LSE STUDENT’S REPORT CLAIMS SCOTLAND POORER IF INDEPENDENT – BUT DELIBERATELY IGNORES BENEFITS FROM HIGHER INVESTMENT AND TRADE WITH REST OF WORLD
“Disunited Kingdom? Brexit, Trade and Scottish Independence” is a paper published by the Centre for Economic Performance (a part of the London School of Economics) in February 2021. The report is short – a mere 23 pages including references. In fact, LSE press releases refers to it as a “briefing” note rather than a proper academic study.
The paper argues that Scottish independence would inevitably lead to higher trade costs – meaning more expensive imports due to tariffs and paperwork. These are estimated at between 15 and 30 per cent. Note: this suggests a large degree of uncertainty in the researchers’ calculations, a point conveniently ignored in the Unionist media.
The report also claims that a combination of Brexit and Scottish independence will reduce Scotland’s income per capita, meaning a loss of £2,000 to £2,800 “per person”.
WHO WROTE THE REPORT?
The authors are listed as two PhD students (according to their LSE bios), Hanwei Huang and Patrick Schneider, together with Thomas Sampson, an LSE associate professor. Sampson is Huang’s thesis supervisor.
Also, in the small print at the end of the paper, the authors thank a certain Jim Gallagher for “useful discussions about the Scottish economy and Scottish data”. Gallagher was the main economic advisor to the Better Together Campaign in 2014 and is a noted opponent of independence.
WHY IS THE LSE PUBLISHING THIS REPORT?
Universities need to raise donations to survive. To do so they often publish controversial studies that deliberately provoke media attention. This appears to be one such occasion.
CAN WE TRUST THE LSE?
The LSE has a history of accepting political bribes. In 2011, the then head of the LSE Howard Davies was forced to resign after it was exposed he had been involved with fostering financial links between the university and the odious Gaddafi regime in Libya. This included taking a £1.5m donation from Gaddafi’s sone Saif. Note: Saif was awarded a PhD from the LSE. There have been persistent accusations that Saif plagiarised his thesis and that he was given special help by LSE staff. In 2015, Howard Davies was appointed the chair of RBS Group. Since then he has masterminded the transfer of RBS control to London and changed the name of the group to Nat West.
WHAT IS THE CENTRE FOR ECONOMIC PERFORMANCE?
The Centre for Economic Performance (CEP) is a pro-market, neoliberal research body funded by a mixture of government and private grants. In other words, it sells its services.
CEP’s work is overseen by a Policy Committee headed by Sir Nicholas Macpherson, former boss of the UK Treasury during the 2014 independence referendum. Infamously, Macpherson declared that normal rules of civil service neutrality did not apply during the referendum as the SNP was seeking “to destroy the fabric of the state”. He used the Treasury to produce a stream of “official” reports attacking the case for independence and publicly urged both the Conservative government and the Labour opposition to block an indy Scotland keeping the pound sterling.
The Centre for Economic Performance was also active during the 2014 referendum producing a stream of reports seeking to undermine the case for independence. For instance, the then director of the Centre, Professor John Van Reenen, published a paper (still available on the LSE website) claiming that “the rise of nationalism in Scotland… is a scourge”. He went on: “the Scottish people will be poorer as divorcees… there will be financial instability… a long struggle to re-enter the EU… Scotland risks becoming like the depressed ‘Spain without the sunshine’.
- It attempts to forecast Scottish trade over a generation. Even in “normal” circumstances, no economic forecast is credible or valid over that length of time into the future – say 15-30 years. But in a period when the pandemic has wrecked the global economy, no reputable major forecasting agency believes normal service will be resumed till at least the end of this decade.
The authors admit they have ignored many important factors in order to manufacture their conclusions: “we restrict our analysis to trade effects and do not consider other potentially important economic effects of Scottish independence, such as changes in investment flows into and out of Scotland, whether Scotland continues to use sterling as its currency and the fiscal implications of independence”. In other words, the researchers ignore any tax changes designed to boost exports or any investment in new export industries after independence. This is to bias calculations to reach a predetermined outcome. Note: under the Union, Scottish economic growth is roughly half that of comparable small economies in Europe. One cardinal argument for independence is to secure the economic levers to raise growth.
The basic assumption of the paper is that introducing a political border between Scotland and England will automatically create long-term diversions in each country’s trade regulations and tariffs. This would necessarily raise costs in Scotland. However, the Conservative government has spent the five years since the Brexit vote trumpeting that it wants free trade with everyone. So why does the LSE paper assume that only Scotland will be exempt from such a free trade deal – especially, as the paper keeps repeating, England provides 67 per cent of Scottish imports?
The paper makes the unwarranted assumption that trade costs are still incurred if Scotland rejoins the EU and will actually be worse. The authors say that lowering trade barriers with the EU would be offset by new costs from putting the EU’s external border between Scotland and England. That is a possibility though the author’s belief that increased Scot-EU trade would not offset these costs is weak. However, the paper deliberately ignores other possibilities. Why, for instance, would an independent Scotland inside the EU not have the same, free trade arrangements with England as Northern Ireland shares as a result of the Brexit agreement? Or why could Scotland not be outside the EU but inside the Single Market, yet enjoy independent (and free) trade relations with the rest of the world, like Norway? Failing to examine all the trade options suggests the Centre’s researchers had a conclusion in mind before they started.
The paper claims that the combination of Brexit and independence will reduce Scotland’s income per capita, meaning a loss of £2,000 to £2,800 “per person”. This is very misleading. What is being discussed here is different rates of increase in income, not physical declines. The paper claims that an independent Scotland will grow less quickly over a generation than if it stays in the UK. In other words, indy Scotland would get richer but not as fast as if it stayed inside the UK. The £2,800 refers to that difference, not to an actual fall in income which is how the Unionists have spun it. Also, the figures quoted do not accrue to individuals but refer to national GDP expressed per capita. As it is, real incomes of ordinary folk in Scotland and the UK have been largely static for two decades. The fruits of economic growth go to the rich in London – another reason why we need economic independence.
HOW TO ANSWER ON THE DOORSTEP
This report by two London-based PhD students uses wonky methodology and claims to forecast 30 years in the future. Independence is the only way for Scotland to control its own economic destiny.
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