Economic Implications for the United Kingdom of Scottish Independence - Economic Affairs Committee Contents


APPENDIX 5: THE SCOTTISH ECONOMY IN CONTEXT


Scotland's prosperity is very similar to the UK average. Output per head is only a whisker below the UK's as shown in the chart below.[176] Outside London and the South East, Scotland is the most prosperous part of the UK. North Sea oil and gas are excluded from the chart below—and other figures in this appendix unless otherwise stated—as ONS treat North Sea oil and gas output as arising in a separate region and there is no clear way to divide it among the regions of the UK. The impact of different allocations of North Sea oil and gas to Scotland and the rest of the UK are considered throughout this report.

FIGURE 4

Output per head* excluding North Sea oil and gas 2011 (£)

*Output per head measured by Gross Value Added (GVA) per head

Source: ONS, Regional Gross Value Added (Income Approach), 12 December 2012

Scotland has just over 8% of the UK's population and output as shown in the table below. Its average price level is also very close to the UK average as are its unemployment rate and level of average earnings. Productivity in Scotland is also closest of all the UK regions to the UK average. Professor Charlie Jeffery of Edinburgh University said: "Scotland is more or less bang on the UK average on most economic indicators."[177]

TABLE 3

Key figures on Scotland and UK economies. North Sea oil and gas excluded from output figures except for the UK marked *
Scotland UK
Population-2011 (million)[178] 5.3m (8.4% of UK) 63.2m
Output-2011 (£ billion)[179] £108bn (8.1% of UK) £1,341bn
Output per head-2011 (£)[180] £20,571£20,873
Price level index-2010[181] 99.7100
Unemployment-October to December 2012 (%)[182] 7.7%7.8%
Average weekly earnings-2012[183] £498£506
Productivity-output per hour worked index for 2011[184] 96.9100
Trade-2011 (% of output)[185] 37% (excluding trade with the rest of the UK)

105% (including trade with the rest of the UK)

67%*
Public sector spending-2011-12 (% of GDP)[186] 52%46%*

Scotland is a very open economy when trade with the rest of the UK is added to that with the rest of the world. While the trade and GDP data for Scotland should be treated with caution—the data for Scotland is "experimental" and excludes North Sea oil and gas output whereas the data for the UK includes North Sea oil and gas—the overall picture is clear. For Scotland trade with the rest of the UK is a huge part of its economy representing almost two-thirds of its total trade and worth an estimated 68% of output. But for the rest of the UK trade with Scotland is a much smaller share of its economy—around 6% of its output.[187] Trade linkages between Scotland and the rest of the UK are particularly strong in financial services. Scottish insurers sell 6% of their products there and 94% to the rest of the UK. About 16% of mortgages sold by Scottish firms are to Scottish postcodes and 84% to the rest of the UK.[188]

Public sector spending, however, is a considerably higher share of Scotland's output. Again there is a note of caution in using this data as the ratio for Scotland excludes any North Sea oil and gas output while the ratio for the UK includes North Sea oil and gas output. Public spending in Scotland is underpinned by the Barnett formula which was introduced in 1978 and allocates substantial parts of government spending between the four nations of the UK.

Manufacturing and construction make up more of Scotland's economy than the whole UK, with the reverse true for financial services, real estate and wholesale and retail trading. But the differences are relatively small as the chart below shows. North Sea oil and gas would likely make a significant contribution to an independent Scotland's economy but this is not included in the chart below. These similar economic structures and strong trade linkages lead Scotland and the rest of the UK to share similar business cycles.[189]

FIGURE 5

Key sectors in Scotland and the UK economies (% of output*)

*Output measured by Gross Value Added (GVA).

Source: ONS, Regional Gross Value Added (Income Approach), Regional GVA NUTS1, Table 1.3, 12 December 2012

Demography

Scotland has 8.4% of the UK population with 5.3 million people—the highest ever figure for Scotland.[190] In the last decade population growth has been driven by a surge in migration from overseas. But despite this surge in migration from outside the UK, the migration flows between Scotland and the rest of the UK are still bigger than between Scotland and the rest of the world. This is another sign of the close linkages between Scotland and the rest of the UK.

A slightly greater share of Scotland's population is of working age compared to the UK as a whole—67% vs 66%. But a smaller share of Scotland's population is under 15—16.1% vs 17.6%—with a slightly larger proportion over 65. The demographic challenge facing many countries of a rising number of pensioners per person of working age is projected to be worse in Scotland than the UK as a whole.[191]

Countries similar in size to Scotland

Below is a list of European countries of comparable size to Scotland. Denmark, Finland, Ireland and Sweden are in the European Union. Norway is in the European Economic Area which allows it access to the EU's single market. Switzerland is in neither body but, like Norway, has access to the EU's single market.

All of these countries are better off on a GDP per head basis than Scotland. But the figure for Scotland does not include any North Sea oil and gas which, if a large share (geographic share) was allocated to Scotland could raise GDP around 20%.[192] The table shows several European economies are of similar size and prosperity to Scotland. However, most have their own currency, a much lower debt to output ratio and higher labour taxes than Scotland. Those countries with their own currencies have been less affected or recovered more readily from the global financial crisis.

TABLE 4

Countries similar in size to Scotland
Scotland Denmark Finland Ireland Norway Sweden Switzerland
Population5.3m 5.5m5.4m 4.5m4.9m 9.4m7.8m
GDP (PPP)$181.5bn $219.3bn$196.6bn $178bn$277bn $365.9bn$361.9bn
GDP per heard (PPP) $34,754$39,545 $36,664$39,778 $56,648$39,013 $46,480
Public sector debt 82.4%
(UK figure)
55.5%57.4% 102.4%49.5% 49.1%40.2%
Tax on average worker (% of labour cost) 32.7%
(UK figure)
38.3%42% 29.3%36.8% 42.7%20.8%
CurrencySterling Danish KroneEuro EuroNorwegian Krone Swedish KronaSwiss franc

Note: GDP figures are based on Purchasing Power Parity (PPP) exchange rates to give the sum value of all goods and services produced in the country valued at prices prevailing in the United States.

Source: Except for Scotland all data taken from OECD, Country Statistical Profiles: Key Tables from OECD for the year 2010; for Scotland population is from ONS 2011 Census; 2010 GDP figure taken from The Scottish National Accounts Project and divided by the UK's PPP rate taken from OECD (2010 population used for GDP per head).


176   Output in regional accounts is measured by Gross Value Added (GVA) which is similar to Gross Domestic Product (GDP). GVA is similar to GDP except that it includes subsidies on products and excludes taxes on products. Back

177   Q 533 Back

178   ONS, 2011 Census: Population estimates for the UK, 17 December 2012 Back

179   Output measured by GVA. ONS, Regional Gross Value Added (Income Approach), 12 December 2012 Back

180   Output measured by GVA. ONS, Regional Gross Value Added (Income Approach), 12 December 2012 Back

181   ONS, UK Relative Regional Consumer Price Levels for Goods and Services for 2010, 12 July 2011 Back

182   ONS, Labour Market Statistics, 20 February 2013 Back

183   ONS, Annual Survey of Hours and Earnings, 2012 Provisional Results, 22 November 2012 Back

184   Output measure used in GVA. ONS, Labour Productivity, Q 3 2012, 3 January 2012 Back

185   Expressed as the sum of exports and imports as a percentage of GDP. Scotland data is from Scottish National Accounts Project, Scottish National Accounts Tables, Table 8, 2012 Q2; UK data is from ONS, Quarterly Accounts, C1, Q3 2012 Back

186   Scottish Government, Government Expenditure & Revenue Scotland 2011-12, Box 2.3, March 2013 Back

187   Figures calculated from The Scottish National Accounts Project, Scottish National Accounts Tables, Table 8, 2012 Q2; UK data taken from ONS, Quarterly National Accounts, Q 3 2012, Table C1, 21 December 2012 Back

188   Q 515 Back

189   For an assessment of the similarity of business cycles see National Institute Economic Review, January 2012, Scotland's Currency and Fiscal Choices by Angus Armstrong.  Back

190   The Scottish Government, Fiscal Commission Working Group, First Report-Macroeconomic Framework, page 53, February 2013  Back

191   Q 503 Danny Alexander MP Back

192   Government Expenditure and Revenue Scotland estimates, Box 2.2 page 20. Back


 
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