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Constitution, Europe, External Affairs and Culture Committee 21 November 2024

21 Nov 2024 · S6 · Constitution, Europe, External Affairs and Culture Committee

Item of business

Review of the UK-EU Trade and Co-operation Agreement

Professor Portes Watch on SPTV

Picking up the original question about the difference between the OBR assessment and mine, I note that the answer is easy—there is no difference. The OBR said that the long-run negative impact of Brexit would be 15 per cent on trade intensity and, as a consequence, about 4 per cent on GDP per capita. It sees no reason to change that long-run assessment, and neither do I. The point that I was making is that the impact on trade has been felt on trade in goods. At a macro level at least, it is hard to see that it has been felt on trade in services. The negative effects that we have seen so far in macro-level data are very much effects on trade in goods. They are not really on trade in services, despite the points that other witnesses have made, which I do not dispute, about individual impacts on particular businesses or particular small sectors. Overall, trade in services has continued to perform very well despite Brexit. As I said, the OBR’s overall assessment of the impact of Brexit on the UK economy remains the best guess that we have, uncertainties notwithstanding. There is a negative impact on trade in goods. It is a negative impact on trade and a negative impact on GDP and productivity. When you refer to Scotland’s balance of payments, which is an interesting issue, I am not entirely sure whether you are referring to Scotland’s international trade, on which we have figures, albeit that they are out of date and subject to the same issues as those that are relevant to the rest of the UK, or to Scotland’s balance of payments in the economic sense—that is to say, taking into account its imports and exports with the rest of the UK and with the rest of the world at the same time. My take on it is that, even with the best will in the world, it is unfortunately very difficult to get data on that, particularly on the latter. I think that the latest data that is available is from 2021. That was during the bounce-back from the pandemic and it is not clear that we can read anything into that in relation to long-term trends. As you will know better than I do, the value of Scotland’s exports in the short term is quite volatile as a consequence of the impact of energy prices. They went up a lot during the energy price spike and then down a lot as that receded. That is quite normal in the broad sweep of history and it is not directly attributable to Brexit. My perception is that Scotland still does relatively well compared with the rest of the UK in terms of international trade overall, but it has a significant deficit with the rest of the UK. From a macroeconomic perspective, that is an almost inevitable counterpart of the fact that, on net, from a fiscal point of view—I know that this is a hugely controversial topic in Scotland and I suspect that we do not want to get into it today—there are significant transfers from the rest of the UK to Scotland. As a macroeconomic fact, capital that flows one way must be mirrored by a trade deficit the other way. If Scotland is spending more than it is getting in tax, there will be a counterpart trade deficit to that within the UK.

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Constitution, Europe, External Affairs and Culture Committee 21 November 2024

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