain vs. 28% leave). Whilst 85% of Scots voted in the Scottish Independence referendum only 67% voted in the EU referendum; the second lowest regional participation in the vote…..mmmm pause for reflection.

Despite this, I think it’s unlikely Scotland will declare independence from the U.K. and try to join the EU on its own. Why not? Well here are a few contextual points for consideration:

• Had Scotland been successful on independence in 2014, they would be in better shape as oil prices were higher. However, now that oil prices are at rock bottom and oil demand globally has shrunk (in fact there is an oil glut), Scotland’s declining revenues from oil are causing a growing budgetary shortfall.
• Instead of reducing spending to match this decline in revenue, Scotland’s First Minister Nicola Sturgeon has committed the country to huge increases in public spending, and as a result, Scotland is developing a ratio of public sector debt to GDP that eclipses Greece.
• Scotland would struggle to sustain itself following independence; the UK spends more money in Scotland than it does in the rest of the country. Public Spending in Scotland is some $800 to $1500 per person higher than in England. Some of this is due to a lower population density, but some is also due to more generous healthcare and social benefits available only in Scotland. Without U.K. support this would be unsustainable.
• An independent Scotland would face an immediate debt repayment of £23bn to the UK Treasury, equivalent to more than a third of its entire spending. This would weigh down their economy significantly.
• Scotland has no significant industry to speak of that could sustain its people or its economy. True, it has Agriculture, Fisheries, Manufacturing, Oil, Brewing, Textiles and the remnants of a once-mighty shipbuilding industry, but much of this is owned by foreign multi-nationals who may react negatively to yet another Independence Vote. 27% of GDP comes from Industry and 72% from Services Sector.
• The oil industry for example has contracted substantially as prices and demand have dropped resulting in production closures, job losses and asset sales. Many Chinese companies now own Scottish North Sea Oil assets. To further illustrate the Oil Industry decline the UK and Scotland face huge costs associated with decommissioning assets rather than exploiting them.
• The Scottish Fisheries Industry has been severely and adversely affected by EU membership as national fishing rights were sacrificed for EU membership and EU member exploitation.
• Scotland has become home to call centres for banks and financial services, as well as distribution centers for high street and online superstores like Amazon. However, these are mostly low paying jobs that contribute little in income tax revenues and will in time be automated or replaced by technology.
• Meanwhile, Scottish unemployment has been rising steadily.
• Should Scotland force another independence vote and win this time, they may be at the back of the queue to join the EU. Scotland has never been a direct EU member previously, so their application to join the EU would be as a new member.
• They could try to get some preferential consideration to join, but that would need all 27 EU member states to agree. Spain is expected to strongly oppose this, as it is desperately trying to stop Catalonia region from declaring independence.
• This of course presupposes that the EU expands any further; It has been reported that all new applications are currently on hold pending the outcome from Brexit, the situation with Turkey and the outcome of Presidential elections in France and Germany. So Scottish membership of the EU is far from certain.

So could there be another bid for Scottish Independence? Of course, and after Brexit and The Donald, anything is certainly possible.

As for Scotland’s automatic EU membership there are more fundamental issues to address. Scotland would most likely be a “net fiscal beneficiary” in terms of EU membership whereas the U.K. was a “net fiscal contributor”. With the loss of U.K. membership contributions the EU may be at a tipping point in terms of new members; especially if they are not net fiscal contributors.

Finally as Scotland seeks independence from the U.K. this could trigger a long overdue re-assessment or removal of the Barnett formula*, the mechanism by which the U.K. fiscally supports Scotland. The loss of this plus an allocation of the U.K. debt burden could render Scotland unable to meet EU fiscal qualification rules for membership.

Personally I want to retain the United Kingdom with Scotland in it and be outside the EU. As someone with substantial Scottish blood and heritage I voted for “leave” in full knowledge that it could result in Scotland breaking away. I hope calm and clear heads are assessing the situation. I personally don’t believe this will happen.

But stranger things have happened this year…….

* The Barnett formula is a mechanism used by the U.K. Treasury to automatically adjust the amounts of public expenditure allocated to Northern Ireland, Scotland and Wales.