Sturgeon’s answer to Hard Brexit? Wreck the Scottish economy

All hail Nicola Sturgeon, the new leader of the movement to block a so-called “hard Brexit”. The SNP leader has realised, astutely, that with the Labour party in a state of collapse in both Scotland and England there is a gap for someone (let’s call her Nicola) to lead the fight against the Tories on the EU.

In Sturgeon’s speech to SNP conference today she promised to “work with others across the political divide to try to save the UK as a whole from the fate of a hard Brexit”.

“We will propose new powers to help keep Scotland in the single market even if the UK leaves,” she told the adoring SNP throng in Glasgow. “But if the Tory government rejects these efforts, if it insists on taking Scotland down a path that hurts our economy, costs jobs, lowers our living standards and damages our reputation as an open, welcoming, diverse country, then be in no doubt Scotland must have the ability to choose a better future.”

What topsy turvy times we live in. The birth of what became the single market is effectively thirty years old and was a Thatcherite project with  fascinating origins. When it was being created I doubt the then young left-winger Nicola Sturgeon – or another defender of the single market today, Ed Miliband, for that matter – thought that the single market was desirable or the apotheosis of European civilisation, as it is now presented by adherents. Ironically, it is now hardline Brexity Thatcherites who are most dismissive of their heroine’s creation. The truth lies somewhere in the middle.

It was to a large extent the creation of Arthur (Frank) Cockfield, an official, lawyer and businessman who was Thatcher’s Trade Secretary until 1983. He became Chancellor of the Duchy of Lancaster and then left the cabinet in 1984, sent to Brussels by the Prime Minister to be Commissioner (for the internal market) on the basis that she thought the European Commission needed a kick up the backside. Reporting to Jacques Delors, Cockfield produced an enormous list of obstacles to trade across borders within the EEC. The resulting proposals led to the Single European Act (1986), which was approved of by Thatcher because she sought to liberalise European trade. It led to the creation of the single market in 1992.

Between 1984 and 1988 Cockfield and Thatcher became estranged. Cockfield the kicker of backsides had gone native in Brussels, she concluded, and he was not appointed to serve a second term. Leon Brittan got the gig instead. Thatcher had begun to work out – too late – that the internal or single market project was merely cover for the integrationist ambitions of Delors and others in areas well beyond trade.

Anyway, post-EU referendum in Britain now the single market is it apparently. Its name and the “four freedoms” of the EU are invoked by campaigners against hard Brexit as the ultimate expression of the EU’s supposed achievements, even though the single market has never been completed and in many areas of commerce it is simply irrelevant in practical terms. As Ambrose Evans-Pritchard puts it in the Telegraph today:

“Mr Hollande and German Chancellor Angela Merkel invariably fall back on the four freedoms -movement, goods, services, and capital -enshrined in EU treaty law, as if they were sacrosanct. These freedoms are nothing but pious shibboleths. They often do not exist, and where they do exist they are routinely honoured in the breach. Services make up 70pc of the EU economy yet account for just 22pc of internal EU trade. All attempts to open services up to cross-border commerce have been defeated, to the detriment of Britain.”

Sturgeon is staking all on staying in the single market, which is what she means by avoiding hard Brexit. If not, she will hold another referendum on Scottish independence. This is cheered by Scottish Nationalists, for obvious reasons, but I wonder if they have considered where it leads in a referendum campaign.

It may well be true that a softish Brexit for the whole of the UK is preferable, if it is available, of course. Or an interim arrangement that mutually suits the EU (with its financial system and giant debt machine resting on the capabilities of the City) and Britain (which wants the best possible access to EU markets.)

But once the applause has died down on both sides of the border for Sturgeon’s latest speech, it should be apparent that her position makes no logical sense from an economic point of view. That may not matter if Scotland’s voters decide that the following are irrelevant: namely, a huge deficit, an oil slump, currency confusion and having to find contributions for the EU when it gets in.

But Scottish independence as a response to a potential hard Brexit is completely bonkers for a simple reason. Scotland exports far more to the rest of the UK, and primarily England, than it does to the EU. The Scottish government’s own statistics (published early this year) suggest that in 2014, Scotland exported £11.6bn worth of goods and services to the EU, £15.2bn to the rest of the world, and £48.5bn to the rest of the UK. That means 64% of Scotland’s £76bn total exports go to the rest of the UK. Sturgeon and the SNP propose a referendum on separating from Scotland’s largest market. That is England, by far the largest part of a terrific single market called, er, the UK.

Here the currency matters again, a lot. The SNP’s John Swinney had a go this week at reviving Alex Salmond’s hilarious “keep the pound” policy from the independence referendum. That was a disgraced policy that cost the SNP dear in the referendum. As became clear then, there is no possibility of a banking union with England after a vote for independence, and in the EU referendum the English electorate has, to put it mildly, demonstrated that it is not wildly keen on pooling sovereignty right now. Scotland could “use the pound” but without crucial central bank back-up. It is unlikely the EU would like a member (Scotland) using the currency of a non-member (the rest of the UK) either.

What about the euro? If Scotland was not asked by Brussels to join the queue to join the euro then it seems most likely and logical that what follows is the establishment of a new Scottish currency and central bank in Edinburgh. That leads to an independent Scotland having a different currency – with currency fluctuations and increased transaction costs – from that used by its largest export market. That market is England.

Again, I stress, Scottish voters may conclude after hearing this in a referendum campaign that independence is worth the additional and epic disruption. But for Sturgeon to present herself as the defender of trade, jobs, living standards and Scottishness while proposing such a reckless course for the country is a bit rich.

Brexit will not be easy. But for Scotland, the even harder exit would come with the SNP’s policy of separation from its largest market. That is England.