Brexit and the Sectors of the Scottish Economy : A Report for GMB Scotland

Black, James and Roy, Graeme (2017) Brexit and the Sectors of the Scottish Economy : A Report for GMB Scotland. University of Strathclyde, Glasgow.

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Brexit has the potential to have a major impact on the future structure of both the Scottish and UK economies. Most independent analysis has concluded that Brexit will weaken the UK’s (and Scotland’s) growth prospects in the long-run. But the implications could look quite different for particular sectors and companies and much will depend upon how policymakers respond. In 2015, Scotland exported £12.3 billion of goods and services to the EU – equivalent to over 40 per cent of Scottish international exports – more than exports to North America, Asia, South America and the Middle East combined. But the data shows that many other parts of the UK appear relatively more open to EU trade. Six of Scotland’s top 10 destinations for exports are in the EU. A further two – Norway and Switzerland – are part of trade arrangements with the EU which may need to be negotiated post-Brexit. There are around 1,000 enterprises in Scotland where the parent company is from another EU country and they employ around 130,000 people. At the same time, there were around 180,000 EU nationals living in Scotland in 2015 – indeed it is estimated that half of the net increase in the Scottish population between 2000 and 2015 has come from people born in EU countries. Goods make up the bulk of Scottish trade with the EU. In 2015, just over 60 per cent of Scottish trade with the EU was from manufacturing. The most significant sectors are those associated with refined petroleum and chemicals activities, and food and drink (of which whisky and linked products like are key). It is possible to look at the jobs supported by the demand currently generated from exports to various markets. This includes not just the direct employment, but the onward spill-overs into the supply chain and onward consumer spending. It is estimated that around 134,000 jobs are currently supported by export demand from the EU, and slightly under 196,000 from the rest of the world. It is estimated that over 560,000 jobs in Scotland are supported by demand from the rest of the UK. In other words, nearly 6 per cent of total employment in Scotland (excluding public sector administration and defence) was supported by demand currently driven by exports to the EU. Of the 134,000 jobs estimated to be supported by demand from the EU, around 55,000 were in manufacturing and 73,000 in services. The higher number in services reflects the impact of spill-over effects from trade into the wider Scottish economy. In manufacturing, this includes around 13,000 job in food and drink, and 11,000 jobs in metal work and machinery. In services, nearly 30,000 jobs in finance and business services are estimated to be currently supported either directly or via wider spill-over impacts by demand from the EU. The equivalent figure for distribution, hotels and catering is 22,000. Just over 27 per cent of jobs in the refined petroleum, chemical and pharmaceutical sector in Scotland are estimated to be supported by demand generated directly from EU exports. For food and drink, the equivalent figure is 12 per cent, whilst for computing and electrical products it is 21 per cent. In terms of the relative importance of sectors, there are some important differences between Scotland and the rest of the UK. For example, the drinks sector is Scotland’s second most important sector in terms of goods trade to the EU, but it ranks nineteenth for the UK as a whole. Similarly, fish exports are third for Scotland but do not even feature in the top twenty for the UK. At the same time, top sectors for the UK – like transport manufacturing – do not feature in Scotland’s top of goods exports. Ultimately, the full impact on Scottish industries and individual companies will depend upon a number of factors – not just exposure to EU markets – but also the type of tariff and non-tariff barriers that may exist post-Brexit. The importance of EU migrants as a source of skilled labour may also be significant for some individual firms and sectors. Of course, much will depend upon the future policy responses of government and the opportunities to export to new markets.