SCOTLAND's economy lost out on around £18 billion because of a “decade of lost growth” in the UK which has added to the impact of the cost-of-living crisis, a new report has claimed.
The latest analysis, from independence project The Bottom Line, says the price that Scotland is “paying for dependence on the UK economy” has increased since the severe global economic crisis of 2007-8.
It argues the financial shock of more than a decade ago was not only greater in the UK, but that the UK also took longer to recover.
If the UK had matched the growth rates of other large advanced economies between 2007 and 2019 – such as Australia, Canada, France, Germany, Italy, Japan, and the United States – the UK economy would have been 4.4% larger.
The contrast was even greater when compared with small advanced economies (SAEs), including Austria, Denmark, Finland, Ireland, Israel, New Zealand, Norway, Singapore and Switzerland, the analysis said.
If the UK had kept pace with these countries, it would have been 7.7% larger.
The Bottom Line initiative involves David Simpson, founding director of the Fraser of Allander Institute at Strathclyde University, Graeme Blackett, who was economic adviser to the SNP Growth Commission, and former SNP MP and Treasury spokesperson Roger Mullin.
It was recently launched with the aim of adding to the debate around the economics of an independent Scotland.
The group’s latest report said: “Translating the UK underperformance to the Scottish economy, matching the 2007 to 2019 growth performance of the SAEs, would have added an additional £13 billion to the Scottish economy.
“In 2019 Scottish GDP (excluding North Sea oil and gas) would have been £181 billion instead of £168 billion.”
It added: “This also matters for public services. Given that taxes raised in Scotland in 2019-20 were equivalent to 38.7% of GDP, the additional GDP would also have generated additional taxes, an additional £5 billion, increasing the tax revenues from £65 billion to £70 billion.
“This is very significant in the context of Scotland’s reported current budget deficit of £11.9 billion in that year, demonstrating that the way to improve Scotland’s public finances is to boost economic growth, as the other SAEs have done.”
While large economies initially outperformed small economies following the financial crash, the report says between 2014 and 2019 it was smaller countries who were ahead.
But in the same period, it notes that the UK – which was focused on Brexit and austerity – performed poorly when compared to other small countries.
While between 1980 and 2007 the UK economy grew at an average rate of 2.4% per annum in “real-terms GDP per capita changes”, the financial crisis and slow recovery meant this feel to just 0.4% per annum between 2017 and 2019.
The analysis says this also helps to explain why the current cost of living increases are having such a significant impact.
“People would have been in a much better position to deal with such increases had there not been more than a decade of lost growth,” it said.
“The implications of the UK’s comparatively weak recovery from the financial crisis can be quantified in terms of what it means in GDP per capita in cash terms and what the gap that has opened up means for lost tax revenues that would have been available to invest in public services.”
